PROV OF BATANGAS V ROMULO RESOLVED FURTHER, that the P3.

0 B of the CY 2001 LGSEF which is to be allocated

according to the modified codal formula shall be released to the four levels of LGUs,
FACTS: President Joseph Ejercito Estrada issued Executive Order (E.O.) No. 48 entitled i.e., provinces, cities, municipalities and barangays, as follows:
"ESTABLISHING A PROGRAM FOR DEVOLUTION ADJUSTMENT AND EQUALIZATION." The
program was established to "facilitate the process of enhancing the capacities of local LGUs Percentage Amount
government units (LGUs) in the discharge of the functions and services devolved to
them by the National Government Agencies concerned pursuant to the Local Provinces 25 P 0.750 billion
Government Code.
Cities 25 0.750
Further, to address the funding shortfalls of functions and services devolved to the LGUs
and other funding requirements of the program, the "Devolution Adjustment and Municipalities 35 1.050
Equalization Fund" was created.3 For 1998, the DBM was directed to set aside an
amount to be determined by the Oversight Committee based on the devolution status Barangays 15 0.450
appraisal surveys undertaken by the DILG.4 The initial fund was to be sourced from the
100 P 3.000 billion
available savings of the national government for CY 1998.5
RESOLVED FURTHER, that the P1.9 B earmarked for priority projects shall be distributed
In Republic Act No. 8745, otherwise known as the GAA of 1999, the program was
according to the following criteria:
renamed as the LOCAL GOVERNMENT SERVICE EQUALIZATION FUND (LGSEF). Under said
appropriations law, the amount ofP96,780,000,000 was allotted as the share of the LGUs
1.0 For projects of the 4th, 5th and 6th class LGUs; or
in the internal revenue taxes.
2.0 Projects in consonance with the President's State of the Nation Address
In Resolution No. OCD-99-003, the Oversight Committee set aside the one billion pesos
(SONA)/summit commitments.
or 20% of the LGSEF to support Local Affirmative Action Projects (LAAPs) of LGUs. This
remaining amount was intended to "respond to the urgent need for additional funds RESOLVED FURTHER, that the remaining P100 million LGSEF capability building fund shall
assistance, otherwise not available within the parameters of other existing fund sources." be distributed in accordance with the recommendation of the Leagues of Provinces,
For LGUs to be eligible for funding under the one-billion-peso portion of the LGSEF, the Cities, Municipalities and Barangays, and approved by the OCD.
OCD promulgated the following: CRITERIA FOR ELIGIBILITY: Further, under the guidelines
formulated by the Oversight Committee as contained in Attachment - Resolution No. ISSUE: Whether the assailed provisos in the GAAs of 1999, 2000 and 2001, earmarking for
OCD-99-003, the LGUs were required to identify the projects eligible for funding under each corresponding year the amount of five billion pesos of the IRA for the LGSEF and
the one-billion-peso portion of the LGSEF and submit the project proposals thereof and the OCD resolutions promulgated pursuant thereto, transgress the Constitution and the
other documentary requirements to the DILG for appraisal. The project proposals that Local Government Code of 1991.
passed the DILG's appraisal would then be submitted to the Oversight Committee for
review, evaluation and approval. Upon its approval, the Oversight Committee would HELD: The assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD resolutions
then serve notice to the DBM for the preparation of the Special Allotment Release Order violate the constitutional precept on local autonomy
(SARO) and Notice of Cash Allocation (NCA) to effect the release of funds to the said
LGUs. RATIO: Sec. 6. Local government units shall have a just share, as determined by law, in
the national taxes which shall be automatically released to them.
On January 9, 2002, the Oversight Committee adopted Resolution No. OCD-2002-001
allocating the five billion pesos LGSEF for 2001 as follows: When parsed, it would be readily seen that this provision mandates that (1) the LGUs
shall have a "just share" in the national taxes; (2) the "just share" shall be determined by
Modified Codal Formula P 3.000 billion law; and (3) the "just share" shall be automatically released to the LGUs.

