PIMENTEL vs.

AGUIRRE
G.R. No. 132988 July 19, 2000

FACTS:

President Ramos issued Administrative Order 372 (Adoption of Economic Measures

in Government for Fiscal Year 1998). Section 1 provided that all government
departments and agencies, including state universities and colleges, GOCCs and LGUs
will identify and implement measures in FY 1998 that will replace total expenditures by
at least 25% of authorized regular appropriations for non-personal services items.

Section 4 also provided that pending assessment by the Development Budget

Coordinating Committee (DBCC) of the emerging fiscal situation, the amount equivalent
to 10% of the IRA to LGUs shall be withheld.

President Estrada issued AO 43, amending Section 4 by reducing to 5% the IRA to

be withheld.

ISSUES:

1. WON Section 1 of AO 372, insofar as it "directs" LGUs to reduce their expenditures by

25% is valid

2. WON withholding a part of LGUs IRA is valid

HELD:

1. Yes. Section 1 of AO 372, insofar as it “directs” LGUs to reduce expenditures by

at least 25% is a valid exercise of the President’s power of general supervision over
LGUs as it is advisory only. “Supervisory power, when contrasted with control, is the
power of mere oversight over an inferior body; it does not include any restraining
authority over such body.” Under existing law, LGU, in addition to having administrative
autonomy, enjoy fiscal autonomy as well. Fiscal autonomy means that local
governments have the 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
power to allocate their resources in accordance with their own priorities. It extends to
the preparation of their budgets, and local officials in turn have to work within
the constraints thereof.

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. Significantly, the President, by
constitutional fiat, is the head of the economic and planning agency of the government,
primarily responsible for formulating and implementing continuing, coordinated and
integrated social and economic policies, plans and programs for the entire country.
However, under the Constitution, the formulation and the implementation of such
policies and programs are subject to "consultations with the appropriate public agencies,
various private sectors, and local government units." The President cannot do so
unilaterally.

Consequently, the Local Government Code provides:

"x x x In the event the national government incurs an unmanaged public sector
deficit, the President of the Philippines is hereby authorized, upon the recommendation
of [the] Secretary of Finance, Secretary of the 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 national
internal revenue taxes of the third fiscal year preceding the current fiscal year x x x."

There are therefore several requisites before the President may interfere in
local fiscal matters:
(1) An unmanaged public sector deficit of the national government;

(2) Consultations with the presiding officers of the Senate and the House of
Representatives and the presidents of the various local leagues; and

(3) The corresponding recommendation of the secretaries of the Department of Finance,

Interior and Local Government, and Budget and Management. Furthermore, any
adjustment in the allotment shall in no case be less than thirty percent (30%) of the
collection of national internal revenue taxes of the third fiscal year preceding the current
one.

While the wordings of Section 1 of AO 372 have a rather commanding tone, and
while we agree with petitioner that the requirements of Section 284 of the Local
Government Code have not been satisfied, we are prepared to accept the solicitor
general's assurance that the directive to "identify and implement measures x x x
that will reduce total expenditures x x x by at least 25% of authorized regular
appropriation" is merely advisory in character, and does not constitute a mandatory or
binding order that interferes with local autonomy. The language used, while
authoritative, does not amount to a command that emanates from a boss to a subaltern.

Rather, the provision is merely an advisory to prevail upon local executives to

recognize the need for fiscal restraint in a period of economic difficulty. Indeed, all
concerned would do well to heed the President's call to unity, solidarity and teamwork to
help alleviate the crisis. It is understood, however, that no legal sanction may be
imposed upon LGUs and their officials who do not follow such advice. It is in
this light that we sustain the solicitor general's contention in regard to Section 1.

2. No. Section 4 is invalid because it interferes with local autonomy, particularly

local fiscal autonomy. A basic feature of local fiscal autonomy is the automatic release
of the shares of LGUs in the national internal revenue. This is mandated by no less than
the Constitution. The Local Government Code specifies further that the release shall be
made directly to the LGU concerned within five (5) days after every quarter of the year
and "shall not be subject to any lien or holdback that may be imposed by the national
government for whatever purpose." As a rule, the term "shall" is a word of command
that must be given a compulsory meaning. The provision is, therefore, imperative.

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.

.
Mactan Cebu International Airport Authority vs. Marcos, GR No.120082,
September 11, 1996
DOCTRINE:

Since taxation is the rule and exemption therefrom the exception, the exemption
may thus be withdrawn at the pleasure of the taxing authority. The only exception to
this rule is where the exemption was granted to private parties based on material
consideration of a mutual nature, which then becomes contractual and is thus covered
by the non- impairment clause of the Constitution.

