PROVINCE OF BATANGAS VS.
ROMULO The 5Billion LGESF for 2001 were as follows:
Relevant Background:
It was a case filed by Hon. HERMILANDO I.
MANDANAS, Governor of Batangas petition for
certiorari, prohibition and mandamus to declare
as unconstitutional and void certain provisos
contained in the General Appropriations Acts
(GAA) of 1999, 2000 and 2001, insofar as they
uniformly earmarked (allocated) for each
corresponding year the amount of five billion
pesos (P5,000,000,000.00) of the Internal
Revenue Allotment (IRA) for the Local
Government Service Equalization Fund (LGSEF)
and imposed conditions for the release thereof.
It started in 1998 when then President Joseph
Estrada issued Executive Order No. 48 entitled
“ESTABLISHING A PROGRAM FOR DEVOLUTION
ADJUSTMENT AND EQUALIZATION” to facilitate
the process of enhancing the capabilities of
local government units in the discharge of the
functions and services devolved to them
pursuant to the Local Government Code.
Included in the EO No. 48 is the appointment of
the Oversight Committee authorized to issue the
implementing rules and regulations governing
the equitable allocation and distribution of said
fund to the LGUs..
Subject of the case are the resolutions passed by
the Oversight Committee (Chaired by the
Executive Secretary Ronaldo B. Zamora). These
are the resolutions with numbers OCD-99-005,
OCD-99-006, and OCD-99-003. Further, these
OCDs were approved by then Pres. Estrada on
October 6, 1999. The guidelines along with these
OCDs as formulated by the Oversight
Committee requires the LGUs to identify the
projects eligible for funding under the portion of
LGSEF and submit the project proposals and
other requirements to the DILG for appraisal
before the Committee serves notice to the DBM
for the subsequent release of corresponding
funds.
For the year 2000 and 2001, the same LGSEF of
1999 GAA were adopted due to failure of
Congress to enact general appropriation laws.
The standing point was when Gov. Mandanas
received the LGSEF in the GAA of 1991.
1
Modified Codal Formula P3.0Billion
Priority Projects P1.9 Billion
Capability Building Fund P0.1 Billion,
Total = P5Billion
Further, the P3.0Billion of the abovementioned
LGESF shall be allocated according to the
modified codal formula and be released to the
four levels of LGUs., ie., provinces, cities,
municipalities and barangays as follows:
Provinces, 25% - P0.750Billion
Cities, 25% - 0.750
Municipalities, 35% - 1.050
Barangays, 15% - 0.450, Total =
P3Billion
Resolved Further, the P1.9Billion earmarked for
Priority Projects shall be distributed according to
the following criteria:
1. For projects of the 4th, 5th, and 6th class
LGUs, or
2. Projects in consonance with the
President’s SONA
Upon Upon receipt of a copy of the above
resolution, Gov. Mandanas wrote to the
individual members of the Oversight Committee
seeking the reconsideration of Resolution No.
OCD-2002-001. He also wrote to Pres.
Macapagal-Arroyo urging her to disapprove
said resolution as it violates the Constitution and
the Local Government Code of 1991 but
otherwise, approved by Pres. Arroyo on January
25, 2002.
The Petitioner Points the Following Issues:
1. Unconstitutionality and void provisos in
the GAAs of 1999, 2000, and 2001.
2. Unlawful and illegal imposition of
conditions issued by the Oversight Committee
requiring project proposals and documentary
requirements prior to the release of LGU’s ‘just
share” in the IRA is an anathema to the
principle of local autonomy as embodied in
the Constitution and the Local Government
Code of 1991 (and that the possible
disapproval by the Committee of the project
proposals of the LGUs is a diminution to then
latter’s share in the IRA).