Priority Projects 1.900 billion The Local Government Code of 1991, among its salient provisions, underscores the
automatic release of the LGUs' "just share" in this wise:
Capability Building Fund .100 billion
Sec. 18. Power to Generate and Apply Resources. Local government units shall have
P 5.000 billion the power and authority to establish an organization that shall be responsible for the
efficient and effective implementation of their development plans, program objectives
and priorities; to create their own sources of revenue and to levy taxes, fees, and
charges which shall accrue exclusively for their use and disposition and which shall be
retained by them; to have a just share in national taxes which shall be automatically
and directly released to them without need of further action;
Section 4 of AO 372 cannot, however, be upheld. A basic feature of local fiscal
autonomy is the automatic release of the shares of LGUs in the National internal
revenue.
Section 4 of AO 372, however, orders the withholding, effective January 1, 1998, of 10
percent of the LGUs' IRA "pending the assessment and evaluation by the Development
Budget Coordinating Committee of the emerging fiscal situation" in the country. Such
withholding clearly contravenes the Constitution and the law. Although temporary, it is
equivalent to a holdback, which means "something held back or withheld, often
temporarily." Hence, the "temporary" nature of the retention by the national
government does not matter. Any retention is prohibited.
Significantly, the LGSEF could not be released to the LGUs without the Oversight
Committee's prior approval. Further, with respect to the portion of the LGSEF allocated
for various projects of the LGUs (P1 billion for 1999;P1.5 billion for 2000 and P2 billion for
2001), the Oversight Committee, through the assailed OCD resolutions, laid down
guidelines and mechanisms that the LGUs had to comply with before they could avail
of funds from this portion of the LGSEF.
To the Court's mind, the entire process involving the distribution and release of the LGSEF
is constitutionally impermissible. The LGSEF is part of the IRA or "just share" of the LGUs in
the national taxes. To subject its distribution and release to the vagaries of the
implementing rules and regulations, including the guidelines and mechanisms
unilaterally prescribed by the Oversight Committee from time to time, as sanctioned by
the assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD resolutions,
makes the release not automatic, a flagrant violation of the constitutional and statutory
mandate that the "just share" of the LGUs "shall be automatically released to them." The
LGUs are, thus, placed at the mercy of the Oversight Committee.
Indeed, the Oversight Committee exercising discretion, even control, over the
distribution and release of a portion of the IRA, the LGSEF, is an anathema to and
subversive of the principle of local autonomy as embodied in the Constitution.
Moreover, it finds no statutory basis at all as the Oversight Committee was created
merely to formulate the rules and regulations for the efficient and effective
implementation of the Local Government Code of 1991 to ensure "compliance with the
principles of local autonomy as defined under the Constitution."
Section 285 of the Local Government Code of 1991
Section 28438 of the Local Government Code provides that, beginning the third year of
its effectivity, the LGUs' share in the national internal revenue taxes shall be 40%. This
percentage is fixed and may not be reduced except "in the event the national
government incurs an unmanageable public sector deficit" and only upon compliance
with stringent requirements set forth in the same section:
Sec. 284. ...
Provided, That in the event that the national government incurs an unmanageable
public sector deficit, the President of the Philippines is hereby authorized, upon
recommendation of Secretary of Finance, Secretary of Interior and Local Government
and Secretary of Budget and Management, and subject to consultation with the
presiding officers of both Houses of Congress and the presidents of the liga, to make the
necessary adjustments in the internal revenue allotment of local government units but in
no case shall the allotment be less than thirty percent (30%) of the collection of the
national internal revenue taxes of the third fiscal year preceding the current fiscal year;
Provided, further That in the first year of the effectivity of this Code, the local
government units shall, in addition to the thirty percent (30%) internal revenue allotment
which shall include the cost of devolved functions for essential public services, be
entitled to receive the amount equivalent to the cost of devolved personnel services.
Thus, from the above provision, the only possible exception to the mandatory automatic
release of the LGUs' IRA is if the national internal revenue collections for the current fiscal
year is less than 40 percent of the collections of the preceding third fiscal year, in which
case what should be automatically released shall be a proportionate amount of the
collections for the current fiscal year.
. In the instant case, however, there is no allegation that the national internal revenue
tax collections for the fiscal years 1999, 2000 and 2001 have fallen compared to the
preceding three fiscal years.
Section 285 then specifies how the IRA shall be allocated among the LGUs:
Sec. 285. Allocation to Local Government Units. The share of local government units in
the internal revenue allotment shall be allocated in the following manner:
(a) Provinces Twenty-three (23%)
(b) Cities Twenty-three percent (23%);
(c) Municipalities Thirty-four (34%); and
(d) Barangays Twenty percent (20%).
However, this percentage sharing is not followed with respect to the five billion pesos
LGSEF as the assailed OCD resolutions, implementing the assailed provisos in the GAAs
of 1999, 2000 and 2001, provided for a different sharing scheme.
The Local Government Code of 1991 is a substantive law. And while it is conceded that
Congress may amend any of the provisions therein, it may not do so through
appropriations laws or GAAs. Any amendment to the Local Government Code of 1991
should be done in a separate law, not in the appropriations law, because Congress
cannot include in a general appropriation bill matters that should be more properly
enacted in a separate legislation.42
Increasing or decreasing the IRA of the LGUs or modifying their percentage sharing
therein, which are fixed in the Local Government Code of 1991, are matters of general
and substantive law. To permit Congress to undertake these amendments through the
GAAs, as the respondents contend, would be to give Congress the unbridled authority
to unduly infringe the fiscal autonomy of the LGUs, and thus put the same in jeopardy
every year. This, the Court cannot sanction.
ACORD V ZAMORA
FACTS: The act, otherwise known as the General Appropriations Act (GAA) for the Year
2000, provides under the heading "ALLOCATIONS TO LOCAL GOVERNMENT UNITS" that
the IRA for local government units shall amount to P111,778,000,000:1avvphi1.zw+
APPROPRIATIONS P111,778,000,000
In another part of the GAA, under the heading "UNPROGRAMMED FUND," it is provided
that an amount of P10,000,000,000 (P10 Billion), apart from the P111,778,000,000
mentioned above, shall be used to fund the IRA, which amount shall be released only
when the original revenue targets submitted by the President to Congress can be
realized based on a quarterly assessment to be conducted by certain committees
which the GAA specifies, namely, the Development Budget Coordinating Committee,
the Committee on Finance of the Senate, and the Committee on Appropriations of the
House of Representatives.
LIV. UNPROGRAMMED FUND
For fund requirements in accordance with the purposes indicated hereunder
P48,681,831,000

