THE PROVINCE OF BATANGAS vs. HON. ALBERTO G.

ROMULO, Executive
Secretary and Chairman of the Oversight Committee on Devolution

FACTS:
The Province of Batangas filed a petition to to declare as unconstitutional
and void certain provisos contained in the GAA of 1999, 2000 and 2001,
insofar as they uniformly earmarked for each corresponding year the
amount of P5,000,000,000 of the Internal Revenue Allotment (IRA) for the
Local Government Service Equalization Fund (LGSEF) and imposed
conditions for the release thereof.
President Estrada issued EO 48 entitled "ESTABLISHING A PROGRAM FOR
DEVOLUTION ADJUSTMENT AND EQUALIZATION.
The program wishes to "facilitate the process of enhancing the
capacities of LGUs in the discharge of the functions and services
devolved to them by the National Government Agencies
The Oversight Committee/ Devolution Committee created a Devolution
Adjustment and Equalization Fund" to address the funding shortfalls of
functions and services devolved to the LGUs and other funding
requirements of the program
In the GAA, LOCAL GOVERNMENT SERVICE EQUALIZATION FUND (LGSEF)
program was made part of wherein the amount of P96,780,000,000 was
allotted as the share of the LGUs in the internal revenue taxes
It provided:
That the amount of FIVE BILLION PESOS (P5,000,000,000) shall be
earmarked for the Local Government Service Equalization Fund for the
funding requirements of projects and activities arising from the full and
efficient implementation of devolved functions and services of LGUs.
PROVIDED that such amount shall be released to the LGUs subject to
the implementing rules and regulations, including such mechanisms and
guidelines for the equitable allocations and distribution of said fund among
LGUs subject to the guidelines that may be prescribed by the Oversight
Committee on Devolution
The Committee passed resolutions as to how the funds shall be allocated
The committee imposed guidelines such that the LGSEF could not be
released to the LGUs without the Oversight Committees prior approval
Guidelines required:
(a) the LGUs to identify the projects eligible for funding based on
the criteria laid down by the Oversight Committee;
(b) the LGUs to submit their project proposals to the DILG for
appraisal;
(c) the project proposals that passed the appraisal of the DILG to
be submitted to the Oversight Committee for review,
evaluation and approval.
NOW, petitioner submits that the assailed provisos in the GAAs and the OCD
resolutions, insofar as they earmarked the amount of five billion pesos of

the IRA of the LGUs for 1999, 2000 and 2001 for the LGSEF and imposed
conditions for the release thereof, violate the Constitution and the Local
Government Code of 1991
Petitioners legal basis was:
Section 6, Article X of the Constitution is invoked as it mandates
that the "just share" of the LGUs shall be automatically released to
them.
Sections 18 and 286 of the Local Government Code of 1991,
which enjoin that the "just share" of the LGUs shall be
"automatically and directly" released to them "without need of
further action" are, likewise, cited

RESPONDENTs now posits the view that Article X of the Constitution does
not specify that the "just share" of the LGUs shall be determined solely by
the Local Government Code of 1991. Moreover, the phrase "as determined
by law" in the same constitutional provision means that there exists no
limitation on the power of Congress to determine what is the "just share" of
the LGUs in the national taxes. In other words, Congress is the arbiter of
what should be the "just share" of the LGUs in the national taxes.

ISSUE: whether the assailed provisos contained in the GAAs of 1999, 2000 and
2001, and the OCD resolutions infringe the Constitution and the Local
Government Code of 1991
HELD: YES. Unconstitutional
RATIO:
Section 6, Article X of the Constitution reads:
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.
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 law; and (3) the "just share" shall be automatically released to
the LGUs.

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.
It was only upon approval thereof that the Oversight Committee would
direct the DBM to release the funds for the projects.

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.

Re 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.
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." 29 In fact, its creation
was placed under the title of "Transitory Provisions," signifying its ad hoc
character.
The Oversight Committee's authority is undoubtedly limited to the
implementation of the Local Government Code of 1991, not to supplant or
subvert the same. Neither can it exercise control over the IRA, or even a
portion thereof, of the LGUs.
Re Significance of Local Autonomy:
The State shall guarantee and promote the autonomy of local
government units, especially the barrio, to insure their fullest
development as self-reliant communities.
local autonomy 'means a more responsive and accountable local
government structure instituted through a system of
decentralization.'
Re Fiscal Autonomy
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.

