Federalism: Massacre of the LGUs?

(Former Chief Justice Hilario G. Davide Jr. delivered this speech before the National Assembly of the League of Vice Governors of the Philippines at Sofitel Philippine Plaza Manila on August 3, 2018)

The task assigned to me is quite heavy at a time when the administration is hell-bent on rushing the amendment or revision of our 1987 Constitution, especially on the shift to federalism. It has long prepared the minds and hearts of the people to accept federalism through massive and expensive “Federalism Caravans” of the Committee on Constitutional Amendments and Revisions of Codes of the House of Representatives or “Federalism Roadshows” of the DILG.

Taking advantage of the “super-super majority” in the House of Representatives, then Speaker Pantaleon Alvarez wanted to railroad the approval of the shift to federalism or of Charter Change via the easiest and fastest process – the Constituent Assembly or Conass. Yet, the first resolution he and then Majority Leader Fariñas filed was one calling for a Constitutional Convention (Concon). We must also recall that early on in his term our President expressed preference for a Concon. At the same time in December of 2016, he issued an executive order creating a Consultative Committee to study and examine our 1987 Constitution and to propose amendments or revisions thereto for the shift to Federalism. He, however, was prevailed upon by then Speaker Alvarez to abandon Concon and to have instead Conass, because according to the latter, it would be very expensive to have a Concon. Forthwith the Cha-Cha train in the Lower House moved fast with the approval of a so-called Joint Resolution converting Congress into a Constituent Assembly (Conass). Unable to get the support of the Senate, then Speaker Alvarez even threatened to go ahead with the Conass without the Senate. Fortunately for our country and our people, our senators – who are elected nationwide and who serve as the conscience of our Congress and our people, immediately rejected Conass and insisted that if there would be one, the Senate and the House of Representatives must vote separately.
In the meantime, the President appointed former Chief Justice Reynato Puno as chairman and 18 others as members of the Consultative Committee.

Suspecting that public money has been spent and would be spent for the massive campaigns for federalism, I wrote last May 15 a letter to Hon. Jonathan Malaya , the DILG assistant secretary for communication and public affairs, to inquire as to what specific item in the 2018 GAA for the DILG would the huge expenditures for federalism campaigns be charged. I further inquired if the earlier formations of various organizations of mayors and other elected officials for the purpose of campaigning for federalism were funded by the DILG or by Local government units. I did this because of news reports that in a press conference Hon. Malaya mentioned of “federalism roadshows” by the DILG throughout the country starting June. The letter was e-mailed to Assec Malaya’s e-mail address on 20 May. He never responded despite my follow-up email of 21 June. I was thus forced to write on 19 July a letter to Hon. DILG Secretary Eduardo Año requesting for his help. I provided him with a copy of my 15 May 2018 letter to Hon. Malaya. My letter to Secretary Año was emailed on 19 July 2018. Until now, I am still waiting for their answers.

In a manner of speaking, the administration has left no stone unturned to entice the people to embrace federalism. The speed and fury of the campaigns for federalism are tsunamic. What to me was most despicable about this is that the people were told and made to believe about federalism as the only solution to eliminate “Imperial Manila” and give the Local Government Units broader powers and a bigger share from the central government’s funds and resources. The people were not told what federalism is, how it works on the ground and whether it is suited for the Philippines. The people were not shown a model of federalism. They were told federalism is the best without even telling them in all candor and honesty what are in fact the blessings they have under the 1987 Constitution. I do not hesitate to state that these pro-federalism propagandists took advantage of the fact that the massive majority of our people do not know our Constitution. National surveys show that only 27% of our people know about the Constitution. That knowledge does not even mean that they have read the Constitution.

Amidst and against all of these, I would only be a voice crying in the wilderness. It is of public knowledge that in the various forums I was invited to speak on Charter Change, I openly expressed my stand against Charter Change. I denounced federalism as “a lethal experiment, a fatal leap, a plunge to death, and a leap to hell; it is a Trojan horse, a red herring, a bait to hoodwink our people into believing federalism would be a paradise. Behind the Trojan horse, however, are the agenda which would create a paradise for politicians but hell for the people. I further said that Charter Change is chaining our people in a future of tyranny, injustice, corruption, poverty, and penury; that Charter Change is the cha-cha dance to the grave.