XXXVII. ALLOCATIONS TO LOCAL A. PURPOSE(S)

GOVERNMENT UNITS xxxx

A. INTERNAL REVENUE ALLOTMENT 6. Additional

For apportionment of the shares of local government units in the internal revenue taxes Operational
in accordance with the purpose indicated hereunder
... P111,778,000,000 Requirements

New Appropriations, by Purpose and Projects of

Current Operating Expenditures Agencies P14,788,764,000

Maintenance xxxx

and Other Personal Special Provisions

Services Operating 1. Release of the Fund. The amounts herein appropriated shall be released only when
the revenue collections exceed the original revenue targets submitted by the President
Expenses Capital of the Philippines to Congress pursuant to Section 22, Article VII of the Constitution or
when the corresponding funding or receipts for the purpose have been realized except
Outlays Total in the special cases covered by specific procedures in Special Provision Nos. 2, 3, 4, 5, 7,
8, 9, 13 and 14 herein: PROVIDED, That in cases of foreign-assisted projects, the existence
A. PURPOSE(S) of a perfected loan agreement shall be sufficient compliance for the issuance of a
Special Allotment Release Order covering the loan proceeds: PROVIDED, FURTHER, That
a. Internal Revenue no amount of the Unprogrammed Fund shall be funded out of the savings generated
from programmed items in this Act.
Allotment P111,778,000,000 P111,778,000,000
Thus, while the GAA appropriates P111,778,000,000 of IRA as Programmed Fund, it
xxx appropriates a separate amount of P10 Billion of IRA under the classification of
Unprogrammed Fund, the latter amount to be released only upon the occurrence of
TOTAL NEW
the condition stated in the GAA.
ISSUE: whether the questioned provisions violate the constitutional injunction that the just
share of local governments in the national taxes or the IRA shall be automatically
released.
Respondents contention: Respondents thus infer that the subject constitutional provision
merely prevents the executive branch of the government from "unilaterally" withholding
the IRA, but not the legislature from authorizing the executive branch to withhold the
same. In the words of respondents, "This essentially means that the President or any
member of the Executive Department cannot unilaterally, i.e., without the backing of
statute, withhold the release of the IRA."
HELD: Respondents' position does not lie.
RATIO: Since, under Article X, Section 6 of the Constitution, only the just share of local
governments is qualified by the words "as determined by law," and not the release
thereof, the plain implication is that Congress is not authorized by the Constitution to
hinder or impede the automatic release of the IRA.
the only possible exception to mandatory automatic release of the IRA is, as held in
Batangas:
if the national internal revenue collections for the current fiscal year is less than 40
percent of the collections of the preceding third fiscal year, in which case what should
be automatically released shall be a proportionate amount of the collections for the
current fiscal year. The adjustment may even be made on a quarterly basis depending
on the actual collections of national internal revenue taxes for the quarter of the current
fiscal year. x x x28
VILLANUEVA V OPLE
FACTS: Petitioners alleged that the annual budget for Fiscal Year (FY) 2003 of the
Municipality of Hagonoy had been submitted by Mayor Ople -- through Vice-Mayor
Contreras -- to the Sangguniang Bayan of Hagonoy, only on June 11, 2003, instead of
on October 16 of the preceding year, as mandated by Section 318, paragraph 2 of
Book II, Title V, Chapter III of the LGC. They added that Vice-Mayor Contreras had failed
to refer the budget to the chief legal counsel of the municipality; and that, together
with the other incumbent members of the Sangguniang Bayan, she had instead sought
the approval of the alleged Illegal Annual Budget for 2003
Respondents filed their respective Counter-Affidavits, both dated February 27, 2004, and
practically identical in form and substance.[15] They stated that the proposed budget
had actually been submitted on June 26, 2003, and not June 11, 2003. It was submitted
only on that date, because Commission on Audit (COA) Circular No. 2002-2003,
otherwise known as the New Government Accounting System, had mandated the
revision of accounting procedures.[16] In compliance with that Circular, the
municipality had to review and modify almost all of its financial transactions beginning
January 1, 2002.
ISSUE: Whether or not the admitted flagrant violation of Respondent Mayor Felix V.
Ople of Section 318, LGC, aided and abetted by co-respondent Vice Mayor Josefina R.
Contreras, has been and can be validated by Section 323 of the LGC.
HELD: The Petition is bereft of merit.
RATIO: First, the mere failure of the local government to enact a budget did not make
all its disbursements illegal. Section 323 of the LGC provides for the automatic
reenactment of the budget of the preceding year, in case the Sanggunian fails to
enact one within the first 90 days of the fiscal year. Hence, the contention in the present
case that money was paid out of the local treasury without any valid appropriation
must necessarily fail.
Second, Section 323 states that only the annual appropriations for salaries and wages,
statutory and contractual obligations, and essential operating expenses are deemed
reenacted. Petitioner failed to identify disbursements that had gone beyond this
coverage.
Third, petitioners failed to substantiate their allegations that the government had
suffered undue injury. They concluded that there had been undue injury simply on the
basis of their unsubstantiated claims of illegal disbursements. Having failed to prove any
unlawful expenditure, the claim of undue injury must necessarily fail.
Fourth, petitioners relied solely on Section 318 of the LGC, which allegedly exposed the
mayor to criminal liability for delay in submitting a budget proposal.