They are not formulated at the national level and imposed on local
governments, whether they are relevant to local needs and
resources or not

Re Just Share
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.
ACORD vs ZAMORA
FACTS:
President Joseph Ejercito Estrada submitted the National Expenditures
Program for Fiscal Year 2000. In the said Program, the President proposed
an Internal Revenue Allotment (IRA) in the amount of P121,778,000,000
following the formula provided for in Section 284 of the Local Government
Code of 1992
GAA appropriates P111,778,000,000 of IRA as Programmed Fund,
it also 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 that: 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.
Petitioners contend that the 2000 GAA violates the Autonomy of the LGUs
by unlawfully reducing by 10B the IRA due to LGUs and withholding the
release by placing them under unprogrammed funds
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 POSITION:
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."
ISSUE: WON the constitutional prohibition on withholding the IRA only refers
to the Executive branch
HELD: NO. The legislature, like the executive, is mandated by said constitutional
provision to ensure that the just share of local governments in the national
taxes are automatically released
RATIO:
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.

Moreover, there is merit in the argument that, 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. Instead of reading "Local
government units shall have a just share, as determined by law, in the
national taxes which shall be automatically released to them" (italics
supplied), it would have read as follows, so the Province of Batangas posits:
"Local government units shall have a just share, as
determined by law, in the national taxes which shall be
[automatically] released to them as provided by law," or,
"Local government units shall have a just share in the
national taxes which shall be [automatically] released to
them as provided by law," or
"Local government units shall have a just share, as
determined by law, in the national taxes which shall be
automatically released to them subject to exceptions Congress
may provide." 16 (Italics supplied)

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.
SEcAIC

Re Automatic Release:
While "automatic release" implies that the just share of the local
governments determined by law should be released to them as a matter of
course, the GAA provisions, on the other hand, withhold its release pending
an event which is not even certain of occurring. To rule that the term
"automatic release" contemplates such conditional release would be to strip
the term "automatic" of all meaning.
Re Exception to the automatic release:
the only possible exception to mandatory automatic release of the IRA is, as
held in Batangas:
o . . . 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.
o 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.
Title: Villanueva vs Ople
GR 165125 November 18, 2005
Ponente: Panganiban, j.:
Facts:
On December 8, 2003, Petitioners Cesar T. Villanueva, Pedro S. Santos, and
Roy C. Soriano filed a Joint Affidavit-Complaint[5] before the Office of the
Ombudsman. They charged incumbent Mayor Felix V. Ople and Vice-Mayor
Josefina R. Contreras of Hagonoy, Bulacan, of violation of Section 3(e)[6] of
RA No. 3019 or the Anti-Graft and Corrupt Practices Act,[7] in relation to
Sections 305-(a),[8] 318[9] and 351[10] of the Local Government Code
(LGC).
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.
On the theory that no enabling resolution had been enacted authorizing
expenditures of the municipality to be based on the annual budget for the

preceding year, petitioners claimed that the disbursement of public funds

during the period January 1, 2003 to July 11, 2003[12] and/or August 27,
2003[13] had been illegal. They therefore prayed that respondents be held
liable for the illegal disbursements done in the discharge of official
functions, through evident bad faith and/or gross negligence that had
caused undue injury to the Municipality of Hagonoy, Bulacan.
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. In order to prepare a feasible
budget, they allegedly had to know the localitys financial position for the
prior year, data on which had to come from the accounting department.
According to respondents, the Sangguniang Bayan of Hagonoy and the
Sangguniang Panlalawigan of Bulacan eventually passed and approved the
proposed budget, whose effectivity date was January 1, 2003.[18] They
averred that the Local Government Code had not required the vice-mayor
to submit the budget to the legal officer of the municipality for review.
Finally, respondents claimed that the disbursements of public funds during
the absence of an approved budget were legal under Section 323[20] of RA
7160 or the LGC.
In their Reply and Supplemental Reply, petitioners reiterated their
allegations in their Joint Affidavit-Complaint, in which they stressed that
Section 323 of the LGC had required the mayor to submit the budget for the
coming fiscal year not later than October 16 of the current FY.

Issue: WON the deputy ombudsman for Luzon actedca in grave abuse of
his discretion in ruling that there is no probable cause against
respondets?
WON petitioners instituted the wrong remedy? Thus, petitioners
committed a procedural error in resorting to a Petition for Review under Rule
45 of the Rules of Court. To challenge the dismissal of their Complaint and to
require the OMB to file an information, petitioners should have resorted to a
petition for certiorari under Rule 65 of the Rules of Court. The only ground
upon which this Court may entertain a review of the OMBs resolution is grave
abuse of discretion, not reversible errors.