FACTS:

Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by

virtue of Republic Act No. 6958, mandated to “principally undertake the
economical, efficient and effective control, management and supervision of the
Mactan International Airport in the Province of Cebu and the Lahug Airport in
Cebu City, and such other airports as may be established in the Province of Cebu. Since
the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from
payment of realty taxes in accordance with Section 14 of its Charter:

“Sec. 14. Tax Exemptions. — The Authority shall be exempt from realty
taxes imposed by the National Government or any of its political subdivisions,
agencies and instrumentalities.”

On October 11, 1994, however, the Office of the Treasurer of the City of
Cebu, demanded payment for realty taxes on several parcels of land belonging
to the petitioner located at Barrio Apas and Barrio Kasambagan, Lahug, Cebu City, in
the total amount of P2,229,078.79.

Petitioner objected to such demand for payment as baseless and

unjustified, claiming in its favor the aforecited Section 14 of RA 6958 which
exempts it from payment of realty taxes. It was also asserted that it is an
instrumentality of the government performing governmental functions, citing Section
133 of the Local Government Code of 1991, which puts limitations on the taxing powers
of local government units:

“Section 133. Common Limitations on the Taxing Powers of Local

Government Units. — Unless otherwise provided herein, the exercise of the taxing
powers of provinces, cities, municipalities, and barangays shall not extend to the levy of
the following:

xxx

o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units”

Respondent City refused to cancel and set aside petitioner’s realty tax account,
insisting that the MCIAA is a government-controlled corporation whose tax
exemption privilege has been withdrawn by virtue of Sections 193 and 234 of
the Local Government Code that took effect on January 1, 1992:

“Section 193. Withdrawal of Tax Exemption Privilege.— Unless otherwise provided

in this Code, tax exemptions or incentives granted to, or presently enjoyed by all
persons whether natural or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under RA
No. 6938, non-stock and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code.

Section 234. Exemptions from Real Property Taxes. — x x x

(a SECTION 234. Exemptions from Real Property Tax. -- The following are
exempted from payment of the real property tax: RCAAM

(a) 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;

(b) Charitable institutions, churches, parsonages or convents appurtenant

thereto, mosques, non-profit or religious cemeteries and all lands, buildings,
and improvements actually, directly, and exclusively used for religious,
charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively
used by local water districts and government-owned and controlled
corporations engaged in the distribution of water and/or generation and
transmission of electric power;

(d) All real property owned by duly registered cooperatives as provided for
under R.A. No. 6938; and

(e) Machinery and equipment used for pollution control and environmental
protection.

Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code.”

ISSUE:

1. Whether the parcels of land in question belong to the Republic of the Philippines
whose beneficial use has been granted to the petitioner, and

2. Whether the petitioner is a “taxable person.”

HELD:

1. NO. Section 15 of the petitioner’s Charter provides:

“Sec. 15. Transfer of Existing Facilities and Intangible Assets. — All existing public
airport facilities, runways, lands, buildings and other properties, movable or immovable,
belonging to or presently administered by the airports, and all assets, powers, rights,
interests and privileges relating on airport works or air operations, including all
equipment which are necessary for the operations of air navigation, aerodrome control
towers, crash, fire, and rescue facilities are hereby transferred to the Authority:
Provided, however, that the operations control of all equipment necessary for the
operation of radio aids to air navigation, airways communication, the approach control
office, and the area control center shall be retained by the Air Transportation Office. No
equipment, however, shall be removed by the Air Transportation Office from Mactan
without the concurrence of the Authority. The Authority may assist in the maintenance
of the Air Transportation Office equipment.”

It may be reasonable to assume that the term “lands” refer to “lands” in Cebu
City then administered by the Lahug Air Port and included the parcels of land
the respondent City of Cebu seeks to levy on for real property taxes. This section
involves a “transfer” of the “lands,” among other things, to the petitioner and not just
the transfer of the beneficial use thereof, with the ownership being retained by the
Republic of the Philippines.

This “transfer” is actually an absolute conveyance of the ownership thereof

because the petitioner’s authorized capital stock consists of, inter alia, “the value
of such real estate owned and/or administered by the airports.” Hence, the petitioner
is now the owner of the land in question and the exception in Section 234(c) of
the LGC is inapplicable.