Under the above LGC provision, criminal liability for delay in submitting the budget is
qualified by various circumstances. For instance, the mayor must first receive the
necessary financial documents from other city officials in order to be able to prepare
the budget. In addition, criminal liability must conform to the provisions of the LGC and
other applicable laws. Noteworthy is the fact that petitioners failed to present evidence
that would fulfill these qualifications stated in the law.
ALBON V FERNANDO
FACTS: City of Marikina undertook a public works project to widen, clear and repair the
existing sidewalks of Marikina Greenheights Subdivision. It was undertaken by the city
government pursuant to Ordinance No. 59, s. 1993[3] like other infrastructure projects
relating to roads, streets and sidewalks previously undertaken by the city.
ISSUE: May a local government unit (LGU) validly use public funds to undertake the
widening, repair and improvement of the sidewalks of a privately-owned subdivision?
HELD:
RATIO: Like all LGUs, the City of Marikina is empowered to enact ordinances for the
purposes set forth in the Local Government Code (RA 7160). It is expressly vested with
police powers delegated to LGUs under the general welfare clause of RA 7160.[8] With
this power, LGUs may prescribe reasonable regulations to protect the lives, health, and
property of their constituents and maintain peace and order within their respective
territorial jurisdictions.[9]
Cities and municipalities also have the power to exercise such powers and discharge
such functions and responsibilities as may be necessary, appropriate or incidental to
efficient and effective provisions of the basic services and facilities, including
infrastructure facilities intended primarily to service the needs of their residents and
which are financed by their own funds.[10] These infrastructure facilities include
municipal or city roads and bridges and similar facilities
There is no question about the public nature and use of the sidewalks in the Marikina
Greenheights Subdivision. One of the whereas clauses of PD 1216[12] (which amended
PD 957[13]) declares that open spaces,[14] roads, alleys and sidewalks in a residential
subdivision are for public use and beyond the commerce of man. In conjunction
herewith, PD 957, as amended by PD 1216, mandates subdivision owners to set aside
open spaces which shall be devoted exclusively for the use of the general public.
Thus, the trial and appellate courts were correct in upholding the validity of Ordinance
No. 59, s. 1993. It was enacted in the exercise of the City of Marikinas police powers to
regulate the use of sidewalks.
Ownership of the sidewalks in a private subdivision belongs to the subdivision
owner/developer until it is either transferred to the government by way of donation or
acquired by the government through expropriation.
Section 335 of RA 7160 is clear and specific that no public money or property shall be
appropriated or applied for private purposes. This is in consonance with the
fundamental principle in local fiscal administration that local government funds and
monies shall be spent solely for public purposes.
In Pascual v. Secretary of Public Works,[26] the Court laid down the test of validity of a
public expenditure: it is the essential character of the direct object of the expenditure
which must determine its validity and not the magnitude of the interests to be affected
nor the degree to which the general advantage of the community, and thus the public
welfare, may be ultimately benefited by their promotion.[27] Incidental advantage to
the public or to the State resulting from the promotion of private interests and the
prosperity of private enterprises or business does not justify their aid by the use of public
money.
Therefore, the use of LGU funds for the widening and improvement of privately-owned
sidewalks is unlawful as it directly contravenes Section 335 of RA 7160. This conclusion
finds further support from the language of Section 17 of RA 7160 which mandates LGUs
to efficiently and effectively provide basic services and facilities. The law speaks of
infrastructure facilities intended primarily to service the needs of the residents of the LGU
and which are funded out of municipal funds.[32] It particularly refers to municipal roads
and bridges and similar facilities.
ALTRES V EMPLEO
FACTS: Sometime in July 2003, Mayor Quijano sent notices of numerous vacant career
positions in the city government to the CSC. The city government and the CSC
thereupon proceeded to publicly announce the existence of the vacant positions.
Petitioners and other applicants submitted their applications for the different positions
where they felt qualified.
Toward the end of his term or on May 27, June 1, and June 24, 2004, Mayor Quijano
issued appointments to petitioners.
In the meantime, the Sangguniang Panglungsod issued Resolution No. 04-242[3]
addressed to the CSC Iligan City Field Office requesting a suspension of action on the
processing of appointments to all vacant positions in the plantilla of the city government
as of March 19, 2004 until the enactment of a new budget.
Respondent city accountant Empleo did not thus issue a certification as to availability of
funds for the payment of salaries and wages of petitioners, as required by Section
1(e)(ii), Rule V of CSC Memorandum Circular No. 40, Series of 1998 reading:
xxxx
e. LGU Appointment. Appointment in local government units for submission to the
Commission shall be accompanied, in addition to the common requirements, by the
following:
xxxx
ii. Certification by the Municipal/City Provincial Accountant/Budget Officer that funds
are available. (Emphasis and underscoring supplied)
And the other respondents did not sign petitioners position description forms.
The CSC Field Office for Lanao del Norte and Iligan City disapproved the appointments