Held:
No, deputy ombudsman did not act with GAD.
Yes, in Fabian v. Desierto held that appeals from the orders, directives,
or decisions of the OMB in administrative disciplinary cases were cognizable by
the Court of Appeals.
Ratio:
A special civil action for certiorari is the proper remedy when a
government officer has acted with grave abuse of discretion amounting to lack
or excess of jurisdiction; and there is no plain, speedy, and adequate remedy in
the ordinary course of law.[35] But even assuming that the present Petition
may be treated as one for certiorari, the case must nevertheless be dismissed.
Grave abuse of discretion implies a capricious and whimsical exercise of
judgment tantamount to lack or excess of jurisdiction.[36] The exercise of
power must have been done in an arbitrary or a despotic manner by reason of
passion or personal hostility. It must have been so patent and gross as to
amount to an evasion of positive duty or a virtual refusal to perform the duty
enjoined or to act at all in contemplation of law.[37]
In the present case, petitioners do not even allege that the OMB gravely abused
its discretion in issuing its questioned Resolution. A perusal of the issues they
submitted reveals that the crux of the controversy revolves around the finding
of the deputy ombudsman that there was no probable cause against
respondents.
They allege that he committed legal errors in arriving at his findings and
conclusions and had in fact no basis for dismissing their Complaint. The OMBs
judgment may or may not have been erroneous, but it has not been shown to be
tainted with arbitrariness, despotism or capriciousness amounting to lack or
excess of jurisdiction.
In any event, the Court finds no grave abuse in the manner in
which the deputy ombudsman exercised his discretion. Evidently, he had
sufficient bases for his finding that there was no probable cause.
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. The pertinent provision reads:

Sec. 318.
Preparation of the Budget by the Local Chief Executive. Upon receipt of the
statements of income and expenditures from the treasurer, the budget proposals of the heads of
departments and offices, and the estimates of income and budgetary ceilings from the local finance
committee, the local chief executive shall prepare the executive budget for the ensuing fiscal year in
accordance with the provisions of this Title.

The local chief executive shall submit the said executive budget to the
sanggunian concerned not later than the sixteenth (16th) of October of the
current fiscal year. Failure to submit such budget on the date prescribed herein
shall subject the local chief executive to such criminal and administrative
penalties as provided for under this Code and other applicable laws.
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.
The determination of probable cause during a preliminary investigation
is a function of the government prosecutor, who in this case is the
ombudsman.[43] As a rule, the Court does not interfere in the ombudsmans
exercise of discretion in determining probable cause, unless there are
compelling reasons.
This policy is based on constitutional, statutory and practical
considerations.[45] To insulate the OMB from outside pressure and improper
influence, the Constitution and RA 6770[46] (the Ombudsman Act of 1989)
grant it a wide latitude of investigatory and prosecutorial powers virtually free
from executive, legislative or judicial intervention.[47] Such initiative and
independence must be inherent in the ombudsman who, beholden to no one,
acts as champion of the people and preserver of the integrity of public service.
Title: Albon vs Fernando
GR 148357 June 30, 2006
Ponente: Corona, j.:
Facts:
May 1999, the 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. Subsequently, petitioner Albon filed a taxpayers suit for
certiorari, prohibition and injunction with damages against respondents
City Engineer Alfonso Espirito, Assistant City Engineer Anaki Maderal and
City Treasurer Natividad Cabalquinto.

According to the petitioner it was unconstitutional and unlawful for

respondents to use government equipment and property, and to disburse
public funds, of the City of Marikina for the upgrading, widening, clearing,
repair and maintenance of the existing sidewalks of Marikina Greenheights
Subdivision. He alleged that the sidewalks were private property because
Marikina Greenheights Subdivision was owned by V.V. Soliven, Inc. Hence,
the city government could not use public resources on them.
In undertaking the project, therefore, respondents allegedly violated the
constitutional proscription against the use of public funds for private
purposes as well as Sections 335 and 336 of RA 7160 and the Anti-Graft and
Corrupt Practices Act. The trial court ruled in favor of the respondents.
Ordinance No. 59is a valid enactment. The court recognized the inherent
police power of the municipality and with this it is allowed to carry out the
contested works. The Court of Appeals sustained the decision of the trial
court stating that sidewalks of Marikina Greenheights Subdivision were
public in nature and ownership thereof belonged to the City of Marikina or
the Republic of the Philippines following the 1991White Plains Association
decision. Thus, the improvement and widening of the sidewalks pursuant to
Ordinance No. 59 of 1993 was well within the LGUs powers.