The petitioner contends the following:
In issue No.1 & 3, the respondent theorized that
Section 285 of the Local Government Code of
1991 which provides for the percentage sharing
of the IRA among the LGUs was not intended to
be a fixed determination of share in the national
taxes as the Congress may enact other laws,
including the aforementioned oppropriations
law providing for a different sharing formula.
Section 285 merely intended to be the “default
share” of the LGUs to do away with the need to
determine annually.
Further, the respondent avers that the petition
has already been rendered as moot and
academic as it no longer presents a justifiable
controversy because the IRAs of the years 1999,
2000 and 2001 have already been released and
therefore, nothing more to prohibit, aside from
the fact that the petition should not have been
filed with the Supreme Court because this court
is not a trier of facts, but, the lower courts of
jurisdiction.
In issue No.2, the assailed resolutions issued by
the Oversight Committee are not
constitutionally infirm. The respondents stands
that Section 6 of Article X of the Constitution
does not specify the “just share” of the LGUs shall
be determined solely by the Local Government
Code of 1991 and that the phrase “to be
determined by law” in the same 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 effect, the
Congress serves as the arbiter of what should be
the “just share.”
Court’s Ruling:
The Court finds the petition to involve a
significant legal issue. Issue No.1 is the crux of
the instant controversy as contained in the GAAs
of 1999, 2000 and 2001 and the OCD resolutions
infringe the Constitution and the Local
Government Code of 1991 and undoubtedly a
legal question. However, the earmarking of the
LGSEF, the promulgation of the assailed OCD
resolutions and the release of the LGSEF to the
LGU following the requirements are not
disputed.
Substantive issues stated above, in the course of
the argument, although the supervening events
as the IRA including the LGSEF for 1999, 2000 and
2
2001 had already been released, still, there was
a compelling reason to resolve the substantive
issue raised in the instant petition, whether
intended or incidental, cannot prevent the
Court from rendering a decision if grave
violation of the Constitution is proved even
where the supervening events had made the
cases moot in order to resolve the legal or
constitutional issues raised to formulate
controlling principles to guide the bench, bar
and public.
The court held that, “the state shall ensure the
autonomy of local governments.” (Art. II Sec. 25
of the Constitution). Consistent with the principle
of local autonomy, the Constitution confines the
President’s power over the LGUs to one of
general supervision and has no power to control
The Local Government Code of 1991 was
enacted to flesh out the mandate of the
Constitution. The State policy on local autonomy
is amplified in Section 2 thereof:
Sec. 2. Declaration of Policy. – (a) It is hereby
declared the policy of the State that the
territorial and political subdivisions of the State
shall enjoy genuine and meaningful local
autonomy to enable them to attain their fullest
development as self-reliant communities and
make them more effective partners in the
attainment of national goals. Toward this end,
the State shall provide for a more responsive and
accountable local government structure
instituted through a system of decentralization
whereby local government units shall be given
more powers, authority, responsibilities, and
resources.
Guided by these precepts, the Court shall now
determine whether the assailed provisos in the
GAAs of 1999, 2000 and 2001, earmarking for
each corresponding year the amount of five
billion pesos of the IRA for the LGSEF and the
OCD resolutions promulgated pursuant thereto,
transgress the Constitution and the Local
Government Code of 1991.
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.
That the automatic release of the IRA was
precisely intended to guarantee and promote
local autonomy can be gleaned from the
discussion below between Messrs. Jose N.
Nolledo and Regalado M. Maambong, then
members of the 1986 Constitutional Commission.
Our national officials should not only comply
with the constitutional provisions on local
autonomy but should also appreciate the spirit
and liberty upon which these provisions are
based.
WHEREFORE, the petition is GRANTED. The
assailed provisos in the General Appropriations
Acts of 1999, 2000 and 2001, and the assailed
OCD Resolutions, are declared
UNCONSTITUTIONAL.
ACORD vs. ZAMORA
G.R. No. 144256
June 8, 2005
FACTS
Pres. Estrada submitted the National
Expenditures Program for Fiscal Year 2000
pursuant to Section 22, Article VII of the
Constitution. The President proposed an IRA in
the amount of P121,778,000,000. This became
Republic Act No. 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”.
The act was known as General Appropriations
Act (GAA) for the Year 2000. It provides under
the heading “Allocations to Local Government”
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, shall be
used to fund the IRA which shall be released only
when the revenue collections exceed the
original revenue targets submitted by the
3
President of the Philippines to Congress based
on a quarterly assessment to be conducted by
certain committees.
Thus, the Petition for Certiorari, Prohibition and
Mandamus with Application for Temporary
Restraining Order filed against respondents.
Petitioners contend that such provisions under
GAA violated the autonomy of local
governments by unlawfully reducing by P10
Billion the IRA due to the local governments and
withholding the release of such amount by
placing it under “Unprogrammed Funds.” This
violated the constitutional mandate in Art. X
Sec. 6 that the local government units’ just share
in the national taxes shall be automatically
released to them.
Respondents counter argue that 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 infer that the 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.
ISSUE
Whether the questioned provisions violate the
constitutional injunction that the just share of the
local governments in the IRA shall be
automatically released?
DECISION
Yes. Article X, Sec. 6 of the Constitution provides
“Local government units shall have a just share,
as determined by law, in the national taxes
which shall be automatically released to them.”
Only the just share of the local government is
qualified by the words “as determined by law,”
and not the release thereof. Congress is not
authorized by the Constitution to hinder or
impede the automatic release of the IRA.
A basic feature of local fiscal autonomy is the
automatic release of the shares of the LGUs in
the national internal revenue. This is mandated
by the Constitution. 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 withhold its release pending an event
which is not even certain of occurring.
In Pimentel vs. Aguirre, the executive withheld
the release of the IRA pending an assessment
very similar to the one provided in the GAA. It
was ruled that such withholding violated the
constitutional mandate of automatic release.
Thereby, the questioned provisions of the GAA
were declared unconstitutional.
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.
4
 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 locality’s
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 acted
in grave abuse of his discretion in ruling that
there is no probable cause against
respondents? No, deputy ombudsman did not
act with GAD.