2. YES. Moreover, the petitioner cannot claim that it was never a “taxable
person” under its Charter. It was only exempted from the payment of real property
taxes. The grant of the privilege only in respect of this tax is conclusive proof of the
legislative intent to make it a taxable person subject to all taxes, except real property
tax.
Finally, even if the petitioner was originally not a taxable person for purposes of real
property tax, in light of the foregoing disquisitions, it had already become, even if it be
conceded to be an “agency” or “instrumentality” of the Government, a taxable person
for such purpose in view of the withdrawal in the last paragraph of Section 234 of
exemptions from the payment of real property taxes, which, as earlier adverted to,
applies to the petitioner.

NPC vs. City of Cabanatuan, 401 SCRA 259

National Power Corporation vs City of Cabanatuan

G.R. No. 149110 April 9, 2003

NATIONAL POWER CORPORATION, petitioner,
vs.
CITY OF CABANATUAN, respondent.

FACTS:
Petitioner is a government-owned and controlled corporation created under
Commonwealth Act No. 120, as amended. (GOCC under CA 120)

For many years now, petitioner sells electric power to the residents of
Cabanatuan City, posting a gross income of P107,814,187.96 in 1992.Pursuant to
section 37 of Ordinance No. 165-92,8 the respondent assessed the petitioner a
franchise tax amounting to P808,606.41, representing 75% of 1% of the latter’s
gross receipts for the preceding year.

Petitioner refused to pay the tax assessment arguing 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 fees in accordance with sec. 13 of Rep. Act No. 6395, as amended.

"Sec.13. Non-profit Character of the Corporation; Exemption from all

Taxes, Duties, Fees, Imposts and Other Charges by Government and
Governmental Instrumentalities.- The Corporation shall be non-profit and
shall devote all its return from its capital investment, as well as excess
revenues from its operation, for expansion. To enable the Corporation to pay
its indebtedness and obligations and in furtherance and effective implementation
of the policy enunciated in Section one of this Act, the Corporation is hereby
exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and
service fees in any court or administrative proceedings in which it may be a party,
restrictions and duties to the Republic of the Philippines, its provinces, cities,
municipalities and other government agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to
the National Government, its provinces, cities, municipalities and other
government agencies and instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and
wharfage fees on import of foreign goods required for its operations and projects;
and

(d) From all taxes, duties, fees, imposts, and all other charges imposed by the
Republic of the Philippines, its provinces, cities, municipalities and other
government agencies and instrumentalities, on all petroleum products used by the
 Corporation in the generation, transmission, utilization, and sale of electric
power."12

The respondent filed a collection suit in the RTC, demanding that petitioner pay the
assessed tax due, plus surcharge. Respondent alleged that petitioner’s exemption
from local taxes has been repealed by section 193 of the LGC, which reads as
follows:

«Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in

this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government owned or controlled corporations,
except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock
and non-profit hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code.»

RTC upheld NPC’s tax exemption. On appeal the CA reversed the trial court’s
Order on the ground that section 193, in relation to sections 137 and 151 of the
LGC, expressly withdrew the exemptions granted to the petitioner.

ISSUE:

W/N the respondent city government has the authority to issue Ordinance No.
165-92 and impose an annual tax on «businesses enjoying a franchise

HELD:

YES. Taxes are the lifeblood of the government, for without taxes, the
government can neither exist nor endure. A principal attribute of sovereignty, the
exercise of taxing power derives its source from the very existence of the state whose
social contract with its citizens obliges it to promote public interest and
common good. The theory behind the exercise of the power to tax emanates from
necessity; without taxes, government cannot fulfill its mandate of promoting the general
welfare and well-being of the people.

Section 137 of the LGC clearly states that the LGUs can impose franchise
tax «notwithstanding any exemption granted by any law or other special law.»
This particular provision of the LGC does not admit any exception. In City Government
of San Pablo, Laguna v. Reyes,74 MERALCO’s exemption from the payment of franchise
taxes was brought as an issue before this Court. The same issue was involved in the
subsequent case of Manila Electric Company v. Province of Laguna.75 Ruling in favor of
the local government in both instances, we ruled that the franchise tax in
question is imposable despite any exemption enjoyed by MERALCO under
special laws, viz:

«It is our view that petitioners correctly rely on provisions of Sections 137
and 193 of the LGC to support their position that MERALCO’s tax exemption has
been withdrawn. The explicit language of section 137 which authorizes the province to
impose franchise tax ‘notwithstanding any exemption granted by any law or other
special law’ is all-encompassing and clear. The franchise tax is imposable despite
any exemption enjoyed under special laws.
 Section 193 buttresses the withdrawal of extant tax exemption privileges. By
stating that unless otherwise provided in this Code, tax exemptions or
incentives granted to or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations except (1)
local water districts, (2) cooperatives duly registered under R.A. 6938, (3) non-
stock and non-profit hospitals and educational institutions, are withdrawn
upon the effectivity of this code, the obvious import is to limit the exemptions
to the three enumerated entities. It is a basic precept of statutory construction that
the express mention of one person, thing, act, or consequence excludes all others as
expressed in the familiar maxim expressio unius est exclusio alterius. In the
absence of any provision of the Code to the contrary, and we find no other provision in
point, any existing tax exemption or incentive enjoyed by MERALCO under existing law
was clearly intended to be withdrawn.