Issues:
WON the trial court and court of appeals correctly applied the ruling on
the 1991 White Plains decision?
WON the acts of Fernando as mayor in undertaking the repairs of the
roads and specifically the sidewalks of a private subdivision using public funds
is valid?
Held: It depends; the case was remanded for further receipt of eveidences.
But both the trial court and court of appeals made a mistake in applying the
decision of the white plains case.
Ratio:
The ruling in the 1991 White Plains Association decision relied on by
both the trial and appellate courts was modified by this Court in 1998 in White
Plains Association v. Court of Appeals.[19] Citing Young v. City of Manila,[20]
this Court held in its 1998 decision that subdivision streets belonged to the
owner until donated to the government or until expropriated upon payment of
just compensation.
The word street, in its correct and ordinary usage, includes not only the
roadway used for carriages and vehicular traffic generally but also the portion
used for pedestrian travel.[21] The part of the street set aside for the use of
pedestrians is known as a sidewalk.[22]

Moreover, under subdivision laws,[23] lots allotted by subdivision developers

as road lots include roads, sidewalks, alleys and planting strips.[24] Thus, what
is true for subdivision roads or streets applies to subdivision sidewalks as well.
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.[25]
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.[28]
In Pascual, the validity of RA 920 (An Act Appropriating Funds for Public
Works) which appropriated P85,000 for the construction, repair, extension and
improvement of feeder roads within a privately-owned subdivision was
questioned. The Court held that where the land on which the projected feeder
roads were to be constructed belonged to a private person, an appropriation
made by Congress for that purpose was null and void.[29]
In Young v. City of Manila,[30] the City of Manila undertook the filling of lowlying streets of the Antipolo Subdivision, a privately-owned subdivision. The
Court ruled that as long as the private owner retained title and ownership of the
subdivision, he was under the obligation to reimburse to the city government
the expenses incurred in land-filling the streets.
Moreover, the implementing rules of PD 957, as amended by PD 1216, provide
that it is the registered owner or developer of a subdivision who has the
responsibility for the maintenance, repair and improvement of road lots and
open spaces of the subdivision prior to their donation to the concerned LGU.
The owner or developer shall be deemed relieved of the responsibility of
maintaining the road lots and open space only upon securing a certificate of
completion and executing a deed of donation of these road lots and open spaces
to the LGU.[31]
Therefore, the use of LGU funds for the widening and improvement of privatelyowned 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.[33]

Applying the rules of ejusdem generis, the phrase similar facilities refers to or
includes infrastructure facilities like sidewalks owned by the LGU. Thus, RA
7160 contemplates that only the construction, improvement, repair and
maintenance of infrastructure facilities owned by the LGU may be bankrolled
with local government funds.
Clearly, the question of ownership of the open spaces (including the sidewalks)
in Marikina Greenheights Subdivision is material to the determination of the
validity of the challenged appropriation and disbursement made by the City of
Marikina. Similarly significant is the character of the direct object of the
expenditure, that is, the sidewalks.
Whether V.V. Soliven, Inc. has retained ownership of the open spaces and
sidewalks or has already donated them to the City of Marikina, and whether the
public has full and unimpeded access to the roads and sidewalks of Marikina
Greenheights Subdivision, are factual matters. There is a need for the prior
resolution of these issues before the validity of the challenged appropriation
and expenditure can be determined.
Title: Altres vs Empleo
GR 180986 December 10, 2008
Ponente: Carpio Morales, j.:
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. 04242[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.
The Sangguniang Panglungsod subsequently issued Resolution No. 04266[4] which, in view of its stated policy against midnight appointments,
directed the officers of the City Human Resource Management Office to hold
in abeyance the transmission of all appointments signed or to be signed by
the incumbent mayor in order to ascertain whether these had been
hurriedly prepared or carefully considered and whether the matters of
promotion and/or qualifications had been properly addressed. The same
Resolution enjoined all officers of the said Office to put off the transmission

of all appointments to the CSC, therein making it clear that non-compliance

therewith would be met with administrative action.
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:
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.
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.

Issues:
WON in the present petition is 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?
Sub issue: If not all petitioners signed the verification and
certification against forum-shopping is sufficient to dismiss the case?
Held:
The Court declares that it is Section 474(b)(4), not 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 Civil Service
Commission Memorandum Circular Number 40, Series of 1998.
Case will not be dismissed, substantial compliance is invoked.
Under justifiable circumstances, we have already allowed the relaxation
of the requirements of verification and certification so that the ends of justice
may be better served. Verification is simply intended to secure an assurance
that the allegations in the pleading are true and correct and not the product of
the imagination or a matter of speculation, and that the pleading is filed in good
faith; while the purpose of the aforesaid certification is to prohibit and penalize
the evils of forum shopping.
In the present case, the signing of the verification by only 11 out of the
59 petitioners already sufficiently assures the Court that the allegations in the
pleading are true and correct and not the product of the imagination or a matter
of speculation; that the pleading is filed in good faith; and that the signatories

are unquestionably real parties-in-interest who undoubtedly have sufficient

knowledge and belief to swear to the truth of the allegations in the petition.
With respect to petitioners certification against forum shopping, the failure of
the other petitioners to sign as they could no longer be contacted or are no
longer interested in pursuing the case need not merit the outright dismissal of
the petition without defeating the administration of justice. The non-signing
petitioners are, however, dropped as parties to the case.
Ratio:
References:

Section 474. Qualifications, Powers and Duties.