However, you are a rare breed, you did not take hook, line and sinker the promise of a paradise which the pro-federalism propagandists have made. You are statesmen who fit this description given by former French President Pompidou: “A statesman is a politician who places himself in the service of the nation.” I salute you for deciding to go deeper into this matter. Duc in altum – put out into the deep. This was Jesus’ offered solution to any difficulty we might face. As Christians, we are reminded of the story narrated in the Gospel of St. Luke (5:3-6), when Jesus told Simon Peter who complained of having had no catch of fish the whole night: “Put out into deep water and lower your nets for a catch.” The rest of this story ends with Jesus telling Simon Peter: “Do not be afraid from now on you will be catching men.”

You also want to know the truth about the issues relative to federalism. Jesus Himself said in the Gospel according to John (8:32) “And you will know the truth and the truth shall set you free.” Yes, truth shall make us free – free from lies and falsehoods, especially in a culture of fake or false news. It was discussed in a recent study in the United states that false news travels six times faster than truth.

Verily, by wanting more about federalism you have shown prudence and wisdom and statesmanship. You inspire me beyond measure.

Built into your choice of your National Assembly theme “Philippines 2018 and Beyond: Changing for the Better” is actually Charter Change with the primary purpose of the shift to federalism. This is confirmed by the topic assigned to me, per your printed program: “The Role of Local Governments Under the Proposed Federal System.” You could have also reworded your theme to read: Charter Change: Changing the Philippines for the Better. As stated in the program, I have an hour for this. After hearing me, you might decide to put a question mark at the end of this reworded theme, and even of your original theme.

For your chosen theme and the task assigned to me, I decided to bring you both the good news and the bad news. I am sure you want the good news first.

For the good news, I brought with me copies of three documents: (1) the political Bible of the Philippines and the Filipino people – the 1987 Constitution of the Republic of the Philippines; (2) one which approximates any of those known as statutes or ordinances implementing the Law of Moses – the 1991 Local Government Code; and (3) the decision of the Supreme Court en banc in the consolidated cases of Congressman Hermilando Mandanas, et al. vs. Executive Secretary Paquito Ochoa, Jr., et al. (G.R. No. 199802) and Hon. Enrique Garcia, Jr. vs. Hon. Pacquito N. Ochoa, Jr., et al. (G.R. No. 208488) promulgated on 3 July 2018.
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(Part II)

The 1987 Constitution – I suppose all of you have read it – is the only Constitution in the world which enshrines as one of the State Policies the policy that “The State shall ensure the autonomy of local governments.” This is Section 25 of Article II. Take note of “shall ensure.” To immediately implement this policy, the Constitution devotes one whole article to pursue this state policy. This is Article X entitled:  Local Government.  Its Section 1 defines what the territorial and political subdivisions of the Republic are, namely: provinces, cities, municipalities, and barangays, as well as the Autonomous Regions in Muslim Mindanao and the Cordilleras.  Section 2 declares that the territorial and political subdivisions shall enjoy local autonomy.  Section 3 directs Congress to “enact a local government code which shall provide for a more responsive and accountable local government structure instituted through a system of decentralization and effective mechanisms of recall, initiative and referendum, allocate among the different local government units their powers, responsibilities, and resources, and provide for the qualifications, election, appointment and removal, term, salaries, powers and functions and duties of local officials and all other matters relating to the organization and operation of the local units.”

            Section 6 of Article X expressly provides that “Local government units shall have a just share, as determined by law, in the national taxes which shall be automatically released to them.”
Section 7 expressly provides that “local government units shall be entitled to an equitable share in the process of the utilization and development of natural wealth within their respective areas in the manner provided by law, including sharing of the same with the inhabitants by way of direct benefits.”

The first Congress under the 1987 Constitution enacted the 1991 Local Government Code in compliance with the aforementioned Section 3 of Article X.

All of you, as well as all other incumbent elected local government officials, were elected under the mandate of Article X of the 1987 Constitution and pursuant to the 1991 Local Government Code.
The third document – the decision of the Supreme Court – is a gift from Heaven coursed through the gods of Padre Faura. How many of you have read or seen a copy of the decision?

