Mandanas v. Ochoa (G.R. Nos.

199802, 208488)

July 3, 2018

Hermilando Mandanas, et al., petitioners

Executive Secretary Paquito Ochoa, et al., respondents

FACTS:

The fiscal autonomy guaranteed to local governments under Section 6, Article X of the 1987
Constitution means the power to create their own sources of revenue in addition to their
equitable share in the "national taxes" released by the National Government, as well as the power
to allocate their resources in accordance with their own priorities.

Pursuant to this Constitutional dictum, Congress enacted Republic Act No. 7160, otherwise
known as the Local Government Code (LGC). Sec. 284 of the LGC provides that LGUs shall
have an allotment equivalent to 40% of the the national internal revenue taxes.

The share of the LGUs, known as the Internal Revenue Allotment (IRA), has been regularly
released to the LGUs. According to the implementing rules and regulations of the LGC, the IRA
is determined on the basis of the actual collections of the National Internal Revenue Taxes
(NIRTs) as certified by the Bureau of Internal Revenue (BIR).

Two petitions were filed to challenge the base figure for the computation of the IRA.

In G.R. No. 199802, Cong. Hermilando Mandanas, et al., alleged that the NIRTs certified by the
BIR excluded the NIRTs collected by the Bureau of Customs, specifically excise taxes, value
added taxes (VATs), and documentary stamp taxes (DSTs). Such exclusion resulted in LGUs
being deprived of ₱60,750,000,000.00 for FY 2012. Further, the petitioners argued that since this
mistake in computation was happening since 1992, then the National Government has effectively
deprived LGUs of ₱438,103,906,675.73 in their IRA.

Meanwhile, in G.R. No. 208488, Cong. Enrique Garcia, Jr. sought the issuance of the writ of
mandamus to compel respondents to compute the just share of the LGUs on the basis of all
national taxes. He argued that the insertion by Congress of the words "internal revenue" in the
phrase "national taxes" found in Section 284 of the LGC caused the diminution of the base for
determining the just share of the LGUs, and should be declared unconstitutional.

ISSUE:

Whether or not Section 284 of the LGC is unconstitutional for being repugnant to Section 6,
Article X of the 1987 Constitution. -- YES.

HELD:
Section 6 of the Constitution mentions "national taxes" as the source of the just share of the
LGUs while Section 284 of the LGC ordains that the share of the LGUs be taken from "national
internal revenue taxes" instead. Congress thereby infringed the constitutional provision.

Although the power of Congress to make laws is plenary in nature, congressional lawmaking
remains subject to the limitations stated in the 1987 Constitution.

The phrase "national internal revenue taxes" in Section 284 is undoubtedly more restrictive than
the term "national taxes" written in Section 6 of the Constitution. As such, Congress has actually
departed from the letter of the 1987 Constitution stating that national taxes should be the base
from which the just share of the LGU comes. Such departure is impermissible. Verba legis non
est recedendum (from the words of a statute there should be no departure).

Equally impermissible is that Congress has also thereby curtailed the guarantee of fiscal
autonomy in favor of the LGUs under the 1987 Constitution.

What the phrase "national internal revenue taxes" as used in Section 284 of the LGC included are
all the taxes enumerated in Section 21 of the National Internal Revenue Code (NIRC), as
amended by R.A. No. 8424, namely: income tax, estate and donor's taxes, VAT, other percentage
taxes, excise taxes, documentary stamp taxes, and such other taxes as may be imposed and
collected by the BIR.

In view of the foregoing enumeration of what are the national internal revenue taxes, Section 284
of the LGC has effectively deprived the LGUs from deriving their just share from other national
taxes, like the customs duties.

Moving forward, the BIR and the BOC are directed certify all national tax collections. This
ruling, also known as the "Mandanas Ruling," is to be applied prospectively.