The Supreme Court resolved with finality the main question raised in the Mandanas case (Mandanas vs Ochoa, Jr, GR Nos. 199802 & 208488, May 22, 2019) on “how much share in the national revenue should local government units (LGUs) get?” In short, how much internal revenue allocation (IRA) should LGUs receive?
Corollary to this question of Mandanas is a demand for the payment of additional unpaid IRA of around P500 billion for the years 1992 to 2012 claiming that the computation of the IRA then was wrong since the inception of the Local Government Code (LGC) in 1991. Mainly, the national government (NG) failed to include the collections of the Bureau of Customs (BOC), i.e. customs duties, value-added tax, excise tax and documentary stamp taxes, in the computation of IRA. LGUs should have been given more, he said.
The high court agreed with Mandanas and ruled with finality that LGUs should receive a bigger share from the IRA and that the provision in the LGC limiting the base amount of the 40-percent share to the national internal revenue tax alone rather than on all national taxes is unconstitutional.
Article X, Section 6 of the Constitution, according to the SC, provided three mandates: (1) the LGUs shall have a just share in the national taxes; (2) the just share shall be determined by law; and (3) the just share shall be automatically released to the LGUs.
The issue revolved more on the interpretation of the first mandate. The SC ruled there was no issue on what constitutes the LGUs’ just share expressed in percentage of the national taxes such as the 40-percent share provided in the LGC. Yet, section 6 of the Constitution mentions “national taxes” as the source of the just share of the LGUs while Section 284 of the LGC enacted by Congress states that the share of the LGUs must be taken from “national internal revenue taxes.”
In other words, the base amount of the IRA must be on national taxes and must not be limited to just national internal revenue taxes. What is the difference between these two?
National internal revenue taxes are as follows: (a) income tax; (b) estate and donor’s taxes; (c) value-added tax; (d) other percentage taxes; (e) excise taxes; (f) documentary stamp taxes and (g) all other taxes collected by the Bureau of Internal Revenue (BIR). National taxes, on the other hand, are broader as they include all taxes collected by the NG, including customs duties and other taxes collected by the BOC and all other agencies. So, the LGUs, according to the high court, were deprived of their just share.
But realizing the financial impact of this decision to the country, the SC struck down the demand of Mandanas for P500 billion citing the doctrine of operative fact and declared that the application of its decision was prospective, not retroactive. Otherwise, it would have put the Republic of the Philippines bankrupt.
The high court also admitted Congress had the power to determine the share of the LGUs. But the mistake of Congress in the LGC is, it limited the base amount as prescribed by the Constitution, from “national taxes” to “national internal revenue taxes.” Thus, the act became unconstitutional. What Congress should have done was to specifically define “just share” and how to compute the same. It should not have altered the base amount guaranteed under the Constitution, which must include all national taxes.
Sad to say, with this interpretation, the SC seems to have missed the big picture.
In resolving the issue, the high court used elementary legal construction, focusing on defining the term “national taxes” vis-à-vis “internal revenue taxes” thus missing the main essence of the Constitutional provision giving the LGUs their “just share” in national wealth.
The key term is “just share” of the LGUs and should have been the focus of the discussion, rather than simple definition of words. The word national taxes could have been used loosely in the Constitution, referring to national wealth perhaps?
To my mind, it does not matter how IRA is computed or determined, for as long as it is, in the wisdom of Congress, the “just share” of the LGUs.
“Just share” can be determined in many other different ways: either in percentage or fixed amount, or a combination of both. It can be based on one or several barometers, e.g. all taxes in a lump sum, or on a per tax type, or just internal revenue taxes or just customs taxes, or total national wealth. It does not matter.
What matters is the final amount arrived at, which, in the wisdom of Congress, is the “just share” of the LGUs in the revenue of the NG. It need not even be benchmarked on actual revenue collections, although this would simplify the computation. It is a matter for Congress to decide.
Congress, by enacting the LGC and appropriating 40 percent of the national internal revenue taxes as the “just share” of the LGUs in the form of IRA, is a valid exercise of the power of the purse which is within the exclusive zone of Congress. It is beyond judicial intervention.
Justice Marvic Leonen, in his dissent, had this to say: “What petitioners seek is to short-circuit the process (referring to appropriation). They will to empower us, unelected magistrates, to substitute our political judgment disguised as a decision of the Court. We should stay our hands.”
The high court fell into the trap.
But, Congress still has the last say. They can amend the LGC or adopt the SC’s computation of the IRA as it is.
If the vision is to devolve more power to the LGUs in order to empower the grassroots to be the drivers of the economy, it is but right to equip them with more funds. But it should be coupled with a corresponding demand for bigger responsibility, accountability and transparency in the way these are spent.