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Mandanas v. Ochoa: IRA Computation Ruling

This case involved two petitions challenging the base figure used for computing the Internal Revenue Allotment (IRA) of local government units (LGUs). Section 6 of the 1987 Constitution guarantees LGUs a just share in national taxes, but Section 284 of the Local Government Code bases the IRA on national internal revenue taxes instead. The Supreme Court ruled Section 284 unconstitutional, finding that Congress departed from the Constitution by using the more restrictive term "national internal revenue taxes". As a result, LGUs were deprived of their just share from other national taxes like customs duties. Going forward, both the Bureau of Internal Revenue and Bureau of Customs must certify all national tax collections to determine the IRA in compliance with the Constitution.

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50 views3 pages

Mandanas v. Ochoa: IRA Computation Ruling

This case involved two petitions challenging the base figure used for computing the Internal Revenue Allotment (IRA) of local government units (LGUs). Section 6 of the 1987 Constitution guarantees LGUs a just share in national taxes, but Section 284 of the Local Government Code bases the IRA on national internal revenue taxes instead. The Supreme Court ruled Section 284 unconstitutional, finding that Congress departed from the Constitution by using the more restrictive term "national internal revenue taxes". As a result, LGUs were deprived of their just share from other national taxes like customs duties. Going forward, both the Bureau of Internal Revenue and Bureau of Customs must certify all national tax collections to determine the IRA in compliance with the Constitution.

Uploaded by

Dayanarah Maranda
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Mandanas v. Ochoa (G.R. Nos.

199802, 208488)

July 3, 2018

Hermilando Mandanas, et al., petitioners


Executive Secretary Paquito Ochoa, et al., respondents

FACTS:

The fiscal autonomy guaranteed to local governments under Section 6, Article X


of the 1987 Constitution means 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.

Pursuant to this Constitutional dictum, Congress enacted Republic Act No. 7160,
otherwise known as the Local Government Code (LGC). Sec. 284 of the LGC
provides that LGUs shall have an allotment equivalent to 40% of the the national
internal revenue taxes.

The share of the LGUs, known as the Internal Revenue Allotment (IRA), has
been regularly released to the LGUs. According to the implementing rules and
regulations of the LGC, the IRA is determined on the basis of the actual
collections of the National Internal Revenue Taxes (NIRTs) as certified by the
Bureau of Internal Revenue (BIR).

Two petitions were filed to challenge the base figure for the computation of the
IRA.

In G.R. No. 199802, Cong. Hermilando Mandanas, et al., alleged that the NIRTs
certified by the BIR excluded the NIRTs collected by the Bureau of Customs,
specifically excise taxes, value added taxes (VATs), and documentary stamp
taxes (DSTs). Such exclusion resulted in LGUs being deprived of
₱60,750,000,000.00 for FY 2012. Further, the petitioners argued that since this
mistake in computation was happening since 1992, then the National
Government has effectively deprived LGUs of ₱438,103,906,675.73 in their IRA.

Meanwhile, in G.R. No. 208488, Cong. Enrique Garcia, Jr. sought the issuance
of the writ of mandamus to compel respondents to compute the just share of the
LGUs on the basis of all national taxes. He argued that the insertion by Congress
of the words "internal revenue" in the phrase "national taxes" found in Section
284 of the LGC caused the diminution of the base for determining the just share
of the LGUs, and should be declared unconstitutional.

ISSUE:

Whether or not Section 284 of the LGC is unconstitutional for being repugnant to
Section 6, Article X of the 1987 Constitution. -- YES.

Art 284. LGUs shall have a forty percent (40%) share in the national internal
revenue taxes (NIRT) based on the collection of the third fiscal year preceding
the current fiscal year.

HELD:

Section 6 of the Constitution mentions "national taxes" as the source of the just
share of the LGUs while Section 284 of the LGC ordains that the share of the
LGUs be taken from "national internal revenue taxes" instead. Congress thereby
infringed the constitutional provision.

Although the power of Congress to make laws is plenary in nature, congressional


lawmaking remains subject to the limitations stated in the 1987 Constitution.

The phrase "national internal revenue taxes" in Section 284 is undoubtedly more
restrictive than the term "national taxes" written in Section 6 of the Constitution.
As such, Congress has actually departed from the letter of the 1987 Constitution
stating that national taxes should be the base from which the just share of the
LGU comes. Such departure is impermissible. Verba legis non est
recedendum (from the words of a statute there should be no departure).