issued to petitioners invariably due to lack of certification of availability of funds.
ISSUE: whether it is Section 474(b)(4) or Section 344 of the Local Government Code of
1991 which applies to the requirement of certification of availability of funds under
Section 1(e)(ii), Rule V of CSC Memorandum Circular Number 40, Series of 1998.
HELD:
RATIO: Section 344 of the Local Government Code of 1991 thus applies only when there
is already an obligation to pay on the part of the local government unit, precisely
because vouchers are issued only when services have been performed or expenses
incurred.
The requirement of certification of availability of funds from the city treasurer under
Section 344 of the Local Government Code of 1991 is for the purpose of facilitating the
approval of vouchers issued for the payment of services already rendered to, and
expenses incurred by, the local government unit.
The trial court thus erred in relying on Section 344 of the Local Government Code of
1991 in ruling that the ministerial function to issue a certification as to availability of funds
for the payment of the wages and salaries of petitioners pertains to the city treasurer.
For at the time material to the required issuance of the certification, the appointments
issued to petitioners were not yet approved by the CSC, hence, there were yet no
services performed to speak of. In other words, there was yet no due and demandable
obligation of the local government to petitioners.
Section 474, subparagraph (b)(4) of the Local Government Code of 1991, on the other
hand, requires the city accountant to certify to the availability of budgetary allotment
to which expenditures and obligations may be properly charged.[44] By necessary
implication, it includes the duty to certify to the availability of funds for the payment of
salaries and wages of appointees to positions in the plantilla of the local government
unit, as required under Section 1(e)(ii), Rule V of CSC Memorandum Circular Number 40,
Series of 1998, a requirement before the CSC considers the approval of the
appointments.
In fine, whenever a certification as to availability of funds is required for purposes other
than actual payment of an obligation which requires disbursement of money, Section
474(b)(4) of the Local Government Code of 1991 applies, and it is the ministerial duty of
the city accountant to issue the certification.
PEPSI-COLA V CITY OF BUTUAN
FACTS: That Ordinance No. 110 as amended, imposes a tax on any person, association,
etc., of P0.10 per case of 24 bottles of Pepsi-Cola and the plaintiff paid under protest
the amount of P4,926.63 from August 16 to December 31, 1960 and the amount of
P9,250.40 from January 1 to July 30, 1961.
ISSUE: Plaintiff maintains that the disputed ordinance is null and void because: (1) it
partakes of the nature of an import tax; (2) it amounts to double taxation; (3) it is
excessive, oppressive and confiscatory; (4) it is highly unjust and discriminatory; and (5)
section 2 of Republic Act No. 2264, upon the authority of which it was enacted, is an
unconstitutional delegation of legislative powers.
HELD:
RATIO: (2) it amounts to double taxation (5) section 2 of Republic Act No. 2264, upon the
authority of which it was enacted, is an unconstitutional delegation of legislative
powers.
Then, again, the general principle against delegation of legislative powers, in
consequence of the theory of separation of powers2 is subject to one well-established
exception, namely: legislative powers may be delegated to local governments to
which said theory does not apply3 in respect of matters of local concern.
(3) it is excessive, oppressive and confiscatory
The tax of "P0.10 per case of 24 bottles," of soft drinks or carbonated drinks in the
production and sale of which plaintiff is engaged or less than P0.0042 per bottle, is
manifestly too small to be excessive, oppressive, or confiscatory.
(1) it partakes of the nature of an import tax; (4) it is highly unjust and discriminatory;
The first and the fourth objections merit, however, serious consideration. In this
connection, it is noteworthy that the tax prescribed in section 3 of Ordinance No. 110, as
originally approved, was imposed upon dealers "engaged in selling" soft drinks or
carbonated drinks. Thus, it would seem that the intent was then to levy a tax upon the
sale of said merchandise. As amended by Ordinance No. 122, the tax is, however,
imposed only upon "any agent and/or consignee of any person, association,
partnership, company or corporation engaged in selling ... soft drinks or carbonated
drinks." And, pursuant to section 3-A, which was inserted by said Ordinance No. 122:
... Definition of the Term Consignee or Agent. For purposes of this Ordinance, a
consignee of agent shall mean any person, association, partnership, company or
corporation who acts in the place of another by authority from him or one entrusted
with the business of another or to whom is consigned or shipped no less than 1,000 cases
of hard liquors or soft drinks every month for resale, either retail or wholesale.
As a consequence, merchants engaged in the sale of soft drink or carbonated drinks,
are not subject to the tax, unless they are agents and/or consignees of another dealer,
who, in the very nature of things, must be one engaged in business outside the City.
Besides, the tax would not be applicable to such agent and/or consignee, if less than
1,000 cases of soft drinks are consigned or shipped to him every month. When we
consider, also, that the tax "shall be based and computed from the cargo manifest or
bill of lading ... showing the number of cases" not sold but "received" by the
taxpayer, the intention to limit the application of the ordinance to soft drinks and
carbonated drinks brought into the City from outside thereof becomes apparent.
Viewed from this angle, the tax partakes of the nature of an import duty, which is
beyond defendant's authority to impose by express provision of law.