The decision gives further strength to the concept of local autonomy, and categorically declares that the mandate of Section 25 of the Article II of the 1987 Constitution that “The State shall ensure the autonomy of local government units” “limits Congress’ control over the LGUs.”  In strong and forceful words, it declares that:

“The autonomy of the LGUs as thereby ensured does not contemplate the fragmentation of the Philippines into a collection of mini-states [citing Ganzon v. Court of Appeals, G.R. No. 93252, 5 August 1991, 200 SCRA 271, 281], or the creation of imperium in imperio” [citing Land Transportation Office v. City of Butuan, G.R. No. 131512, 20 January 2000, 322 SCRA 805, 808].  It further expounds that “the grant of autonomy simply means that Congress will allow the LGUs to perform certain functions and exercise certain powers in order not for them to be overly dependent on the National Government, subject to the limitations that the 1987 Constitution or Congress may impose” [citing Ganzon vs. Court of Appeals, supra].  “Local autonomy recognizes the wholeness of the Philippine society in its ethnolinguistic, cultural, and even religious diversities” [citing Disomangcop v. Datumanong, G.R. No. 149848, 25 November 2004, 444 SCRA 203, 207].
The decision further declares that the just share of local government units in the national taxes which should be automatically released to them as provided for in Section 6 of Article X of the present Constitution refer to all national taxes and not just to national internal revenue taxes as now provided in Section 284, Title III (Shares of Local Government Units in the Proceeds of National Taxes) of the Local Government Code.  Thus, this Section 284 limiting the just share to national internal revenue taxes is unconstitutional.  Section 21 of the National Internal Revenue Code (NIRC) as amended by RA No. 8424 enumerates the following as national internal revenue taxes:  income tax, estate and donor’s taxes, value-added tax, other percentage taxes, excise taxes, and such other taxes as are hereafter to be imposed and collected by the Bureau of Internal Revenue. The Local Government Units were not given any share at all in the following taxes:

1. The NIRT (National Internal Revenue Taxes) enumerated in Sec. 21 of the NIRC, as amended, to be inclusive of the VAT, excise taxes, the DSTs collected  by the BIR and the BOC and their deputized agents.

2. Tariff and customs duties collected by the BOC.

3. 50% of the VAT collected in the ARMM, and 30% of all the national taxes collected in the ARMM, the remaining 50% of the VATs and 70% of the collections of the other national taxes in the ARMM shall be the exclusive share of the ARMM pursuant to Section 9 and Section 15 of RA No. 9054.

4. 60% of the national taxes collected for the exploitation and of the national wealth; the remaining 40% will exclusively accrue to the host LGUs pursuant to Section 29 of the Local Government Code.

5. 85% of the excise taxes collected from locally manufactured Virginia and other tobacco products; the remaining 15% shall accrue to the special purpose funds pursuant to RA No. 7171 and RA No. 7227.

6. The entire 50% of the national taxes collected under Section 106, Section 108 and Section 116 of the NIRC in excess of the increase in the collections for the immediately preceding year.

7. 5% of  the franchise taxes in favor of the national government paid by franchise holders in accordance with Section 6 of RA No. 6631 and Section 8 of RA No. 6632.”

As reported in the Business Section of the Philippine Star issue of 16 July 2018, per computation of the Department of Finance, as disclosed by Secretary Dominguez, the national government owed the Local Government Units from the date of effectivity of the Local Government Code (1992) more or less P1.5 trillion in terms of their shares from all other national taxes.  However, the Supreme Court declared that the decision would be prospective in application.

            This decision demolishes the principal ground for the shift to federalism.  This delivers a mortal blow – a coup d’ grace – to federalism.  This should stop the cha-cha train.
But how sad, tragic, and painful that on the very day (Tuesday, 3 July) the Supreme Court gave this manna from heaven to our LGUs, and before even the LGUs could even savor the victory and enjoy the fruits, they were robbed of it in a manner akin to a highway robbery.  How was this accomplished? By the approval of the Consultative Committee of a draft Constitution for the Federal Republic of the Philippines.  The federalism adopted effectively massacred our LGUs and buried them down the pit.  Thus, for your advance information I titled my message to you as “Federalism:  Massacre of the LGUs?”