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 OMB’s
resolution is grave abuse of discretion, not
reversible errors.
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 OMB’s 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.
5
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 ombudsman’s 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.
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
taxpayer’s 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.
6
 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
LGU’s 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 low-lying 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
7
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 privately-owned 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. 04-
242[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. 04-266[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:
8
 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;
9
(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-in-rank 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..
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
10
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.
DOCTRINE:
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 all
those who belong to the same class.
KEYWORD(S):
Municipal Ordinance, Liquor and Carbonated
Drinks, Limitation on the Power of Taxation
FACTS:
11
Plaintiff, Pepsi-Cola Bottling Company of the
Philippines, is a domestic corporation with
offices and principal place of business in
Quezon City. The defendants are the City of
Butuan, its City Mayor, the members of its
municipal board and its City Treasurer. Plaintiff
seeks to recover the sums paid by it to the City
of Butuan and collected by the latter, pursuant
to its Municipal Ordinance No. 110, as amended
by Municipal Ordinance No. 122, both series of
1960.
Section 1 of said Ordinance No. 110, as
amended, states what products are "liquors",
within the purview thereof. Section 2 provides for
the payment by "any agent and/or consignee"
of any dealer "engaged in selling liquors,
imported or local, in the City," of taxes at
specified rates. Section 3 prescribes a tax of
P0.10 per case of 24 bottles of the soft drinks and
carbonated beverages therein named, and "all
other soft drinks or carbonated drinks." Section 3-
A, defines the meaning of the term "consignee
or agent" for purposes of the ordinance. Section
4 provides that said taxes "shall be paid at the
end of every calendar month." Pursuant to
Section 5, the taxes "shall be based and
computed from the cargo manifest or bill of
lading or any other record showing the number
of cases of soft drinks, liquors or all other soft
drinks or carbonated drinks received within the
month." Sections 6, 7 and 8 specify the
surcharge to be added for failure to pay the
taxes within the period prescribed and the
penalties imposable for "deliberate and willful
refusal to pay the tax mentioned in Sections 2
and 3" or for failure "to furnish the office of the
City Treasurer a copy of the bill of lading or
cargo manifest or record of soft drinks, liquors or
carbonated drinks for sale in the City." Section 9
makes the ordinance applicable to soft drinks,
liquors or carbonated drinks "received outside"
but "sold within" the City. Section 10 of the
ordinance provides that the revenue derived
therefrom "shall be alloted as follows: 40% for
Roads and Bridges Fund; 40% for the General
Fund and 20% for the School Fund."
Plaintiff maintains that the disputed ordinance is
null and void because, among other things, it is
highly unjust and discriminatory.
PETRON CORP. V. MAYOR TIANGCO AND
TREASURER ENRIQUEZ OF THE MUNICIPALITY OF
NAVOTAS
FACTS:
 Petron maintains a depot or bulk plant in
Navotas Fishport Complex. Through the
said depot, it sells diesel fuels to the
vessels used in commercial fishing in and
around Manila Bay.
 Later, Petron received a letter from the
office of Mayor Tiangco assessing it for
business taxes in the amouont of 6.2M
covering 1997-2001 pursuant to the
Navotas Revenue Code.
 A protest was filed by Petron arguing
that under the IRR of the NIRC, it is
exempt from local business tax. Also, an
opinion was rendered by the Bureau of
Local Government Finance providing for
that sales of petroleum fuels are NOT
subject to local taxation. Letter protest
was denied and a final demand to pay
was sent to Petron.
 Petron filed a complaint for cancellation
of assessment with TRO before the RTC.
RTC dismissed the complaint.
ISSUE: WON the municipality of Navotas may
impose a business tax on Petron? NO!
RATIO:
Section 133(h) of the LGC reads as follows:
Sec. 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
(h) Excise taxes on articles enumerated
under the National Internal Revenue
Code, as amended, and taxes, fees or
charges on petroleum products;
The language of Section 133(h) makes plain that
the prohibition with respect to petroleum
products extends not only to excise taxes
thereon, but all "taxes, fees and charges."
The earlier reference in paragraph (h) to excise
taxes comprehends a wider range of subjects of
taxation: all articles already covered by excise
12
taxation under the NIRC, such as alcohol
products, tobacco products, mineral products,
automobiles, and such non-essential goods as
jewelry, goods made of precious metals,
perfumes, and yachts and other vessels
intended for pleasure or sports. In contrast, the
later reference to "taxes, fees and charges"
pertains only to one class of articles of the many
subjects of excise taxes, specifically, "petroleum
products".
While local government units are authorized to
burden all such other class of goods with "taxes,
fees and charges," excepting excise taxes, a
specific prohibition is imposed barring the
levying of any other type of taxes with respect to
petroleum products.
CEPALCO v. City of Cagayan de Oro
G.R. No. 191761, November 14, 2012
FACTS:
 The Sangguniang Panlungsod of
Cagayan de Oro (City Council) passed
Ordinance No. 9503-2005 imposing a tax
on the lease or rental of electric and/or
telecommunication posts, poles or
towers by pole owners to other pole users
at ten percent (10%) of the annual rental
income derived from such lease or rental
 CEPALCO filed a petition for declaratory
relief to assail the validity of the
Ordinance:
o the tax imposed is a TAX ON
INCOME that CDO, being an
LGU, is prohibited to impose
under Sec. 133(a) of the Local
Government Code (LGC)
o and, assuming that the CDO can
impose such tax, CEPALCO is
exempt therefrom by virtue of its
franchise under RA 9284
 In its Answer, CDO argued:
o the enactment of the Ordinance
is a valid and lawful exercise of its
powers pursuant to the
Constitution, the LGC and other
pertinent laws and jurisprudence
o the Ordinance legally presumed
valid and constitutional
o CEPALCO is not exempt from the
Ordinance because of the
express withdrawal of the
exemption provided by Section
193 of the LGC
 o CEPALCO’s action has already
prescribed pursuant to Section
187 of the LGC
o CEPALCO failed to exhaust
administrative remedies under
the Local Government Code
o CEPALCO’s action for
declaratory relief cannot prosper
since no breach or violation of
the subject ordinance was yet
committed by the City
Trial Court’s Ruling
 The Ordinance is valid
o CEPALCO FAILED TO FILE A TIMELY
APPEAL to the Secretary of
Justice, and DID NOT EXHAUST ITS
ADMINISTRATIVE remedies
 Hence, CEPALCO filed the instant
petition for review by certiorari with the
Supreme Court
ISSUES:
WON CEPALCO’s petition is procedurally
flawed?
WON the subject Ordinance is within the power
of the City Council of CDO to enact?

