Revenue Power

LGUs are authorized to create their own sources of revenues and levy taxes, fees and charges
that will accrue exclusively for their use and disposition and are retained by them, entitled to a
just share in national taxes. These shall be automatically released to them and without need for
a legislation authorizing the same or for further action, and to have a just and equitable share in
the proceeds from the use or utilization and development or exploitation of the national wealth
and resources within their respective territorial boundaries including the sharing of such
proceeds with the inhabitants therein by way of direct benefits.

In relation to Revenue Powers, Local Government Units were given Fiscal autonomy under the
1987 constitution and were given the power to get local sources of Funds. The two powers were
explicated below;

Local And Other Sources of Revenues

Chapter X, Section 5, 1987 Constitution:

“Each local government unit shall have the power to create its own sources of revenues and to
levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall
accrue exclusively to the local governments.”

Chapter X, Section 6, 1987 Constitution:

“Local government units shall have a just share, as determined by law, in the national taxes
which shall be automatically released to them.”

Chapter X, Section 7, 1987 Constitution:

“Local governments shall be entitled to an equitable share in the proceeds of the utilization and
development of the national wealth within their respective areas, in the manner provided by law,
including sharing the same with the inhabitants by way of direct benefits.”

1. LGUs have constitutional and statutory sources of funds.

1.1 Under the 1987 Constitution, the sources of funds of local governments are their share in
national taxes, equitable share in the proceeds of the utilization and development of national
wealth, local taxes, fees and charges, and other sources of revenues (Sections 5, 6 and 7,
Article X, 1987 Constitution).

1.2 Under the 1991 LGUs raise funds from loans (Sections 300 and 301, 1991 LGC), donations
and grants (Section 23, 1991 LGC), float bonds (Section 299, 1991 LGC), exercise of
proprietary functions (Section 22[d]. 1991 LGC), and credit-financing schemes such as Build-
Operate-Transfer schemes (R.A. No. 7718 amending R.A. No. 6957).

B. Fiscal Autonomy

1. Local autonomy includes both administrative and fiscal autonomy (Province of Batangas vs.
Romulo, G.R. No. 152774, May 27, 2004; Pimentel vs. Aguirre, G.R. No. 132988, July 19,
2000).

1.1 LGUs enjoy fiscal autonomy. The constitutional basis of fiscal autonomy is Section 5, Article
X of the 1987 Constitution (Pimentel vs. Aguirre, G.R. No. 132988, July 19, 2000).

1.2 Fiscal autonomy means that LGUs have the: (1) 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 (2) power to allocate their resources in accordance with their own
priorities. (3) It extends to the preparation of their budgets, and local officials in turn-have to
work within the constraints thereof (Pimentel vs. Aguirre, G.R. No. 132988, July 19, 2000).

1.3 Local fiscal autonomy does not however rule out any manner of national government
intervention by way of supervision, in order to ensure that local programs, fiscal and otherwise,
are consistent with national goals (Pimentel vs. Aguirre, G.R. No. 132988, July 19, 2000).

1.4 Fiscal autonomy does not leave LGUs with unbridled discretion in the disbursement of
public funds. They remain accountable to their constituency. Thus, the DILG can issue circulars
regarding the full disclosure of local budgets and finances and list of expenses which the
internal revenue allotment (IRA) can be used and which requires publication in biddings, since
these are mere reiterations of statutory provisions (Villafuerte v. Robredo, G.R. No. G.R. No.
195390, December 10, 2014).
1.5 There can be no genuine local autonomy without fiscal autonomy. In order for local
governments to perform their constitutional and statutory mandates, local governments must
have sufficient funds to cover the costs of maintaining the organization, undertaking projects for
the general welfare, performing their legal mandates and obligations, delivering basic services
and advancing sustainable development, among other responsibilities. On the other hand, fiscal
autonomy cannot be realized without local autonomy in terms of usage, setting priorities, and
disbursement of local funds. If there were no local autonomy, the exercise of discretion and
wisdom on the part of local governments in accessing and utilizing revenues would be unduly
clipped.

2. As a consequence of fiscal autonomy:

2.1 The Department of Budget and Management cannot impose a limitation not found in the law
such as setting a cap on the amount of allowances for judges (Dadole vs. Commission on Audit,
G.R. No. 125350, December 03, 2002)

2.2 In reviewing tax ordinances, the Department of Justice can only declare a tax measure
unconstitutional and illegal. The Secretary cannot amend, modify or repeal the tax measure or
declare it excessive, confiscatory or contrary to public welfare (Drilon vs. Lim, G.R. No. 112497,
August 4, 1994).

2.3 The restrictive and limited nature of the tax exemption privileges under the 1991 LGC is
consistent with the State policy of local autonomy. The obvious intention of the law is to broaden
the tax base of LGUs to assure them of substantial sources of revenue (Philippine Rural Electric
Cooperatives Association vs. DILG, G.R No. 143076, June 10, 2003).

2.4 With the added burden of devolution, it is even more imperative for government entities to
share in the requirements of local development, fiscal or otherwise, by paying taxes or other
charges due from them (National Power Corporation vs. Cabanatuan City, G.R. No. 149110,
April 09, 2003).

2.5 In interpreting statutory provisions on municipal fiscal powers, doubts will have to be
resolved in favor of LGUs (San Pablo City vs. Reyes, G.R. No. 127708, March 25, 1999).