Mandanas v.

Ochoa

G.R. Nos. 199802, 208488 July 3, 2018

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.

RULING:

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.