o Section 143(h), in relation to Section 151, of WON CEPALCO is correct in claiming exemption
the Local Government Code authorizes a from the tax imposed by the Ordinance?
city to impose taxes, fees and charges on
any business which is NOT SPECIFIED AS WON the subject Ordinance is valid?
PROHIBITED under Section 143(a) to (g)
and which the city council may deem
proper to tax RULING:

WON CEPALCO’s petition is procedurally

o the tax imposed under the Ordinance is flawed?
NOT a tax on income but a tax on the
privilege to ENGAGE IN BUSINESS since
CEPALCO’s business of leasing its posts to
YES, CEPALCO’s petition is procedurally flawed
pole users is what is directly taxed
for failing to exhaust administrative remedies
under the Local Government Code since the
subject Ordinance is a local revenue measure.
o CEPALCO is not exempt because it’s
current franchise under RA 9284 does not
expressly provided that it is instead subject
Sec. 187 of the LGC requires that the dissatisfied
to franchise tax in lieu of all other
taxpayer who questions the validity or legality of
taxes/assessments, unlike in its previous
a tax ordinance must file his appeal to the
franchises
Secretary of Justice, within 30 days from
effectivity thereof. Thereafter:
o CEPALCO’s action is BARRED BY
PRESCRIPTION as it failed to raise an
appeal to the Secretary of Justice within
the thirty-day period provided in Section a) If the Secretary decides the appeal, a period
187 of the Local Government Code also of 30 days is allowed for an aggrieved party
to go to court.

 Hence, CEPALCO appealed the trial

court’s decision to the Court of Appeals b) But if the Secretary does not act thereon, after
the lapse of 60 days, a party could already
Court of Appeal’s Ruling proceed to seek relief in court.

 CA affirmed the trial court’s ruling for the

validity of the Ordinance
The foregoing provision should BE CONSTRUED AS
MANDATORY since the three separate periods
o the tax imposed under the
are clearly given for compliance as a
Ordinance is a LICENSE TAX for
prerequisite before seeking redress in a
the regulation of business in
competent court. Such statutory periods are set
which CEPALCO is engaged
to prevent delays as well as enhance the orderly
and speedy discharge of judicial functions.
o CEPALCO’s claim of tax
exemption rests on a STRAINED
INTERPRETATION of R.A. No. 9284

13
WON the subject Ordinance is within the power Sections 137 and 143(h), of the Local
of the City Council of CDO to enact? Government Code.