(b) The accountant shall take charge of both the accounting and internal audit services of the
local government unit concerned and shall:
(4) certify to the availability of budgetary allotment to which expenditures and obligations may be
properly charged.
Sec. 344. Certification and Approval of Vouchers. No money shall be disbursed unless the local budget
officer certifies to the existence of appropriation that has been legally made for the purpose, the local
accountant has obligated said appropriation, and the local treasurer certifies to the availability of
funds for the purpose.
Petitioners propound the following distinctions between Sections 474(b)(4) and 344 of the Local
Government Code of 1991:
(1) Section 474(b)(4) speaks of certification of availability of budgetary allotment, while Section 344
speaks of certification of availability of funds for disbursement;
(2)
Under Section 474(b)(4), before a certification is issued, there must be an appropriation, while
under Section 344, before a certification is issued, two requisites must concur: (a) there must be an
appropriation legally made for the purpose, and (b) the local accountant has obligated said
appropriation;
(3)
Under Section 474(b)(4), there is no actual payment involved because the certification is for the
purpose of obligating a portion of the appropriation; while under Section 344, the certification is for
the purpose of payment after the local accountant had obligated a portion of the appropriation;
(4)
Under Section 474(b)(4), the certification is issued if there is an appropriation, let us say, for the
salaries of appointees; while under Section 344, the certification is issued if there is an appropriation
and the same is obligated, let us say, for the payment of salaries of employees.
Respondents do not squarely address the issue in their Comment.
Section 344 speaks of actual disbursements of money from the local treasury in payment of due and
demandable obligations of the local government unit. The disbursements are to be made through the
issuance, certification, and approval of vouchers. The full text of Section 344 provides:
Sec. 344. Certification and Approval of Vouchers. No money shall be disbursed unless the local budget
officer certifies to the existence of appropriation that has been legally made for the purpose, the local
accountant has obligated said appropriation, and the local treasurer certifies to the availability of
funds for the purpose. Vouchers and payrolls shall be certified to and approved by the head of the
department or office who has administrative control of the fund concerned, as to validity, propriety,
and legality of the claim involved. Except in cases of disbursements involving regularly recurring
administrative expenses such as payrolls for regular or permanent employees, expenses for light, water,
telephone and telegraph services, remittances to government creditor agencies such as GSIS, SSS, LDP,
DBP, National Printing Office, Procurement Service of the DBM and others, approval of the
disbursement voucher by the local chief executive himself shall be required whenever local funds are
disbursed.
In cases of special or trust funds, disbursements shall be approved by the administrator of the fund.
In case of temporary absence or incapacity of the department head or chief of office, the officer next-inrank shall automatically perform his function and he shall be fully responsible therefor.

Voucher, in its ordinary meaning, is a document which shows that

services have been performed or expenses incurred.[42] When used in
connection with disbursement of money, it implies the existence of an

instrument that shows on what account or by what authority a particular

payment has been made, or that services have been performed which entitle the
party to whom it is issued to payment.[43]
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..
Title: Pepsi-Cola vs City of Butuan
GR L-22814 August 28, 1968
Ponente: Concepcion, C.J.:
Facts:
In 1960, Ordinance No. 110 was passed in Butuan. It was later amended by
Ordinance 122. This Ordinance imposes a tax on any person, association,
etc., of P0.10 per case of 24 bottles of Pepsi- Cola. Pepsi operates within
Butuan and it 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 pursuant to said ordinance. Pepsi filed a complaint for the
recovery of the total amount of P14,177.03 paid under protest and those