Reading together sections 137 and 193 of the LGC, we conclude that under the
LGC the local government unit may now impose a local tax at a rate not
exceeding 50% of 1% of the gross annual receipts for the preceding calendar
based on the incoming receipts realized within its territorial jurisdiction. The
legislative purpose to withdraw tax privileges enjoyed under existing law or charter is
clearly manifested by the language used on (sic) Sections 137 and 193 categorically
withdrawing such exemption subject only to the exceptions enumerated. Since
it would be not only tedious and impractical to attempt to enumerate all the existing
statutes providing for special tax exemptions or privileges, the LGC provided for an
express, albeit general, withdrawal of such exemptions or privileges. No more
unequivocal language could have been used.»76 (emphases supplied)

Doubtless, the power to tax is the most effective instrument to raise

needed revenues to finance and support myriad activities of the local
government units for the delivery of basic services essential to the promotion
of the general welfare and the enhancement of peace, progress, and prosperity
of the people. As this Court observed in the Mactan case, «the original reasons for the
withdrawal of tax exemption privileges granted to government-owned or controlled
corporations and all other units of government were that such privilege resulted in
serious tax base erosion and distortions in the tax treatment of similarly situated
enterprises.» With the added burden of devolution, it is even more imperative
for government entities to share in the requirements of development, fiscal or
otherwise, by paying taxes or other charges due from them.

Basco vs. Pagcor, 197 SCRA 52

Basco vs Philippine Amusements and Gaming Corporation

197 SCRA 52 [GR No. 91649 May 14, 1991]

Facts: A TV ad proudly announces: “The New PAGCOR – Responding Through

Responsible Gaming.” But the petitioners think otherwise, that is why, they filed the
instant petition seeking to annul the PAGCOR charter – PD 1869, because it is allegedly
contrary to morals, public policy and order, and because –

a. It constitutes a waiver of a right prejudicial to a third person with a right recognized

by law. It waived the Manila city government’s right to impose taxes and license fees,
which is recognized by law;
 b. For the same reason stated in the immediately preceeding paragraph, the law has
intruded into the local government’s right to impose local taxes and license fees. This, in
contravention of the constitutionally enshrined principle of local autonomy;

c. It violates the equal protection clause of the constitution in that it legalizes PAGCOR –
conducted gambling, while most other forms of gambling are outlawed, together with
prostitution, drug trafficking and other vices;

d. It violates the avowed trend of the Cory government away from the monopolistic and
crony economy, and toward free enterprise and privatization.

Issue: Whether or not the city of Manila may levy taxes on PAGCOR.

Held: No. The city of Manila, being a mere municipal corporation has no inherent right
to impose taxes. Thus, the charter or statute must plainly show an intent to confer that
power or the municipality cannot assume it. 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.

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 PD no. 771 and was vested
exclusively on the national government.

Therefore, only the national government has the power to issue “license 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.

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Local governments has 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.

The power of the local government to “impose taxes and fees” is always subject to
“limitations” which congress may provide by law. Since PD 1869 remains an operative
law until amended, repealed or revoked, its exemption clause remains as an exception
to the exercise of the power of local governments to impose taxes and fees. It cannot
therefore be violative but rather is consistent with the principle of local autonomy.

Besides, the principle of local autonomy under the 1987 constitution simply means
“decentralization.” It does not make local governments sovereign within the state or an
“imperium in imperio.”

What is settled is that the matter of regulating; taxing or otherwise dealing with
gambling in a state concern and hence, it is the sole prerogative of the state to retain it
or delegate it to local governments.

City of Davao vs. RTC Br. XII, Davao City 476 SCRA 280
G.R. No. 127383, August 18, 2005

o tax exemption rules governing GSIS and exceptions

o the plenary powers of Congress cannot be limited by passage of un-repealable laws

FACTS:

GSIS Davao City branch office received a Notice of Public Auction, scheduling public
bidding of its properties for non-payment of realty taxes from 1992-1994, amounting to
the sum total of Php 295, 721.61. The auction was, however, subsequently reset by
virtue of a deadline extension given by Davao City.