YES, the subject Ordinance is within the power of Sec. 151 of the LGC provides:
the City Council of CDO to enact since it is A TAX
The rates of taxes that the city may levy
ON BUSINESS, not a tax on income.
MAY EXCEED THE MAXIMUM RATES
allowed for the province or municipality
BY NOT MORE THAN FIFTY PERCENT (50%)
Section 143(h) of the Local Government Code
except the rates of professional and
provides that the city may impose taxes, fees,
amusement taxes.
and charges on ANY BUSINESS even if NOT
SPECIFIED as among the businesses in Section
143(a) to (g) and which the sanggunian
In relation to that, specifically for FRANCHISE TAX,
concerned may deem proper to tax.
Sec. 137 provides:

the province may impose a tax on

Business is defined by Section 131(d) of the Local
Government Code as "trade or commercial
activity regularly engaged in as a means of
livelihood or with a view to profit."
Here, CEPALCO’s act of leasing for a
Meanwhile, for BUSINESS TAX, Sec. 143(h)
consideration the use of its posts, poles or towers
provides:
to other pole users falls under the Local
Government Code’s definition of business.
Hence, the subject Ordinance is within power of
the City Council of CDO has the power to enact.
WON CEPALCO is correct in claiming exemption
from the tax imposed by the Ordinance?
businesses enjoying a franchise, at a rate
not exceeding FIFTY PERCENT (50%) OF
ONE PERCENT (1%) of the gross annual
receipts for the preceding calendar year
based on the incoming receipt, or
realized, within its territorial jurisdiction.
the municipality may impose on any
business subject to the excise, value-
added or percentage tax under the
National Internal Revenue Code, as
amended, the rate of tax which shall not
EXCEED TWO PERCENT (2%) OF GROSS
SALES OR RECEIPTS of the preceding
calendar year.

The issue revolves on the interpretation of the

NO, CEPALCO is NOT CORRECT in claiming phrase MAY EXCEED THE MAXIMUM RATES … BY
exemption from the tax imposed by the NOT MORE THAN FIFTY PERCENT (50%) in Sec. 151.
Ordinance. Such claim poles relies on its CEPALCO’s City of CDO’s
strained interpretation of the provisions of its Interpretation Interpretation
franchise and of the Local Government Code.
the phrase means a city
can impose a rate
WHICH EXCEEDS the
Sec. 193 of the Local Government Code maximum rate of taxes
WITHDREW TAX EXEMPTION PRIVILEGES the phrase means
imposable by provinces
previously given to natural or juridical persons, a city can impose
or municipalities BY AS
and granted local government units the power ONLY UP TO ONE-
MUCH as 50%
to impose franchise tax under Sec. 137. HALF of what the
province or
NB: mathematically, this
municipality may
means that to arrive at
impose
It is hornbook doctrine that tax exemptions are the maximum amount,
strictly construed against the claimant. For this you add 50% to the
reason, tax exemptions must be based on clear provincial/municipal
legal provisions. rate
However, the City of
Franchise Tax
CDO argued that:
- province rate:
WON the subject Ordinance is valid?  Section 143 of
not exceeding
the LGC
NO, the subject Ordinance is NOT VALID for 50% of 1% of the
prescribes the
violating the limits as to the amount of the tax to gross annual
rate of taxes on
be imposed set by Section 151, in relation to receipts
the identified
14
 - so, city rate: only categories of situated vis-á-vis
up to ½ of 50% of business the rest of the
1% of the gross enumerated businesses
annual receipts therein from (a) identified under
which is only up to to (g) Section 143 of
0.25% the LGC
- hence, the 10%  Section 151 of
tax under the the LGC
The Court ruled that the City of CDO’s
Ordinance is prescribes the
interpretation of Sec. 151 is the correct
excessive allowable rate of
interpretation and that CEPALCO is wrong. It
increase over
means that a city may exceed by "not more
the rate of taxes
than 50%" the tax rates allowed to provinces and
imposed on
municipalities. Thus:
businesses
identified under FRANCHISE TAX BUSINESS TAX
Section 143 and - province rate: not
the preceding - municipal rate: not
exceeding 50% of 1%
sections thereof 2% of the gross sales
of the gross annual
or receipts
receipts
 Reading them - so, city rate: may
- so, city rate: may
together, the exceed by as much
exceed by as much
allowable rate of as 50% of the
as 50% of the province
increase province rate, that is,
rate, that is, (50% of
provided under (50% of 2%)+(2%)
50% of 1%)+(50% of
Section 151 of which is 3%
1%) which is 0.75%
the LGC applies
only to those
businesses CEPALCO also erred when it equates Section
identified and 137’s "gross annual receipts" with Ordinance No.
enumerated 9503-2005’s "annual rental income." Clearly,
under Section “gross annual receipts” is broader and greater
143 as it encompasses not only CEPALCO’s annual
 A reading of rental income but also other income sources.
Section 143 of Hence, even if the Ordinance’s rate is 10% which
the LGC reveals is higher than Sec. 137’s rate of 50% of 1%, still,
that it has
THE TAX BASE under the Ordinance, which is the
NEITHER
annual rental income of "electric and/or
IDENTIFIED the
telecommunication posts, poles or towers by
operation of a
pole owners to other pole users", is definitely
BUSINESS
Business Tax smaller than that used by cities in the
ENGAGED IN
- municipal rate: computation of franchise or business tax (which
LEASING nor
not exceeding 2% is most likely not just income from electric and/or
prescribed its tax
of the gross sales telecom post). In effect, Ordinance No. 9503-
rate.
or receipts 2005 wants a slice of a smaller pie. (it’s all about
- so, city rate: only the base, ‘bout that base... boom bo boom
 Hence, since the
up to ½ of 2% of boom boom bo boom boom base, super base..
business referred
the gross sales or XD)
to the subject
receipts which is
Ordinance is not Nonetheless, limits imposed by Sections 143 and
only up to 1%
among those 151 of the Local Government Code MUST STILL BE
- hence, the 10%
enumerated in OBSERVED, contrary to the City of CDO’s
tax under the
Sec. 143 but in contention.
Ordinance is
Sec. 186, the limit
excessive
under Sec. 151 Section 143 recognizes separate lines of business
does NOT APPLY and imposes different tax rates for different lines
to the subject of business. Ordinance No. 9503-2005 is subject
Ordinance to the limitation set by Section 143(h) since it is
affecting not among those enumerated in Sec. 143(a) to
CEPALC (g). And, since, as previously discussed, reading
 CEPALCO is Sec. 143(h) in conjunction with Sec. 151, cities
differently like CDO may only impose a tax rate which may