that it may later on pay until the termination of this case on the ground
that Ordinance No. 110 as amended of the City of Butuan is illegal, that the
tax imposed is excessive and that it is unconstitutional. Pepsi averred it is
unconstitutional because of the following reasons:
1. it partakes of the nature of an import tax because the tax
shall be based and computed from the cargo manifest or bill of
lading . . . showing the number of cases not sold;
2. it is highly unjust and discriminatory because some dealers
engaged in selling of carbonated drinks are exempt while
others are covered and such exemption is not justified in the
ordinance.
Issue: WON the tax Ordinance No. 110 violate the uniformity of requirement of
taxation and is thus invalid?
Held: Yes, the Ordinance No. 110 is illegal (tax imposed is excessive) and
thereof and unconstitutional.
Ratio:
The Ordinance, as amended, is discriminatory since only sales by
agents or consignees of outside dealers would be subject to the tax. Sales by
local dealers, not acting for or on behalf of other merchants, regardless of the
volume of their sales, and even if the same exceeded those made by said agents
or consignees of producers or merchants established outside the city, would be
exempt from the tax. The classification made in the exercise of the authority to
tax, to be valid must be reasonable, which would be satisfied if the classification
is based upon substantial distinctions which makes real differences; these are
germane to the purpose of legislation or ordinance; the classification applies not
only to present conditions but also to future conditions substantially identical to
those of the present; and the classification applies equally to all those who
belong to the same class. These conditions are not fully met by the ordinance in
question.
The tax levied is discriminatory. Even if the burden in question were
regarded as a tax on the sale of said beverages, it would still be invalid, as
discriminatory, and hence, violative of the uniformity required by the
Constitution and the law therefor, since only sales by "agents or consignees" of
outside dealers would be subject to the tax. Sales by local dealers, not acting for
or on behalf of other merchants, regardless of the volume of their sales, and
even if the same exceeded those made by said agents or consignees of
producers or merchants established outside the City of Butuan, would be
exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power of
taxation does not require identity or equality under all circumstances, or negate
the authority to classify the objects of taxation. The classification made in the
exercise of this authority, to be valid, must, however, be reasonable and this
requirement is not deemed satisfied unless: (1) it is based upon substantial

distinctions which make real differences; (2) these are germane to the purpose
of the legislation or ordinance; (3) the classification applies, not only to present
conditions, but, also, to future conditions substantially identical to those of the
present; and (4) the classification applies equally to all those who belong to the
same class.
Title: Philippine Petroleum Corporation vs Municipality of Pililla, Rizal
GR 90776 June 3, 1991
Ponente: Paras, j.:
Facts:
Philippine Petroleum Corporation (PPC for short) is a business enterprise
engaged in the manufacture of lubricated oil basestock which is a
petroleum product, with its refinery plant situated at Malaya, Pililla, Rizal.
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
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". 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.
The questioned Municipal Tax Ordinance No. 1 was reviewed and
approved by the Provincial Treasurer of Rizal (but was not implemented
and/or enforced by the Municipality of Pililla because of its having been
suspended up to now in view of Provincial Circular Nos. 26-73 and 26 A73.
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.
Enforcing the provisions of the above-mentioned ordinance, the
respondent filed a complaint against PPC for the collection of the business
tax from 1979 to 1986
the trial court rendered a decision against the petitioner
PPC moved for reconsideration of the decision, but this was denied by the
lower court, hence, the instant petition.
Petitioner PPC contends that: (a) Provincial Circular No. 26-73 declared
as contrary to national economic policy the imposition of local taxes on
the manufacture of petroleum products as they are already subject to

specific tax under the National Internal Revenue Code; (b) the above
declaration covers not only old tax ordinances but new ones, as well as
those which may be enacted in the future; (c) both Provincial Circulars
(PC) 26-73 and 26 A-73 are still effective, hence, unless and until revoked,
any effort on the part of the respondent to collect the suspended tax on
business from the petitioner would be illegal and unauthorized; and (d)
Section 2 of P.D. 436 prohibits the imposition of local taxes on petroleum
products.
Issue:
WON 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:
PREMISES CONSIDERED, with the MODIFICATION that business taxes
accruing PRIOR to 1976 are not to be paid by PPC (because the same have
prescribed) and that storage fees are not also to be paid by PPC (for the storage
tanks are owned by PPC and not by the municipality, and therefore cannot be a
charge for service by the municipality).
Ratio:
The exercise by local governments of the power to tax is ordained by
the present Constitution. 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.
As to the authority of the mayor to waive payment of the mayor's permit and
sanitary inspection fees, the trial court did not err in holding that "since the
power to tax includes the power to exempt thereof which is essentially a
legislative prerogative, it follows that a municipal mayor who is an executive
officer may not unilaterally withdraw such an expression of a policy thru the
enactment of a tax." The waiver partakes of the nature of an exemption. It is an
ancient rule that exemptions from taxation are construed instrictissimi juris
against the taxpayer and liberally in favor of the taxing authority. Tax
exemptions are looked upon with disfavor.
Thus, in the absence of a clear and express exemption from the payment of said
fees, the waiver cannot be recognized. As already stated, it is the law-making
body, and not an executive like the mayor, who can make an exemption. Under
Section 36 of the Code, a permit fee like the mayor's permit, shall be required
before any individual or juridical entity shall engage in any business or
occupation under the provisions of the Code.
However, since the Local Tax Code does not provide the prescriptive period for
collection of local taxes, Article 1143 of the Civil Code applies. Said law provides

that an action upon an obligation created by law prescribes within ten (10)
years from the time the right of action accrues. The Municipality of Pililla can
therefore enforce the collection of the tax on business of petitioner PPC due
from 1976 to 1986, and NOT the tax that had accrued prior to 1976.
BASCO vs PAGCOR