On July 28, 1994, GSIS received Warrants of Levy and Notices of Levy on three parcels
of land it owned and another Notice of Public Auction. In September of that same year,
GSIS filed a petition for Certiorari, Prohibition, Mandamus and/or Declaratory Relief with
the Davao City RTC.

During pre-trial, the only issue raised was whether sec. 234 and 534 of the Local
Government Code, which have withdrawn real property tax from GOCCs, have also
withdrawn from the GSIS its right to be exempted from payment of realty tax.

RTC rendered decision in favor of GSIS. Hence this petition.

ISSUE/S:

Whether the GSIS tax exemptions can be deemed as withdrawn by the LGC
W/N sec. 33 of P.D. 1146 has been repealed by the LGC

HELD:

Reading together sec. 133, 232, and 234 of the LGC, as a general rule: the taxing
powers of LGUs cannot extend to the levy of “taxes, fees, and charges of any kind on
the National Government, its agencies and instrumentalities, and LGUs.”

However, under sec. 234, exemptions from payment of real property taxes granted to
natural or juridical persons, including GOCCs, except as provided in said section, are
withdrawn upon effectivity of LGC. GSIS being a GOCC, then it necessarily follows that
its exemption has been withdrawn.

Regarding P.D. 1146 which laid down requisites for repeal on the laws granting
exemption, Supreme Court found a fundamental flaw in Sec. 33, particularly the
amendatory second paragraph.

Said paragraph effectively imposes restrictions on the competency of the Congress to

enact future legislation on the taxability of GSIS. This places an undue restraint on the
plenary power of the legislature to amend or repeal laws.

Only the Constitution may operate to preclude or place restrictions on the amendment or
repeal laws. These conditions imposed under P.D. 1146, if honored, have the precise
effect of limiting the powers of Congress.

Supreme Court held that they cannot render effective the amendatory second paragraph
of sec. 33, for by doing so, they would be giving sanction to a disingenuous means
employed through legislative power to bind subsequent legislators to a subsequent mode
of repeal. Thus, the two conditions under sec. 33 cannot bear relevance whether the
LGC removed the tax-exempt status of GSIS.

Furthermore, sec. 5 on the rules of interpretation of LGC states that “any tax exemption,
incentive or relief granted by any LGU pursuant to the provision of this Code shall be
construed strictly against the person claiming it.”

The GSIS tax-exempt stats, in sum, was withdrawn in 1992 by the LGC but restored by
the GSIS Act of 1997, sec. 39. The subject real property taxes for the years 1992-1994
were assessed against GSIS while the LGC provisions prevailed and thus may be
collected by the City of Davao.
PLDT vs. City of Davao, 363 SCRA 522

[CASE DIGEST] PLDT v. DAVAO CITY (G.R. No. 143867)

August 22, 2001

Ponente: Mendoza, J.

FACTS

The City of Davao withheld PLDT’s application for a Mayors Permit pending
PLDT’s payment of the local franchise tax.

PLDT refused to pay and sought a refund of the franchise tax it had paid before,
insisting it was exempt from the payment of franchise tax based on an opinion
of the Bureau of Local Government Finance.
Davao City denied PLDT’s protest and claim for tax refund.

RULING

The SC ruled in favor of the City of Davao.

The Local Government Code withdrew all tax exemptions previously enjoyed by all
persons. It also authorized local government units to impose a tax on businesses
enjoying a franchise notwithstanding the grant of tax exemption to them. Exemptions
from taxation are highly disfavored, so much so that they may almost be said to be
odious to the law.

He who claims an exemption must be able to point to some positive provision of law
creating the right.

Pimentel vs. Aguirre, 336 SCRA 201

PIMENTEL vs. AGUIRRE
G.R. No. 132988 July 19, 2000

FACTS:

President Ramos issued Administrative Order 372 (Adoption of Economic Measures in

Government for Fiscal Year 1998). Section 1 provided that all government departments
and agencies, including state universities and colleges, GOCCs and LGUs will identify and
implement measures in FY 1998 that will replace total expenditures by at least 25% of
authorized regular appropriations for non-personal services items. Section 4 also
provided that pending assessment by the Development Budget Coordinating Committee
of the emerging fiscal situation, the amount equivalent to 10% of the IRA to LGUs shall
be withheld. President Estrada issued AO 43, amending Section 4 by reducing to 5% the
IRA to be withheld.