PHILIPPINE PETROLEUM CORPORATION V PILILLA
FACTS: Philippine Petroleum Corporation (PPC for short) is a business enterprise engaged
in the manufacture of lubricated oil
Under Section 142 of the National Internal Revenue Code of 1939, manufactured oils
and other fuels are subject to specific tax.
On June 28, 1973, Presidential Decree No. 231, otherwise known as the Local Tax Code
was issued by former President Ferdinand E. Marcos governing the exercise by
provinces, cities, municipalities and barrios of their taxing and other revenue-raising
powers. Sections 19 and 19 (a) thereof, provide among others, that the municipality
may impose taxes on business, except on those for which fixed taxes are provided on
manufacturers, importers or producers of any article of commerce of whatever kind or
nature, including brewers, distillers, rectifiers, repackers, and compounders of liquors,
distilled spirits and/or wines in accordance with the schedule listed therein.
The Secretary of Finance issued Provincial Circular No. 26-73 dated December 27, 1973,
directed to all provincial, city and municipal treasurers to refrain from collecting any
local tax imposed in old or new tax ordinances in the business of manufacturing,
wholesaling, retailing, or dealing in petroleum products subject to the specific tax under
the National Internal Revenue Code (Rollo, p. 76).
Likewise, Provincial Circular No. 26 A-73 dated January 9, 1973 was issued by the
Secretary of Finance instructing all City Treasurers to refrain from collecting any local tax
imposed in tax ordinances enacted before or after the effectivity of the Local Tax Code
on July 1, 1973, on the businesses of manufacturing, wholesaling, retailing, or dealing in,
petroleum products subject to the specific tax under the National Internal Revenue
Code (Rollo, p. 79).
Respondent Municipality of Pililla, Rizal, through Municipal Council Resolution No. 25, S-
1974 enacted Municipal Tax Ordinance No. 1, S-1974 otherwise known as "The Pililla Tax
Code of 1974" on June 14, 1974, which took effect on July 1, 1974 (Rollo, pp. 181-182).
Sections 9 and 10 of the said ordinance imposed a tax on business, except for those for
which fixed taxes are provided in the Local Tax Code on manufacturers, importers, or
producers of any article of commerce of whatever kind or nature, including brewers,
distillers, rectifiers, repackers, and compounders of liquors, distilled spirits and/or wines in
accordance with the schedule found in the Local Tax Code, as well as mayor's permit,
sanitary inspection fee and storage permit fee for flammable, combustible or explosive
substances (Rollo, pp. 183-187), while Section 139 of the disputed ordinance imposed
surcharges and interests on unpaid taxes, fees or charges (Ibid., p. 193).
On June 3, 1977, P.D. 1158 otherwise known as the National Internal Revenue Code of
1977 was enacted, Section 153 of which specifically imposes specific tax on refined and
manufactured mineral oils and motor fuels.
ISSUE: whether or not petitioner PPC whose oil products are subject to specific tax under
the NIRC, is still liable to pay (a) tax on business and (b) storage fees, considering
Provincial Circular No. 6-77; and mayor's permit and sanitary inspection fee unto the
respondent Municipality of Pililla, Rizal, based on Municipal Ordinance No. 1.
HELD:
RATIO: There is no question that Pililla's Municipal Tax Ordinance No. 1 imposing the
assailed taxes, fees and charges is valid especially Section 9 (A) which according to the
trial court "was lifted in toto and/or is a literal reproduction of Section 19 (a) of the Local
Tax Code as amended by P.D. No. 426." It conforms with the mandate of said law.
But P.D. No. 426 amending the Local Tax Code is deemed to have repealed Provincial
Circular Nos. 26-73 and 26 A-73 issued by the Secretary of Finance when Sections 19 and
19 (a), were carried over into P.D. No. 426 and no exemptions were given to
manufacturers, wholesalers, retailers, or dealers in petroleum products.
Necessarily, there could not be any other logical conclusion than that the framers of
P.D. No. 426 really and actually intended to terminate the effectivity and/or
enforceability of Provincial Circulars Nos. 26-73 and 26 A-73 inasmuch as clearly these
circulars are in contravention with Sec. 19 (a) of P.D. 426-the amendatory law to P.D.
No. 231. That intention to terminate is very apparent and in fact it is expressed in clear
and unequivocal terms in the effectivity and repealing clause of P.D. 426 . . .
Furthermore, while Section 2 of P.D. 436 prohibits the imposition of local taxes on
petroleum products, said decree did not amend Sections 19 and 19 (a) of P.D. 231 as
amended by P.D. 426, wherein the municipality is granted the right to levy taxes on
business of manufacturers, importers, producers of any article of commerce of whatever
kind or nature. A tax on business is distinct from a tax on the article itself
The exercise by local governments of the power to tax is ordained by the present
Constitution.1wphi1 To allow the continuous effectivity of the prohibition set forth in PC
No. 26-73 (1) would be tantamount to restricting their power to tax by mere
administrative issuances. Under Section 5, Article X of the 1987 Constitution, only
guidelines and limitations that may be established by Congress can define and limit
such power of local governments. Thus:
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 . ..
The storage permit fee being imposed by Pililla's tax ordinance is a fee for the installation
and keeping in storage of any flammable, combustible or explosive substances.
Inasmuch as said storage makes use of tanks owned not by the municipality of Pililla, but
by petitioner PPC, same is obviously not a charge for any service rendered by the
municipality as what is envisioned in Section 37 of the same Code.
BASCO V PAGCOR
FACTS: The Philippine Amusements and Gaming Corporation (PAGCOR) was created by