This is not just the sad, but the saddest, news I am bringing to you.  I have the document that massacred the LGUs.  Its cover is very captivating, enticing, attractive:

“POWER OF THE PEOPLE BAYANIHAN FEDERALISM POWER TO THE REGIONS — Draft Constitution for a Strong Indissoluble Republic.”

            Take note it does not speak of power to the LGUs.  Yet, the federalism propagandists told the people that federalism would give more power and benefits to the LGUs. Let us see how this tragic drama of the massacre was committed by the adoption of federalism.

If we recall, and if the Consultative Committee does not have a short memory, at its inaugural session on 19 February 2018, Committee Chair retired Chief Justice Puno exhorted and urged the members to devote serious thought on the ”architectural design” of a Federal system “distinctly Filipino” (Manila Bulletin, 20 February 2018). Since it is to be “distinctly Filipino,” it could have no model such as the federal system in various countries, like the United States, Germany, Canada, and the Russian Federation.  If you recall, even the President mentioned of a hybrid federalism like that, he said, of China and Hongkong.

We expected then that what it would recommend would be a federal system which is “distinctly Filipino,” which on the ground would work the “federal” way.

(PART III)

But what the Consultative Committee produced is not just a Federal Republic of the Philippines thru the division, breaking up, partitioning, splitting, dismembering of the one united nation known as the Philippines into 18 Federated Regions composed of the 16 existing Administrative Regions and the Bangsamoro Autonomous Region and Federated Region of the Cordilleras, with provisions that would strictly adhere to the traditional federal set-up. The committee went beyond and farther yet. It overhauled our 1987 Constitution through massive re-structuring, reorganization, revamp, or  surgery. In the process, it even incorporated undemocratic provisions, principles, and concepts spiced with some elements of fascism and totalitarianism. It builds a dictatorship. It erects a weak democracy, made weaker yet by elitism and the creation of more feudal states which would ultimately be easily controlled by political dynasties. It is anti-Filipino, anti-people, anti-poor.
Let me first show you how this draft Constitution looks like. If approved, it would be the longest Constitution the Philippines will ever have. It has 22 articles, excluding the Preamble. Our 1987 Constitution has only 18 articles.

It is contained in 105 pages of short bond paper, excluding two unnumbered pages for the signatures of the chairman and the members, written single-space in very fine print or font. This does not yet include two ordinances to be appended to it, namely, (1) the ordinance on the composition of the federated plus the regions and (2) the ordinance consisting of the Organic Act of the Bangsamoro Autonomous Region approved by the President and ratified by the people concerned. With these ordinances, the Constitution would be four or five times longer.

In any overhauling, reorganization, restructuring, revamp, or surgery of the government, especially if done thru revision of the Constitution or Charter Change, institutions and people have to be sacrificed either because the revised Constitution has abolished the institutions or positions to which they were elected or appointed, or they are to be reorganized out.  

You may be shocked to know that the Local Government Units and all the officials elected or appointed to these LGUs – of course, including you – would be among those who will be sacrificed. You would be among the first martyrs of the Charter Change or on this shift to federalism.
As you can see the draft Constitution of the Consultative Committee even if it has four more articles than our present 1987 Constitution does not reproduce, wholly or even partly, Article X on LOCAL GOVERNMENT of the latter.  I earlier discussed thoroughly the salient features of this article.  I also stated that this Article X of our 1987 Constitution implements and enforces Section 25 of Article II of the 1987 Constitution – the Article on Declaration of Principles and State Policies, which for emphasis I read again:

“The State shall ensure the autonomy of local governments.”

Unfortunately for you and all those elected under the Local Government Code, the draft Consultative Committee Constitution has replaced Article X (Local Government) of the 1987 Constitution with a new one entitled FEDERATED REGIONS, THE BANGSAMORO, AND THE FEDERATED REGION OF THE CORDILLERAS. This is Article XI of the draft. It does not mention the 1991 Local Government Code. The Consultative Committee may explain that the 1991 Local Government Code shall remain valid under the provision of Sec. 11 of Article XX (Transitory Provisions) of the draft which states that: “All laws, decrees, executive orders, proclamations, rules, regulations, letters of instructions, and other executive and judicial issuances not inconsistent with the Constitution shall remain valid until amended or replaced.”