ISSUES:

1. WON Section 1 of AO 372, insofar as it "directs" LGUs to reduce their expenditures by

25% is valid

2. WON withholding a part of LGUs IRA is valid

HELD:

1. Yes. Section 1 of AO 372, insofar as it “directs” LGUs to reduce expenditures by at

least 25% is a valid exercise of the President’s power of general supervision over LGUs
as it is advisory only. “Supervisory power, when contrasted with control, is the power of
mere oversight over an inferior body; it does not include any restraining authority over
 such body.” Under existing law, LGU, in addition to having administrative autonomy,
enjoy fiscal autonomy as well. Fiscal autonomy means that local governments have the
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 power to allocate
their resources in accordance with their own priorities. It extends to the preparation of
their budgets, and local officials in turn have to work within the constraints thereof.

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. Significantly, the President, by
constitutional fiat, is the head of the economic and planning agency of the government,
primarily responsible for formulating and implementing continuing, coordinated and
integrated social and economic policies, plans and programs for the entire country.
However, under the Constitution, the formulation and the implementation of such
policies and programs are subject to "consultations with the appropriate public agencies,
various private sectors, and local government units." The President cannot do so
unilaterally.

Consequently, the Local Government Code provides:

"x x x In the event the national government incurs an unmanaged public sector deficit,
the President of the Philippines is hereby authorized, upon the recommendation of [the]
Secretary of Finance, Secretary of the 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 national internal revenue
taxes of the third fiscal year preceding the current fiscal year x x x."

There are therefore several requisites before the President may interfere in
local fiscal matters:

(1) An unmanaged public sector deficit of the national government;

(2) Consultations with the presiding officers of the Senate and the House of
Representatives and the presidents of the various local leagues; and

(3) The corresponding recommendation of the secretaries of the Department of Finance,

Interior and Local Government, and Budget and Management. Furthermore, any
adjustment in the allotment shall in no case be less than thirty percent (30%) of the
collection of national internal revenue taxes of the third fiscal year preceding the current
one.

Petitioner points out that respondents failed to comply with these requisites before the
issuance and the implementation of AO 372. At the very least, they did not even try to
show that the national government was suffering from an unmanageable public sector
deficit. Neither did they claim having conducted consultations with the different leagues
of local governments. Without these requisites, the President has no authority to adjust,
much less to reduce, unilaterally the LGU's internal revenue allotment.

The solicitor general insists, however, that AO 372 is merely directory and has been
issued by the President consistent with his power of supervision over local
governments. It is intended only to advise all government agencies and
instrumentalities to undertake cost-reduction measures that will help maintain economic
stability in the country, which is facing economic difficulties. Besides, it does not contain
any sanction in case of noncompliance. Being merely an advisory, therefore, Section 1
of AO 372 is well within the powers of the President. Since it is not a mandatory
imposition, the directive cannot be characterized as an exercise of the power of control.

While the wordings of Section 1 of AO 372 have a rather commanding tone, and while
we agree with petitioner that the requirements of Section 284 of the Local Government
Code have not been satisfied, we are prepared to accept the solicitor general's
assurance that the directive to "identify and implement measures x x x that will
reduce total expenditures x x x by at least 25% of authorized regular appropriation"
is merely advisory in character, and does not constitute a mandatory or binding order
that interferes with local autonomy. The language used, while authoritative, does not
amount to a command that emanates from a boss to a subaltern.

Rather, the provision is merely an advisory to prevail upon local executives to recognize
the need for fiscal restraint in a period of economic difficulty. Indeed, all concerned
would do well to heed the President's call to unity, solidarity and teamwork to help
alleviate the crisis. It is understood, however, that no legal sanction may be imposed
upon LGUs and their officials who do not follow such advice. It is in this light that we
sustain the solicitor general's contention in regard to Section 1.

2. No. Section 4 is invalid because it interferes with local autonomy, particularly local
fiscal autonomy. A basic feature of local fiscal autonomy is the automatic release of the
shares of LGUs in the national internal revenue. This is mandated by no less than the
Constitution. The Local Government Code specifies further that the release shall be
made directly to the LGU concerned within five (5) days after every quarter of the year
and "shall not be subject to any lien or holdback that may be imposed by the national
government for whatever purpose." As a rule, the term "shall" is a word of command
that must be given a compulsory meaning. The provision is, therefore, imperative.

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.

