Revenue Generation Under the

Political and Corporate Nature of

Philippine Local Governments
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OUTLINE

I. Introduction

II. Statement of the Problem

III. The Philippine Local Government

a. Political Nature

b. Corporate Nature

IV. Philippine Revenue from Tax Collection

V. Corporate Power As Means For Income Generation

VI. Conclusion

VII.Recommendation
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I. Introduction

The Philippine government has progressively evolved and expanded

throughout the past century. As explained by Justice Cruz in his doctrine on

Administrative Law, “all rules of conduct are supposed to be laid down directly

by the legislature, subject to the (likewise) direct enforcement of the executive

department, and the application or interpretation, also directly, by the judiciary”

(Cruz, 2003). However, adherence to such belief was only possible when

communities were comparatively smaller than they are today and problems

relatively simpler. As the population grew and people’s activities multiplied and
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became more complex, both legislative and judicial branches were thrust into a

situation where it became difficult to directly and expeditiously manage

problems that arose. As a solution, delegation of administrative powers was

implemented.

One consequence of such delegation was the formal structuring of the local

government as provided under Section 3, Article X of the 1987 Constitution, to

wit:

Section 3. The Congress shall enact a local government code which shall

provide for a more responsive and accountable local government structure

instituted through a system of decentralization with effective mechanisms of

recall, initiative, and referendum, allocate among the different local government

units their powers, responsibilities, and resources, and provide for the

qualifications, election, appointment and removal, term, salaries, powers and

functions and duties of local officials, and all other matters relating to the

organization and operation of the local units.

Such Constitutional provision gave birth to the Local Government Code of

1991. Aside from such, the Constitution likewise included a provision regarding

income generation for local governments under Section 5, Article X, to wit:

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Section 5. 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.

II. Statement of the Problem

Given the political and corporate nature of Philippine local government as

described under Section 15, Book I of the Local Government Code of 1991, this

paper aims to look at local governments as both political and corporate entities

with special emphasis on the local government’s corporate nature, how it

translates to revenue generation and how it can be further utilized to augment

the government’s earnings from taxes.

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III. The Philippine Local Government

A. Political Nature

Under Section 15, Book I of the Local Government Code of 1991, “every local

government unit created or recognized under this Code is a body politic…

endowed with powers to be exercised by it in conformity with law. As such, it

shall exercise powers as a political subdivision of the national government...”

This section of the law highlights the fact that the local government is a

creature of delegated power by an act of the legislature. As Justice Cruz points

out, “by delegation… the legislature is able to relieve itself of its responsibility to

legislate directly on relatively minor matters and of attending as well to the

adjudication of essentially factual questions that more properly pertain to the

executive authorities. In this manner, the legislature can concentrate on matters

of national or greater importance” (Cruz, 2003).

As an administrative body, the two most important powers vested on local

governments are the quasi-legislative and quasi-judicial powers. The first

enables them to promulgate implementing rules and regulations while the

second enables them to interpret and apply such regulations (Agpalo, 2005). In
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this regard, tax collection as a means of revenue generation is regulated at the

local level subject to the provisions of the National Internal Revenue Code.

B. Corporate Nature

Based on Section 14, Book I of the Local Government Code, “when a new

local government unit is created, its corporate existence shall commence upon

the election and qualification of its chief executive and a majority of the

members of its sanggunian, unless some other time is fixed therefore by the law

or ordinance creating it.

It is important to distinguish between public and private corporations as there

are many principles of law which apply to the former and not the latter:

1) In terms of governmental control, public corporations, being mere

instrumentalities of the State, are subject to governmental visitation and

control, whereas the charter of a private corporation is a contract between

the State and the corporation or incorporators, which under the

Constitution prohibiting laws impairing the obligation of contracts, renders

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such corporations not subject to visitation, control, or change by the

State, except in the exercise of the police power.

2) Another distinction is that a public corporation may be created without

consent of the locality to be affected, whereas the consent of the

incorporators is necessary to the creation of a private corporation.

3) A public corporation engaged in the performance of governmental or

public functions as distinguished from corporate or proprietary functions,

in the absence of statute, is not liable for damages occasioned by the

negligent or wrongful actions of its officers, agents or employees. The test

for determining the first kind of power from the second, and consequently

in determining liability or nonliability for torts of its agents, is whether the

act performed is for the common good or whether it is for the special

benefit or profit of the corporate entity (De Leon, 2006).