Equally impermissible is that Congress has also thereby curtailed the guarantee
of fiscal autonomy in favor of the LGUs under the 1987 Constitution.

What the phrase "national internal revenue taxes" as used in Section 284 of the
LGC included are all the taxes enumerated in Section 21 of the National Internal
Revenue Code (NIRC), as amended by R.A. No. 8424, namely: income tax,
estate and donor's taxes, VAT, other percentage taxes, excise taxes,
documentary stamp taxes, and such other taxes as may be imposed and
collected by the BIR.

In view of the foregoing enumeration of what are the national internal revenue
taxes, Section 284 of the LGC has effectively deprived the LGUs from deriving
their just share from other national taxes, like the customs duties.
Moving forward, the BIR and the BOC are directed certify all national tax
collections. This ruling, also known as the "Mandanas Ruling," is to be applied
prospectively.

Common questions

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The Mandanas ruling corrected the historical oversight where LGUs were deprived of their equitable share from all national taxes, as opposed to only national internal revenue taxes. This oversight led to significant financial shortfalls for LGUs over decades, notably excluding collections from taxes like customs duties. The ruling mandates that these collections be included in future computations, aligning with the original constitutional intent .

The modification affects budgetary allocations by increasing the funds available to LGUs through a more comprehensive inclusion of national taxes like customs duties, beyond just internal revenue taxes. This can lead to greater financial capacity for LGUs to invest in local infrastructure, health, and education, potentially requiring re-evaluation of national government budget allocations. It encourages decentralization, empowering LGUs to address region-specific needs with increased financial resources .

The Mandanas ruling potentially bolsters local development by increasing financial resources available to LGUs. This can spur enhanced investment in infrastructure, education, health, and other social services tailored to local needs, reducing regional inequalities. The increased funding capacity might also attract private investments and stimulate local economies. However, success hinges on effective governance and strategic planning by LGUs to utilize these resources optimally to create significant socio-economic impacts .

The constitutional issue arises because Section 6, Article X of the 1987 Constitution mentions "national taxes" as the source for the local government units' (LGUs) equitable share, while Section 284 of the Local Government Code (LGC) restricts this to "national internal revenue taxes." This discrepancy infringes on the Constitution by limiting the LGUs' share, effectively contravening the fiscal autonomy guaranteed to LGUs under the Constitution .

The Mandanas ruling reinforces the principle of fiscal federalism by affirming the constitutional mandate for LGUs to have a just share in national wealth, ensuring their financial independence to govern effectively. It highlights the importance of adhering to the Constitution in legislative processes, emphasizing local governments' role in balanced national governance through fiscal decentralization. The ruling sets a precedent for interpreting fiscal provisions in a manner that supports autonomy and localized administration .

The Mandanas ruling impacts LGUs' financial autonomy by correcting the computation base for their revenue share. It mandates that LGUs receive their share from all national taxes, not just internal revenue taxes, thus enhancing their fiscal resources and autonomy. This change aligns with the constitutional guarantee of fiscal autonomy and allows LGUs to receive a larger share of national tax collections, including those by the Bureau of Customs .

The Mandanas ruling could lead to significant shifts in fiscal policy, encouraging greater decentralization as LGUs gain more financial autonomy with increased revenues. It might necessitate clearer delineation of responsibilities and cooperation between national and local governments in policy and development projects. Enhanced inter-governmental relations could develop, focusing on resource management, capacity building, and ensuring transparency and efficiency in fund utilization. This financial empowerment could drive more localized policy initiatives and innovation .

LGUs may face challenges in efficiently allocating increased funds due to potential lack of capacity or expertise in budget management, planning, and implementation. There is a risk of mismanagement or corruption if governance structures and accountability mechanisms are not strengthened concurrently. Additionally, LGUs will need to strategically plan long-term development initiatives that effectively harness these additional resources .

Following the Mandanas ruling, the BIR and BOC are responsible for certifying all national tax collections to ensure accurate computation of the LGUs' share of these taxes. This involves broader tax reporting and compliance efforts from both bureaus to include taxes collected under their respective domains, which were previously omitted in the LGUs' revenue computations .

The Mandanas ruling underscores the limitations on Congress's plenary power to legislate, particularly in respecting constitutional mandates. It highlights that congressional enactments must align with the Constitution, which means that Congress cannot unilaterally alter the meaning of 'national taxes' to exclude certain taxes from the local government's revenue share. This emphasizes the judiciary's role in ensuring that legislative actions do not infringe upon constitutional provisions .

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