THE MANDANAS RULING: VICTORY OF THE LOCAL GOVERNMENT UNITS
Because of the ongoing pandemic, Local Government Units (LGUs) have been trying to make most out of its limited budget. During a recent Zoom (videoconferencing application) meeting of the League of Governors, Governor Art Yap revealed in his official page that one of the agenda discussed was the filing of a Writ of Execution to enforce the celebrated Mandanas ruling of the Supreme Court. On 03 July 2018, the Supreme Court issued a ruling on the consolidated cases of Mandanas, et al. vs. Executive Secretary, et al., G.R. No. 199802, and Garcia, Jr. vs. Executive Secretary, G.R. No. 208488, which upheld fiscal autonomy of LGUs by invalidating provisions of Republic Act No. 7160, otherwise known as the Local Government Code of 1991, insofar as it limited the base amount upon which the share of the LGUs to our national taxes is concerned.
The petitioners in the said cases were Hons. Hermilando Mandanas and Enrique Garcia, members of the House of Representatives representing districts of Batangas and Bataan, respectively. They alleged that certain collections of the National Internal Revenue Taxes or NIRTs by the Bureau of Customs (BOC) – specifically: excise taxes, value added taxes (VATs) and documentary stamp taxes (DSTs) – have been excluded in the base amounts for the computation of the Internal Revenue Allotment or IRA of LGUs. With these NIRTs being collected by the BOC being included in the base amount, an additional amount of Php60,750,000,000.00 for Fiscal Year 2012 should be released in favor of the LGUs.
In sustaining the position of the petitioners, the Supreme Court held that Section 284 of the Local Government Code is unconstitutional as it limited the base amount to national internal revenue taxes generally pertaining to those collected by the Bureau of Internal Revenue and excluded those collected by the Bureau of Customs, i.e. customs duties and tariffs. The Court held that “national internal revenue taxes” in Section 284 is more restrictive than “national taxes” which is what is provided under Section 6, Article X of 1987 Philippine Constitution, to wit: “Local government units shall have a just share, as determined by law, in the national taxes which shall automatically released to them.” The Court used the statutory principle of verbal egis non est recedendum or from the words of a statute there should be no departure. By restricting the base amount, the Court held that Congress has thereby curtailed the guarantee of fiscal autonomy in favor of the LGUs under the 1987 Philippine Constitution.
In Mandanas, the Supreme Court also held that Congress may validly limit the base amount in some instances insofar as the 1987 Philippine Constitution permits. An example of this is the share of LGUs which are hosts of mining projects. Section 7, Article X of the 1987 Philippine Constitution provides that “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.” This constitutional provision is being implemented by Section 287 of the National Internal Revenue Code and Section 290 of the Local Government Code which provides for 40% share to host LGUs of gross collection from excise taxes on mineral products, royalties, and such other taxes, fees or charges, including related surcharges, interests or fines. Thus, in the dispositive portion, the Court excluded this 40% share of mining-related taxes, revenues, and royalties from the base amount since these are intended as share of LGUs which are hosts and directly impacted by mining projects.
Finally, in Mandanas, the Supreme Court held that there is no need for enactment of a General Appropriations Act for the share of LGUs from national taxes to be released since the Constitution itself mandates that this be automatic without any further action. The Court held that including the same in the GAA is superfluous. However, the Court denied the prayer of the petitioners to retroact the application of the ruling from Fiscal Years 1992 to 2011. This effectively denies their prayer for additional release of Php438,103,906,675.73 for LGUs.