15
exceed by as much as 50% of 2% (which is 3%)
of the gross sales or receipts of the preceding
year. Hence, the 10% tax rate imposed by
Ordinance No. 9503-2005 clearly violates
Section 143(h) of the Local Government Code.
Finally, in view of the lack of a separability
clause, we DECLARE VOID THE ENTIRETY of
Ordinance No. 9503-2005. Any payment made
by reason of the tax imposed by Ordinance No.
9503-2005 should, therefore, be refunded to
CEPALCO. Our ruling, however, is made
WITHOUT PREJUDICE TO THE ENACTMENT OF A
TAX ORDINANCE THAT COMPLIES WITH THE LIMITS
set by the Local Government Code.
NATIONAL POWER CORPORATION VS. CITY OF
CABANATUAN GR. No. 149110
FACTS:
NAPOCOR, the petitioner, is a government-
owed and controlled corporation created
under Commonwealth Act 120. It is tasked to
undertake the “development of hydroelectric
generations of power and the production of
electricity from nuclear, geothermal, and other
sources, as well as, the transmission of electric
power on a nationwide basis.”
For many years now, NAPOCOR sells electric
power to the resident Cabanatuan City, posting
a gross income of P107,814,187.96 in 1992.
Pursuant to Sec. 37 of Ordinance No. 165-92, the
respondent assessed the petitioner a franchise
tax amounting to P808,606.41, representing 75%
of 1% of the former’s gross receipts for the
preceding year.
Petitioner, whose capital stock was subscribed
and wholly paid by the Philippine Government,
refused to pay the tax assessment. It argued that
the respondent has no authority to impose tax
on government entities. Petitioner also contend
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 RA
6395, as amended.
The respondent filed a collection suit in the RTC
of Cabanatuan City, demanding that petitioner
pay the assessed tax, plus surcharge equivalent
to 25% of the amount of tax and 2% monthly
interest. Respondent alleged that petitioner’s
exemption from local taxes has been repealed
by Sec. 193 of RA 7160 (Local Government
Code). The trial court issued an order dismissing
the case. On appeal, the Court of Appeals
16
reversed the decision of the RTC and ordered
the petitioner to pay the city government the
tax assessment.
ISSUES:
(1) Is the NAPOCOR excluded from the
coverage of the franchise tax simply because its
stocks are wholly owned by the National
Government and its charter characterized is as
a ‘non-profit organization’?
(2) Is the NAPOCOR’s exemption from all forms
of taxes repealed by the provisions of the Local
Government Code (LGC)?
HELD:
(1) NO. To stress, a franchise tax is imposed
based not on the ownership but on the exercise
by the corporation of a privilege to do business.
The taxable entity is the corporation which
exercises the franchise, and not the individual
stockholders. By virtue of its charter, petitioner
was created as a separate and distinct entity
from the National Government. It can sue and
be sued under its own name, and can exercise
all the powers of a corporation under the
Corporation Code.
To be sure, the ownership by the National
Government of its entire capital stock does not
necessarily imply that petitioner is no engage din
business.
(2) YES. One of the most significant provisions of
the LGC is the removal of the blanket exclusion
of instrumentalities and agencies of the National
Government from the coverage of local
taxation. Although as a general rule, LGUs
cannot impose taxes, fees, or charges of any
kind on the National Government, its agencies
and instrumentalities, this rule now admits an
exception, i.e. when specific provisions of the
LGC authorize the LGUs to impose taxes, fees, or
charges on the aforementioned entities. The
legislative purpose to withdraw tax privileges
enjoyed under existing laws or charter is clearly
manifested by the language used on Sec. 137
and 193 categorically withdrawing such
exemption subject only to the exceptions
enumerated. Since it would be 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
ISSUE:
o Whether NPC is liable to pay an annual franchise
tax to the City government