virtue of P.D. 1067-A dated January 1, 1977 and was granted a franchise under P.D.
1067-B also dated January 1, 1977 "to establish, operate and maintain gambling casinos
on land or water within the territorial jurisdiction of the Philippines."
Subsequently, on July 11, 1983, PAGCOR was created under P.D. 1869 to enable the
Government to regulate and centralize all games of chance authorized by existing
franchise or permitted by law, under the following declared policy
(a) To centralize and integrate the right and authority to operate and conduct
games of chance into one corporate entity to be controlled, administered and
supervised by the Government.
ISSUE: Whether or no PAGCOR should be taxed
HELD: no
RATIO: Their contention stated hereinabove is without merit for the following reasons:
(a) The City of Manila, being a mere Municipal corporation has no inherent right
to impose taxes (Icard v. City of Baguio, 83 Phil. 870; City of Iloilo v. Villanueva, 105 Phil.
337; Santos v. Municipality of Caloocan, 7 SCRA 643). Thus, "the Charter or statute must
plainly show an intent to confer that power or the municipality cannot assume it"
(Medina v. City of Baguio, 12 SCRA 62). Its "power to tax" therefore must always yield to
a legislative act which is superior having been passed upon by the state itself which has
the "inherent power to tax" (Bernas, the Revised [1973] Philippine Constitution, Vol. 1,
1983 ed. p. 445).
(b) The Charter of the City of Manila is subject to control by Congress. It should be
stressed that "municipal corporations are mere creatures of Congress" (Unson v. Lacson,
G.R. No. 7909, January 18, 1957) which has the power to "create and abolish municipal
corporations" due to its "general legislative powers" (Asuncion v. Yriantes, 28 Phil. 67;
Merdanillo v. Orandia, 5 SCRA 541). Congress, therefore, has the power of control over
Local governments (Hebron v. Reyes, G.R. No. 9124, July 2, 1950). And if Congress can
grant the City of Manila the power to tax certain matters, it can also provide for
exemptions or even take back the power.
(c) The City of Manila's power to impose license fees on gambling, has long been
revoked. As early as 1975, the power of local governments to regulate gambling thru
the grant of "franchise, licenses or permits" was withdrawn by P.D. No. 771 and was
vested exclusively on the National Government
Therefore, only the National Government has the power to issue "licenses or permits" for
the operation of gambling. Necessarily, the power to demand or collect license fees
which is a consequence of the issuance of "licenses or permits" is no longer vested in the
City of Manila.
(d) Local governments have no power to tax instrumentalities of the National
Government. PAGCOR is a government owned or controlled corporation with an
original charter, PD 1869. All of its shares of stocks are owned by the National
Government.
PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, PAGCOR should be and
actually is exempt from local taxes. Otherwise, its operation might be burdened,
impeded or subjected to control by a mere Local government.
The states have no power by taxation or otherwise, to retard, impede, burden or in any
manner control the operation of constitutional laws enacted by Congress to carry into
execution the powers vested in the federal government.
Otherwise, mere creatures of the State can defeat National policies thru extermination
of what local authorities may perceive to be undesirable activities or enterprise using
the power to tax as "a tool for regulation"
The power of local government to "impose taxes and fees" is always subject to
"limitations" which Congress may provide by law.
In the absence of express grant of power to enact, ordinance provisions on this subject
which are inconsistent with the state laws are void.
NAPOCOR V CITY OF CABANATUAN
FACTS: Petitioner, whose capital stock was subscribed and paid wholly by the Philippine
Government,10 refused to pay the tax assessment. It argued that the respondent has no
authority to impose tax on government entities. Petitioner also contended that as a non-
profit organization, it is exempted from the payment of all forms of taxes, charges, duties
or fees11 in accordance with sec. 13 of Rep. Act No. 6395, as amended,
ISSUE: Whether or not the City of Cabanatuan cannot impose tax on NAPOCOR
HELD:
RATIO: nothing prevents Congress from decreeing that even instrumentalities or
agencies of the government performing governmental functions may be subject to
tax.46 In enacting the LGC, Congress exercised its prerogative to tax instrumentalities
and agencies of government as it sees fit.
"Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a
general rule, as laid down in section 133, the taxing power of local governments cannot
extend to the levy of inter alia, 'taxes, fees and charges of any kind on the national
government, its agencies and instrumentalities, and local government units'; however,
pursuant to section 232, provinces, cities and municipalities in the Metropolitan Manila
Area may impose the real property tax except on, inter alia, 'real property owned by
the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted for consideration or otherwise, to a taxable
person as provided in the item (a) of the first paragraph of section 12.'"
In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the
respondent city government to impose on the petitioner the franchise tax in question.
In its general signification, a franchise is a privilege conferred by government authority,
which does not belong to citizens of the country generally as a matter of common
right.48 In its specific sense, a franchise may refer to a general or primary franchise, or to
a special or secondary franchise. The former relates to the right to exist as a corporation,
by virtue of duly approved articles of incorporation, or a charter pursuant to a special
law creating the corporation

