There have been talks recently on the move to amend and revise the Philippine Constitution (1987). Some of what I’ve read anchor their arguments on two issues:
1. To institutionalize the Mandanas Ruling (Mandanas et al. vs. Ochoa, et al.; G.R. Nos.199802&208488, 3 July 2018 & 10 April 2019).
2. To increase or encourage more foreign investment in the Philippines.
It would be difficult to compress the discussion of the two topics into one column, so I’ll discuss today the first issue and I’ll discuss on July 29, the second issue.
Mandanas Ruling, you ask. What’s that all about? Many are unaware of what the Mandanas Ruling of the Supreme Court is all about. Essentially, the Supreme Court ruled that the Internal Revenue Allocation (IRA) given to the local government units (LGUs) should be taken to include all other national taxes, on top of their share in the national internal revenue taxes.
The constitutionalreform.gov.ph explained the Mandanas Ruling in this manner: “The Mandanas Ruling clarifies that the share from the Internal Revenue Allotment (IRA) of the local government units (LGUs) does not exclude other national taxes like customs duties. The exclusion of other national taxes like customs duties from the base for determining the just share of the LGUs contravened the express constitutional edict in Section 6, Article X, of the 1987 Constitution. Accordingly, the national taxes to be included in the base for computing the just share of the local government units (LGUs) shall not be limited to the following:
“a. – g.”
The basis of the Supreme Court, in including other national taxes for the computation of IRA is Article X, Section 6, of the 1987 Constitution, which 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.”
The Supreme Court interpreted this provision, that the just share of the LGUs which shall be determined by law shall be taken from the national taxes and not only from the internal revenue taxes. Thus, ruled to delete the phrase “internal revenue” in Section 284 of R.A. 7160, otherwise known as the Local Government Code of 1991 (LGC of 1991), along with the other related provisions of the same code.
So, we ask the question, do we need to amend the 1987 Constitution, to address the revenue needs of the local government units?
In my own humble opinion, I believe that the Mandanas Ruling does not need to be spelled out in the constitution to be operative, through an amendment. What the Supreme Court merely did was properly apply an already existing constitutional provision, i.e., Sec. 6, Article X, of the 1987 Constitution, by including all national taxes in the computation of the IRA and by necessarily directing the deletion of the phrase “internal revenue” in the pertinent provisions of the LGC of 1991. This ruling prospectively entitles the LGUs to the share in other enumerated national taxes, on top of the internal revenue taxes. It will mean a clear increase in their annual revenues which, as provided in the very same constitutional provision, should be automatically released to them.
We are already replete with constitutional provisions and their corresponding implementing laws (primarily, the LGC of 1991), to ensure that the LGUs can raise sufficient revenues to operate, manage, sustain, and develop their respective territorial jurisdictions, as well as to serve and address the needs of their constituents.
The relevant provisions of the 1987 Constitution are: Article II, Section 25; and, Article X, Sections 5-7 and 10-11, 13-14.
Pursuant to the above-cited provisions of the Constitution, the LGC of 1991shows that LGUs derive their revenues from two sources, i.e., local tax and non-tax revenue sources, and from external sources. Local tax revenues include real property and business tax while non-tax revenues include fees, charges, receipts from government business operations and proceeds from the sale of assets. External sources are IRA, shares from special laws, grants and aids, and borrowings.
Subject to exemptions, as the case may be, the LGC of 1991 empowers the LGUs, among others, to collect the following (citing, Guide to Philippine Taxes; ntrc.gov.ph):
1. Taxes on Real Property include:
a) Basic Real Property Tax for lands; and,
b) Special Levies on Real Property for Special Education Fund Tax, Idle Land Tax, Special Levy (for lands specially benefitted by public works projects or improvements funded by the LGU) and Other Impositions on Real Property (Socialized Housing Tax – R.A. 7279 “UDHA Law”, Tax on Transfer of Real Property Ownership).
2. Other Local Taxes
a) Provincial Taxes (on business of printing and publication; business enjoying franchise; on sand, gravel and other quarry resources; professional tax; amusement tax; annual fixed tax for every delivery trucks of distilled spirits, cigars etc.;
b) Municipal Taxes (business taxes – combination of graduated-fixed and percentage business taxes; percentage tax and annual tax);
c) City Taxes (same as provincial and municipality subject to allowable rates);
d) Barangay Taxes;
e) Community Tax (individuals, corporations).
3. Other revenue raising powers of the LGUs
a) Service Fees and Charges;
b) Public Utility Charges;
c) Toll Fees and Charges.
4. IRA based on the Mandanas Ruling
Clearly, with all these sources of revenues for LGUs, they can generate as much income as possible for their respective jurisdictions. Thus, the problem lies not in the alleged lack of provisions in the 1987 Constitution or the laws (to increase local revenues) but in ensuring that collections of taxes, fees and charges are properly, diligently and accurately implemented. Importantly, addressing leakages in assessing and collecting these revenues should be of highest priority to the local and national government.
If despite the existence of laws allowing or mandating LGUs to source revenues, they still want to expand their revenue generating powers, the same can be made via legislation, without the need to amend the Constitution.
Thus, there is no need to further amend a clear provision of Article X, Section 6, of the Constitution. If at all, Congress can merely pass a law, amending the provisions of the LGC of 1991, by adopting the Mandanas Ruling.