Held:
One of the most significant provisions of the LGC
is the removal of the blanket exclusion of
instrumentalities and agencies of the national
government from the coverage of local
taxation. Although as a general rule, LGUs
cannot impose taxes, fees or charges of any
kind on the National Government, its agencies
and instrumentalities, this rule now admits an
exception, i.e., when specific provisions of the
LGC authorize the LGUs to impose taxes, fees or
charges on the aforementioned entities.
As commonly used, 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 on the corporation
simply for existing as a corporation, upon its
property or its income, but on its exercise of the
rights or privileges granted to it by the
government. Hence, a corporation need not
pay franchise tax from the time it ceased to do
business and exercise its franchise. It is within this
context that the phrase "tax on businesses
enjoying a franchise" in section 137 of the LGC
should be interpreted and understood. Verily, to
determine whether the petitioner is covered by
the franchise tax in question, the following
requisites should concur: (1) that petitioner has a
"franchise" in the sense of a secondary or special
franchise; and (2) that it is exercising its rights or
privileges under this franchise within the territory
of the respondent city government.
NPC fulfills both requisites. To stress, a franchise
tax is imposed based not on the ownership but
on the exercise by the corporation of a privilege
to do business. The taxable entity is the
corporation which exercises the franchise, and
not the individual stockholders. By virtue of its
charter, petitioner was created as a separate
and distinct entity from the National
Government. It can sue and be sued under its
own name, and can exercise all the powers of a
corporation under the Corporation Code.
We also do not find merit in the petitioner's
contention that its tax exemptions under its
charter subsist despite the passage of the LGC.
As a rule, tax exemptions are construed strongly
against the claimant. Exemptions must be
shown to exist clearly and categorically, and
supported by clear legal provisions. In the case
at bar, the petitioner's sole refuge is section 13 of
Rep. Act No. 6395 exempting from, among
others, "all income taxes, franchise taxes and
realty taxes to be paid to the National
Government, its provinces, cities, municipalities
17
and other government agencies and
instrumentalities."
It is worth mentioning that section 192 of the LGC
empowers the LGUs, through ordinances duly
approved, to grant tax exemptions, initiatives or
reliefs.77 But in enacting section 37 of Ordinance
No. 165-92 which imposes an annual franchise
tax "notwithstanding any exemption granted by
law or other special law," the respondent city
government clearly did not intend to exempt
the petitioner from the coverage thereof.
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.
"IN VIEW WHEREOF, the instant petition is DENIED
and the assailed Decision and Resolution of the
Court of Appeals dated March 12, 2001 and July
10, 2001, respectively, are hereby AFFIRMED."
DIGITAL TELECOMMUNICATIONS PHILIPPINES,
INC. V. CITY GOVERNMENT OF BATANGAS
G.R. No. 156040 | Dec 11, 2008 | J. Carpio
FACTS
RA 7678 granted petitioner a 25-year franchise
to install, operate and maintain
telecommunications systems throughout the
Philippines. Section 5 of RA 7678 reads:
Sec. 5. Tax Provisions. - The grantee shall
be liable to pay the same taxes on its
real estate, buildings, and personal
property exclusive of this franchise as
other persons or corporations are now or
hereafter may be required by law to pay.
In addition thereto, the grantee shall pay
to the Bureau of Internal Revenue each
year, within thirty (30) days after the audit
and approval of the accounts, a
franchise tax as may be prescribed by
law of all gross receipts of the telephone
or other telecommunications businesses
transacted under this franchise by the
 grantee; Provided, That the grantee shall
continue to be liable for income taxes
payable under Title II of the National
Internal Revenue Code pursuant to
Section 2 of Executive Order No. 72
unless the latter enactment is amended
or repealed, in which case the
amendment or repeal shall be
applicable thereto.
The grantee shall file the return with and
pay the tax due thereon to the
Commissioner of Internal Revenue or his
duly authorized representative in
accordance with the National Internal
Revenue Code and the return shall be
subject to audit by the Bureau of Internal
Revenue.
Respondent issued a building permit for the
installation of petitioners telecommunications
facilities in Batangas City. After the installation of
the facilities, petitioner applied with the Mayor’s
office of Batangas City for a permit to operate.
Because of a discrepancy in the actual
investment costs used in computing the
prescribed fees for the clearances and permits,
petitioner was not able to secure a Mayors
Permit for the year 1998.
Petitioner was also advised to settle its unpaid
realty taxes. However, petitioner claimed
exemption from the payment of realty tax, citing
(1) the first sentence of Section 5 of RA 7678, (2)
the Letter-Opinion of the Bureau of Local
Government Finance (BLGF), and (3) the letter of
the Office of the President.
Respondent refused to issue a Mayors Permit to
petitioner without payment of its realty taxes.
Petitioner paid P68,890.39 under protest as fees
for the permit to operate, but respondent
refused to accept the payment unless petitioner
also paid the realty taxes.
Respondent threatened to close down
petitioner’s operations. Hence, petitioner
instituted a complaint for prohibition and
mandamus with prayer for a temporary
restraining order or writ of preliminary injunction.
During the pendency of the complaint,
petitioner paid its realty taxes of P2,043,265
under protest.
RTC dismissed the complain and denied MR.
ISSUE
W/N petitioner is exempt from the realty tax
under Section 5 of RA 7678
18
HELD: NO.
Interpretation of Section 5
The first sentence of Section 5 of RA 7678 is the
same provision found in almost all legislative
franchises in the telecommunications industry
dating back to 1905. Since 1905, no
telecommunications company has claimed
exemption from realty tax based on the phrase
exclusive of this franchise, until petitioner filed
the present case.
The first sentence of Section 5 clearly states that
the legislative franchisee shall be liable to pay
the following taxes: (1) the same taxes on its real
estate, buildings, and personal property
exclusive of this franchise as other persons or
corporations are now or hereafter may be
required by law to pay; (2) franchise tax as may
be prescribed by law of all gross receipts of the
telephone or other telecommunications
businesses transacted under this franchise; and
(3) income taxes payable under Title II of the
National Internal Revenue Code.
Petitioner interprets the phrase to mean that its
real properties that are used in its
telecommunications business shall not be
subject to realty tax.
Respondent interprets the same phrase to mean
that the term personal property shall not include
petitioner’s franchise, which is an intangible
personal property.
SC rules that the phrase exclusive of this
franchise simply means that petitioner’s
franchise shall not be subject to the taxes
imposed in the first sentence of Section 5. The first
sentence lists the properties that are subject to
taxes, and the list excludes the franchise. Thus,
the first sentence provides: The grantee shall be
liable to pay the same taxes on its real estate,
buildings, and personal property exclusive of this
franchise as other persons or corporations are
now or hereafter may be required by law to pay.
A plain reading shows that the phrase exclusive
of this franchise is meant to exclude the
legislative franchise from the properties subject
to taxes under the first sentence. In effect,
petitioner’s franchise, which is a personal
property, is not subject to the taxes imposed on
properties under the first sentence of Section 5.
However, petitioner’s gross receipts from its
franchise are subject to the franchise tax under
the second sentence of Section 5.
In short, petitioner’s franchise is excluded from
the properties taxable under the first sentence of
Section 5 but the gross receipts from its franchise
are expressly taxable under the second
sentence of the same Section.