-Exemptions-

FACTS:
o
o

On July 11, 1983, PAGCOR was created under PD 1869 to enable the
Government to regulate and centralize all games of chance authorized
by existing franchise or permitted by law.
Basco and four others (all lawyers) assailed the validity of the law
creating PAGCOR on constitutional grounds among others particularly
citing that the PAGCORs charter is against the constitutional provision
on local autonomy.
Basco et al contend that P.D. 1869 constitutes a waiver of the right of
the City of Manila to impose taxes and legal fees; that Section 13 par.
(2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from
paying any tax of any kind or form, income or otherwise, as well as
fees, charges or levies of whatever nature, whether National or Local is
violative of the local autonomy principle.

ISSUE: Whether or not PAGCORs charter is violative of the principle of local

autonomy.
HELD: NO!
Purpose of PD 1869 : to regulate and centralize thru an appropriate institution
all games of chance authorized by existing frnachise or permitted by law.
PAGCOR is beneficial not only to government but also to the society in general.
It is a reliable source of revenue for the cash strapped Government. It provided
funds for social impact projects and subjected gambling to close scrutiny and
control/supervision of the Government
As to the contention of petitioners re Sec 13 of PD 1869 constituting
waiver of the right of the City of Manila to impose taxes:
Sec 5 of Art X of 1987 COnsitution provides:
Each local government unit shall have the power to create its own source
of revenue and to levy taxes, fees, and other charges subject to such
guidelines and limitation as the congress may provide, consistent with
the basic policy on local autonomy. Such taxes, fees and charges shall
accrue exclusively to the local government.
A close reading of the above provision does not violate local autonomy
(particularly on taxing powers) as it was clearly stated that the taxing power of
LGUs are subject to such guidelines and limitation as Congress may provide.
Further, the City of Manila, being a mere Municipal corporation has no inherent
right to impose taxes. 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 which has the power to create and abolish municipal
corporations due to its general legislative powers.
Congress, therefore, has the power of control over Local governments. 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.
Further still, 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. Otherwise, its operation might be
burdened, impeded or subjected to control by a mere Local government. This
doctrine emanates from the supremacy of the National Government over local
governments. The principle of local autonomy under 1987 Consti =
decentralization (Note the prohibiton re imperium n imperio)
(*sub-issue: WON it violates equal protection clause (Petitioners contention:
because it legalized gambling while most gambling are outlawed together w/
prostitution etc)
NO. The clause does not preclude classification of individuals who may be
accorded different treatment under the law as long as classification is not
arbitrary. The mere fact that some gambling activities are legalized under certain
conditions, while others are prohibited, does not render the applicable laws
unconstitutional.)
NAPOCOR vs CITY OF CABANATUAN *(superseded the doctrine laid in Basco
ruling; LGC removed the government instrumentalities exemption from local
taxation)
FACTS:
o

For many years now, petitioner NAPOCOR sells electric power to the
residents of Cabanatuan City, posting a gross income of
P107,814,187.96 in 1992.7 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 latters
gross receipts for the preceding year.
City of Cabanatuan filed a collection suit against NAPOCOR, a
government-owned and controlled corporation demanding that the
latter pay the assessed franchise tax due, plus surcharge and interest.
It alleged that NAPOCORs exemption from local taxes has already been
withdrawn by the Local Government Code.
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, nonstock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code.
o

Petitioner NAPOCOR submitted that it is not liable to pay an annual

franchise because the citys taxing power is limited to private entities
that are engaged in trade or occupation for profit, and that the
NAPOCOR Charter, being a valid exercise of police power, should
prevail over the LGC.