Scope of President's Power of Supervision Over LGUs

Section 4 of Article X of the Constitution confines the President's power over local
governments to one of general supervision. It reads as follows:

"Sec. 4. The President of the Philippines shall exercise general supervision over
local governments. x x x"

This provision has been interpreted to exclude the power of control. In Mondano v.
Silvosa, the Court contrasted the President's power of supervision over local government
officials with that of his power of control over executive officials of the national
government. It was emphasized that the two terms -- supervision and control --
differed in meaning and extent. The Court distinguished them as follows:

"x x x In administrative law, supervision means overseeing or the power or authority of

an officer to see that subordinate officers perform their duties. If the latter fail or
neglect to fulfill them, the former may take such action or step as prescribed by law to
make them perform their duties. Control, on the other hand, means the power of an
officer to alter or modify or nullify or set aside what a subordinate officer ha[s] done in
the performance of his duties and to substitute the judgment of the former for that of
the latter."

In Taule v. Santos, we further stated that the Chief Executive wielded no more authority
than that of checking whether local governments or their officials were performing their
duties as provided by the fundamental law and by statutes. He cannot interfere with
local governments, so long as they act within the scope of their authority. "Supervisory
power, when contrasted with control, is the power of mere oversight over an inferior
body; it does not include any restraining authority over such body," we said.

In a more recent case, Drilon v. Lim, the difference between control and supervision was
further delineated. Officers in control lay down the rules in the performance or
accomplishment of an act. If these rules are not followed, they may, in their discretion,
order the act undone or redone by their subordinates or even decide to do it
themselves. On the other hand, supervision does not cover such authority. Supervising
officials merely see to it that the rules are followed, but they themselves do not lay
down such rules, nor do they have the discretion to modify or replace them. If the rules
are not observed, they may order the work done or redone, but only to conform to such
rules. They may not prescribe their own manner of execution of the act. They have no
discretion on this matter except to see to it that the rules are followed.

Under our present system of government, executive power is vested in the President.
The members of the Cabinet and other executive officials are merely alter egos. As
such, they are subject to the power of control of the President, at whose will and behest
they can be removed from office; or their actions and decisions changed, suspended or
reversed. In contrast, the heads of political subdivisions are elected by the people. Their
sovereign powers emanate from the electorate, to whom they are directly accountable.
By constitutional fiat, they are subject to the President’s supervision only, not control, so
long as their acts are exercised within the sphere of their legitimate powers. By the
same token, the President may not withhold or alter any authority or power given them
by the Constitution and the law.

Extent of Local Autonomy

Hand in hand with the constitutional restraint on the President's power over local
governments is the state policy of ensuring local autonomy.

In Ganzon v. Court of Appeals, we said that local autonomy signified "a more responsive
and accountable local government structure instituted through a system of
decentralization." The grant of autonomy is intended to "break up the monopoly of the
national government over the affairs of local governments, x x x not x x x to end the
relation of partnership and interdependence between the central administration and local
government units x x x." Paradoxically, local governments are still subject to
regulation, however limited, for the purpose of enhancing self-government.

Decentralization simply means the devolution of national administration, not power, to

local governments. Local officials remain accountable to the central government as the
law may provide. The difference between decentralization of administration and that of
power was explained in detail in Limbona v. Mangelin as follows:

"Now, autonomy is either decentralization of administration or decentralization of

power. There is decentralization of administration when the central
government delegates administrative powers to political subdivisions in order to broaden
the base of government power and in the process to make local governments 'more
responsive and accountable,' and 'ensure their fullest development as self-reliant
communities and make them more effective partners in the pursuit of national
development and social progress.' At the same time, it relieves the central government
of the burden of managing local affairs and enables it to concentrate on national
concerns. The President exercises 'general supervision' over them, but only to 'ensure
that local affairs are administered according to law.' He has no control over their acts in
the sense that he can substitute their judgments with his own.

Decentralization of power, on the other hand, involves an abdication of political

power in the favor of local government units declared to be autonomous. In that case,
the autonomous government is free to chart its own destiny and shape its future with
minimum intervention from central authorities. According to a constitutional author,
decentralization of power amounts to 'self-immolation,' since in that event, the
autonomous government becomes accountable not to the central authorities but to its
constituency."

Under the Philippine concept of local autonomy, the national government has not
completely relinquished all its powers over local governments, including autonomous
regions. Only administrative powers over local affairs are delegated to political
subdivisions. The purpose of the delegation is to make governance more directly
responsive and effective at the local levels. In turn, economic, political and social
development at the smaller political units are expected to propel social and economic
growth and development. But to enable the country to develop as a whole, the
programs and policies effected locally must be integrated and coordinated towards a
common national goal. Thus, policy-setting for the entire country still lies in the
President and Congress. As we stated in Magtajas v. Pryce Properties Corp., Inc.,
municipal governments are still agents of the national government.