Meanwhile, Section 22 of the Local Government Code enumerates the local

government’s powers, to wit:

SEC. 22. Corporate Powers. - (a) Every local government unit, as a

corporation, shall have the following powers:

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(1) To have continuous succession in its corporate name;

(2) To sue and be sued;

(3) To have and use a corporate seal;

(4) To acquire and convey real or personal property;

(5) To enter into contracts; and

(6) To exercise such other powers as are granted to corporations,

subject to the limitations provided in this Code and other laws.

(b) Local government units may continue using, modify, or change their

existing corporate seals: Provided, That newly established local government

units or those without corporate seals may create their own corporate seals

which shall be registered with the Department of the Interior and Local

Government: Provided, further, That any change of corporate seal shall also

be registered as provided herein.

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(c) Unless otherwise provided in this Code, contract may be entered into by

the local chief executive in behalf of the local government unit without prior

authorization by the sanggunian concerned. A legible copy of such contract

shall be posted at a conspicuous place in the provincial capitol or the city,

municipal or barangay hall.

(d) Local government units shall enjoy full autonomy in the exercise of their

proprietary functions and in the management of their economic enterprises,

subject to the limitations provided in this Code and other applicable laws.

Furthermore, given the provision on income generation apart from taxes and

other charges or fees, the local government can do business under its corporate

nature and exercise the abovementioned powers. Such activities can be deemed

to augment governmental income from taxes and other fees or charges.

IV. Philippine Revenue from Tax Collection

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In the past years, taxes make up approximately 60% of the government’s

earnings. However, the government itself has publicly acknowledged that there

are gaps within the tax collection system and that the amounts collected fall

short on expectations. Based on the comparison made by the Department of

Finance’s National Government Revenue Collections (in million pesos) between

July 2009 and July 2010, Tax Revenues rose 5.3% from 82,771 to 87,133 while,

Non-Tax Revenues increased by a mere 0.9% from 15,627 to 15,775. Despite

these promising figures, Expenditures rose by 1.9% from 133,028 to 135,602

which in turn gave rise to a deficit of -5.6% from -34,630 to an amount of

-32,694 (http://www.dof.gov.ph/stat/JULY%202010.pdf). It is obvious from the

stated figures that the untapped resource fall under the category of Non-Tax

Revenues.

V. Corporate Power As Means For Income Generation

As noted above, the most underutilized income resources are the sources of

Non-Tax Revenues. The government has already admitted difficulties in ensuring

reliability on tax collection as a means of securing revenue. To improve national

revenue output, other local governments should follow the initiative set forth by

some local governments in capitalizing on their corporate powers of which some

examples include the following: Camsur Watersports Complex in Camarines Sur,

BIMP-EAGA (Brunei, Indonesia, Malaysia, Philippines East Asian Growth Area) in

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Davao, sponsoring native festivals that draw in both local and foreign crowds like

the Sinulog Festival in Cebu and the Dinagyang Festival in Iloilo, establishment

of technoparks like the ones found in Laguna, launching of economic zones and

industrial parks the likes of which have already been built in Baguio, Bataan,

Laguna, Cavite, Cebu, Pampanga, Tarlac, Batangas, Leyte, Pangasinan, Albay,

Palawan, Bulacan, Zambales, etc.

All the above-enumerated examples are independent of the revenue

amassed by local governments from tax collections which have proven

inadequate. They are all clear examples that local governments can make a

success out of business endeavors in their exercise of their corporate functions.

VI. Conclusion

Throughout the years, national revenue was mainly focused on deriving

government income from taxes. However, given the poor collection process and

lackluster efforts, some local governments have taken the initiative in carving

out their own means of augmenting their income. These local governments seem

to be more aware of their dual nature as both political and corporate bodies as

they took advantage of their latter character in order to pursue other means of

generating income thereby providing an alternative source of revenue for the

local government. Such efforts are commendable as they have slowly become
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independent earners veering away from reliance on local and national taxes as

sources of income, particularly since such “…fees, and charges shall accrue

exclusively to the local governments” (Sec. 5, Art. X, 1987 Constitution of the

Philippines).

Bibiliograhy

Agpalo, Ruben E. Administrative Law, Law on Public Officers and Election Law.

Manila: 2005.

Cruz, Carlo L. Philippine Administrative Law. Quezon City: 2003.

De Leon, Hector S. The Corporation Code of the Philippines. Quezon City: 2006

http://www.chanrobles.com/article10.htm accessed on 2 September 2010

http://www.chanrobles.com/localgov1.htm accessed on 2 September 2010

http://www.dof.gov.ph/stat/Fiscal%20Update%20as%20of%20July%202010.pdf

accessed on 2 September 2010