LGU just share of national taxes (all national taxes, not only internal-revenue)
Summary
This landmark Supreme Court En Banc decision addressed the constitutional scope of Local Government Units' entitlement to national tax revenues. Petitioners challenged the National Government's practice of computing LGU shares based only on 'national internal revenue taxes' rather than all 'national taxes' as mandated by the Constitution. The Court declared unconstitutional the phrase 'internal revenue' in Section 284 of the Local Government Code, ruling that Congress impermissibly narrowed the constitutional base for LGU tax sharing. The decision significantly expanded LGU fiscal autonomy by requiring inclusion of customs duties, VATs collected by BOC, and other national taxes in the computation base. However, applying the doctrine of operative fact, the Court made the ruling prospective only, denying claims for past arrears totaling hundreds of billions. The decision reinforces constitutional supremacy in local government fiscal relations and mandates automatic release of LGU shares without legislative appropriation, fundamentally reshaping intergovernmental fiscal arrangements in the Philippines.
Focus of dispute
Constitutional challenge to the computation of Local Government Units' share in national taxes, specifically whether the phrase 'internal revenue' in Section 284 of the Local Government Code unconstitutionally restricts the constitutional mandate for LGUs to receive a 'just share' in 'national taxes'
Legal facts
Local Government Units challenged the computation of their Internal Revenue Allotment (IRA) under the General Appropriations Act for FY 2012. Petitioners alleged that certain national taxes collected by the Bureau of Customs (excise taxes, VATs, documentary stamp taxes) and other agencies were improperly excluded from the base computation of their constitutionally mandated share. They argued that Section 284 of the Local Government Code, which limited the base to 'national internal revenue taxes' instead of 'national taxes' as stated in the Constitution, was unconstitutional. The cases were consolidated, seeking payment of approximately P60.75 billion for FY 2012 and P438.1 billion in unpaid arrears from FY 1992-2011. The National Government, through the OSG, defended the existing computation method based on DBCC Resolution No. 2003-02.
Judgement and reasoning
Supreme Court En Banc
The Court PARTIALLY GRANTED the petitions. The Supreme Court declared the phrase 'internal revenue' in Section 284 of Republic Act No. 7160 (Local Government Code) UNCONSTITUTIONAL and ordered its deletion. The Court held that Congress exceeded its constitutional authority by limiting the LGUs' share to 'national internal revenue taxes' when the Constitution mandates sharing in 'national taxes' broadly. The Court applied comprehensive constitutional interpretation, emphasizing that local autonomy includes fiscal autonomy, and that Congress cannot restrict the constitutional base for computing LGUs' just share. However, the Court applied the doctrine of operative fact, making the ruling prospective only and denying claims for past arrears. The Court ordered that LGUs' share shall henceforth be computed from ALL national tax collections, including customs duties, VATs and excise taxes collected by BOC, with specific exclusions only for constitutionally authorized special purpose funds. The Court also commanded automatic release of LGU shares without need for appropriation, consistent with Section 6, Article X of the 1987 Constitution.