ACORD vs. Zamora, 459 SCRA 578

ALTERNATIVE CENTER FOR ORGANIZATIONAL REFORMS AND DEVELOPMENT,
INC., VS. ZAMORA
G.R. No. 144256

Subject: Public Corporation

Doctrine: Automatic release of IRA

Facts:

Pres. Estrada, pursuant to Sec 22, Art VII mandating the Pres to submit to
Congress a budget of expenditures within 30 days before the opening of every regular
session, submitted the National Expenditures program for FY 2000. The President
proposed an IRA of P121,778,000,000. This became RA 8760, “AN ACT
APPROPRIATING FUNDS FOR THE OPERATION OF THE GOVERNMENT OF THE REPUBLIC
OF THE PHILIPPINES FROM JANUARY ONE TO DECEMBER THIRTY-ONE, TWO
THOUSAND, AND FOR OTHER PURPOSES” also known as General Appropriations Act
(GAA) for the Year 2000. It provides under the heading “ALLOCATIONS TO LOCAL
GOVERNMENT UNITS” that the IRA for local government units shall amount to
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.

Thus, while the GAA appropriates P111,778,000,000 of IRA as Programmed Fund,

it 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 the
condition stated in the GAA.

On August 22, 2000, a number of NGOs and POs, along with 3 barangay
officials filed with this Court the petition at bar, for Certiorari, Prohibition and
Mandamus With Application for Temporary Restraining Order, against
respondents then Executive Secretary Ronaldo Zamora, then Secretary of the
Department of Budget and Management Benjamin Diokno, then National
Treasurer Leonor Magtolis-Briones, and the Commission on Audit, challenging
the constitutionality of provision XXXVII (ALLOCATIONS TO LOCAL
GOVERNMENT UNITS) referred to by petitioners as Section 1, XXXVII (A), and
LIV (UNPROGRAMMED FUND) Special Provisions 1 and 4 of the GAA (the GAA
provisions)

Petitioners contend that the said provisions violates the LGUs autonomy
by unlawfully reducing the IRA allotted by 10B and by withholding its release
by placing the same under “Unprogrammed funds”. Although the effectivity of the
Year 2000 GAA has ceased, this Court shall nonetheless proceed to resolve the
issues raised in the present case, it being impressed with public interest.

Petitioners argue that the GAA violated the constitutional mandate of

automatically releasing the IRAs when it made its release contingent on whether
revenue collections could meet the revenue targets originally submitted by the
President, rather than making the release automatic.
ISSUE:

WON the subject GAA violates LGUs fiscal autonomy by not automatically releasing
the whole amount of the allotted IRA.

HELD:

Article X, Section 6 of the Constitution provides:

SECTION 6. Local government units shall have a just share, as determined by
law, in the national taxes which shall be automatically released to them.

Petitioners argue that the GAA violated this constitutional mandate when it made
the release of IRA contingent on whether revenue collections could meet the revenue
targets originally submitted by the President, rather than making the release automatic.

Respondents counterargue that the above constitutional provision is addressed not

to the legislature but to the executive, hence, the same does not prevent the legislature
from imposing conditions upon the release of the IRA.
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.”

As the Constitution lays upon the executive the duty to automatically release the
just share of local governments in the national taxes, so it enjoins the legislature not to
pass laws that might prevent the executive from performing this duty. To hold that the
executive branch may disregard constitutional provisions which define its
duties, provided it has the backing of statute, is virtually to make the
Constitution amendable by statute – a proposition which is patently absurd. If
indeed the framers intended to allow the enactment of statutes making the
release of IRA conditional instead of automatic, then Article X, Section 6 of the
Constitution would have been worded differently.

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.

In another case, the Court held that 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.

This Court recognizes that the passage of the GAA provisions by Congress
was motivated by the laudable intent to “lower the budget deficit in line with
prudent fiscal management.” The pronouncement in Pimentel, however, must be
echoed: “[T]he rule of law requires that even the best intentions must be carried out
within the parameters of the Constitution and the law. Verily, laudable purposes
must be carried out by legal methods.”

WHEREFORE, the petition is GRANTED. XXXVII and LIV Special Provisions 1

and 4 of the Year 2000 GAA are hereby declared unconstitutional insofar as they
set apart a portion of the IRA, in the amount of P10 Billion, as part of the
UNPROGRAMMED FUND.