Contentions:
(1)Exempted from payment of all forms of taxes pursuant to Sec 13 RA 6395

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."1

(2) That Sec 131(m) the LGC defines a "franchise" as "a right or privilege,
affected with public interest which is conferred upon private persons or
corporations, under such terms and conditions as the government and its
political subdivisions may impose in the interest of the public welfare, security
and safety." That the word "private" modifies the terms "persons" and
"corporations." Hence, when the LGC uses the term "franchise," petitioner
submits that it should refer specifically to franchises granted to private natural
persons and to private corporations.23 Ergo, its charter should not be
considered a "franchise" for the purpose of imposing the franchise tax in
question.
(3) That Sec 131 (d) of the LGC defines "business" as "trade or commercial
activity regularly engaged in as means of livelihood or with a view to profit."
Petitioner claims that it is not engaged in an activity for profit, in as much as its
charter specifically provides that it is a "non-profit organization." In any case,
petitioner argues that the accumulation of profit is merely incidental to its
operation; all these profits are required by law to be channeled for expansion
and improvement of its facilities and services.
(4) BASCO Ruling re: exemption; That it is an instrumentality of the National
Government, and as such, may not be taxed by the respondent city government.

It cites the doctrine in Basco vs. Philippine Amusement and Gaming Corporation
where the Court held that local governments have no power to tax
instrumentalities of the National Government
(5) That Sec 193 in withdrawing the tax exemptions is an implied repeal. That
special law, its charter cannot be amended or modified impliedly by the local
government code which is a general law. Consequently, petitioner claims that its
exemption from all taxes, fees or charges under its charter subsists despite the
passage of the LGC,
(RTC ruling: in favor of NAPOCOR CA reversal on the ground that Sec 193
expressly withdrew the exemption thus petitioners petition)
ISSUE: WON NAPOCOR is exempted from local taxation
HELD: NO! The doctrine in Basco relied by the petitioner no longer applies. Note
that Basco case was decided prior to the effectivity of LGC.
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,MERALCOs 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. Ruling in favor of the local government in both
instances, the court uled 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 MERALCOs 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) nonstock 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, the court concluded 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.
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 the SC 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.
(*sorry mahaba talaga ito -_- )

CITY OF IRIGA vs CASURECO II

FACTS:
o Respondent Camarines Sur III Electric Cooperative, Inc. (CASURECO),
an electric cooperative organized under Presidential Decree (PD) No.
269 and registered with the National Electrification Administration
(NEA), is engaged in the business of electric power distribution to
various end-users and consumers within the City of Iriga and the
municipalities of Nabua, Bato, Baao, Buhi, Bula and Balatan of the
Province of Camarines Sur (or the Rinconada area).
o Petitioner City of Iriga assessed CASURECO deficiency franchise tax and
RPT covering the periods 1998 to 2003 and 1995 to 2003, respectively.
CASURECO refused to pay and argued that as an electric cooperative
provisionally registered with the Cooperative Development Authority
(CDA), it is exempt from the payment of local taxes.
o Petitioner filed a collection complaint against CASURECO with the RTC,
which ruled that the citys right to assess RPT for 1995 - 1999 had
already prescribed. The RTC also ruled that CASURECO is liable for
franchise taxes for 2000 2003 based on its gross receipts from Iriga
City and the Rinconada area, on the ground that the situs of taxation is
the place where the privilege is exercised.
o On appeal, the Court of Appeals (CA) reversed the RTC on the ground
that CASURECO is a non-profit entity which does not fall within the
purview of businesses enjoying a franchise.

ISSUES: WON CASURECO is liable for payment of franchise taxes

HELD: YES
PD No. 269, which took effect on August 6, 1973, granted exemption from the
payment of all national and local taxes and fees to electric cooperatives
registered with NEA.
RA No. 6939, enacted on March 10, 1990, created and authorized the CDA to
register cooperatives, while RA No. 6938, enacted on the same day, provides that
electric cooperatives registered with NEA under PD No. 269 which opt not to
register with the CDA shall not be entitled to the benefits and privileges under
the law.
On January 1, 1992, the LGC took effect and withdrew tax exemptions or
incentives previously enjoyed by all persons, natural and judicial, including
GOCCs, except for certain entities, such as cooperatives duly registered under RA
No. 6938.
The provisional registration of CASURECO with the CDA, which granted it
exemption from payment of local taxes, was only until May 4, 1992. Thereafter,
CASURECO was no longer exempt from the payment of local taxes, including the
franchise tax.
A franchise tax is a tax on the privilege of transacting business in the state and
exercising corporate franchises granted by the state. It is not levied simply for
existing as a corporation upon its property or on its income, but on its exercise
of the rights or privileges granted to it by the government.
To be liable for local franchise tax:
REQUISITES:
1) one must have a franchise in the sense of a secondary or special franchise;
and
2) it must exercise its rights or privileges under this franchise within the
territory of the pertinent LGU.
Both requisites being present, CASURECO is liable to pay franchise tax. Being in
the nature of an excise tax, the situs of taxation is the place where the privilege
is exercised. Hence, CASURECO is liable for franchise tax on all its gross receipts
from Iriga City and the Rinconada area where it operates, regardless of the place
where its services or products are delivered.