The first sentence of Section 5 imposes on the

franchisee the same taxes that non-franchisees
are subject to with respect to real and personal
properties. The clear intent is to put the
franchisees and non-franchisees in parity in the
taxation of their real and personal properties.
Since non-franchisees have obviously no
franchises, the franchise must be excluded from
the list of properties subject to tax to maintain
the parity between the franchisees and non-
franchisees. However, the franchisee is taxable
separately from its franchise. Thus, the second
sentence of Section 5 imposes the franchise tax
on gross receipts (now VAT).

No grant of tax exemption

Nowhere in the language of the first sentence of

Section 5 of RA 7678 does it expressly or even
impliedly provide that petitioners real properties
that are actually, directly and exclusively used in
its telecommunications business are exempt
from payment of realty tax. On the contrary, the
first sentence of Section 5 specifically states that
the petitioner, as the franchisee, shall pay the
same taxes on its real estate, buildings, and
personal property exclusive of this franchise as
other persons or corporations are now or
hereafter may be required by law to pay.

Re BFLG Opinions

The BLGF has reversed its opinion on the realty

tax exemption of telecommunications
companies. Hence, petitioners claim of tax
exemption based on BLGFs opinion does not
hold water. Besides, the BLGF has no authority to
rule on claims for exemption from the realty tax.

19