On the other hand, the latter refers to the right or privileges conferred upon an existing
corporation such as the right to use the streets of a municipality to lay pipes of tracks,
erect poles or string wires.

a franchise tax is "a tax on the privilege of transacting business in the state and
exercising corporate franchises granted by the state."53 It is not levied on the
corporation simply for existing as a corporation, upon its property54 or its income,55 but
on its exercise of the rights or privileges granted to it by the government. Hence, a
corporation need not pay franchise tax from the time it ceased to do business and
exercise its franchise.56 It is within this context that the phrase "tax on businesses
enjoying a franchise" in section 137 of the LGC should be interpreted and understood.
Verily, to determine whether the petitioner is covered by the franchise tax in question,
the following requisites should concur: (1) that petitioner has a "franchise" in the sense of
a secondary or special franchise; and (2) that it is exercising its rights or privileges under
this franchise within the territory of the respondent city government.

These contentions must necessarily fail.

To stress, a franchise tax is imposed based not on the ownership but on the exercise by
the corporation of a privilege to do business. The taxable entity is the corporation which
exercises the franchise, and not the individual stockholders.

To be sure, the ownership by the National Government of its entire capital stock does
not necessarily imply that petitioner is not engaged in business.

proprietary functions are those that are undertaken only by way of advancing the
general interest of society, and are merely optional on the government

Certainly, these activities do not partake of the sovereign functions of the government.
They are purely private and commercial undertakings, albeit imbued with public
interest.