But, I tell you that there is nothing more inconsistent with the draft Constitution than by complete deletion of the Article on Local Government (Article X) of the present Constitution and substituting it with another Article on Federated Regions.

Here are some of the glaring proofs of inconsistencies:
One. The draft Constitution does not anymore mention the guarantee under Section 6 of Article X of the present Constitution that the Local Government Units shall have a just share in the national taxes, etc.,  and the guarantee under Section 7 thereof of the LGUs’ equitable share in the proceeds of the utilization and development of the natural wealth, etc. which I had read earlier.  In the draft Constitution, the shares are given to the Federated Regions. The withdrawal of these shares from the Local Government Units is the best proof of the falsehoods of the enticements and representations (or misre-presentations) deliberately made by the pro-federalism propagandists that under the federal system, the Local Government Units would receive more in terms of funds and resources or shares of taxes from the Central Federal Government.  The falsehoods or lies are now exposed in Sections 4 and 7 of Article XIII (Fiscal Powers and Financial Administration) of the draft Constitution.  Section 4 reads:

“The Federal Region shall be given a share of not less than fifty percent (50%) of all collected income taxes, excise taxes, value added tax, and customs duties, which shall be equally divided among them and automatically released.”

This means that the 50% share will be divided equally among the 18 federated regions. In short, each of the 18 would only get more or less 3%.  The LGUs get nothing.

Section 7 provides:
“The Federated Regions shall be entitled to fifty percent (50%), of all net revenues derived from the exploration, development, and utilization of natural resources within their territory.”

Nothing too is given to the existing Local Government Units.

Two.  Article XII on Distribution of Powers of the Government of the draft Constitution does not at all mention powers of the Local Government Units, but only of the Federal Government and the Federal Regions.

Three.  Under Section 2 of this Article XII of the draft Constitution, among the exclusive powers of the Federated Regions is over “local government units.”  This simply means that the LGUs would only be slaves of the Federated Regions.

Four.  Under Section 9 of Article VI on People’s Initiative, Plebescite and Referendum of the draft Constitution, the exercise thereof in respect of the constituencies of the Federated Regions will depend on the Regional Assemblies which are mandated to enact the law for that purpose.  This effectively renders ineffective the law on people’s initiative which includes the local government units.

The only hope of the Local Government Units and you, vice governors, would be hope in the mercy of the Federal Congress. This Congress is authorized in Section 1 of Article XI (Federated Regions, the Bangsamoro, and the Federated Region of the Cordilleras) of the Consultative Committee draft Constitution to, “by law, create, abolish, merge, and divide the regions and determine their constituent political subdivisions, subject to the ratification by the people in a referendum held for the purpose in the political subdivisions affected.” Take note of “determine their constituent political subdivision.” This clearly refers to the Local Government Units.

Since we have to wait for the Federal Congress for the revival of the Local Government Units as established in Article X of the present Constitution and given flesh and blood in the Local Government Code, it is palpably obvious that your resurrection is uncertain.

How did the Consultative Committee maneuver itself to succeed to remove or delete Article X on Local Government of the present Constitution and to render ineffective the Local Government Code?  It simply altered or changed the mandatory character of the State Policy on Local Governments under Section 25 of Article II of the present Constitution which I read again for emphasis–

“The State shall ensure the autonomy of local governments.”

It is replaced by Section 27 of Article II (Declaration of Principles and State Policies) of the draft Constitution, which reads:

“The Federal Republic shall promote the autonomy of local government units in line with the principle of subsidiarity and in accord with federalism.”

It is not ensuring, but only promoting, but subject to the principles of subsidiarity and the demands of federalism.  The Local Government Code is not based on the principle of subsidiarity nor on federalism. This in fact is another proof of the inconsistency of the Local Government Code with the provision on Federated Regions of the draft Constitution.

A grave injustice has been committed against the LGUs. How sad, how tragic, how painful.
If you allow me to move on further to respond to your main theme, “The Philippines 2018 and Beyond:  Changing for the Better,” I will oblige and show to you that the change may not be for the better.  It could be for the opposite.

Moving on, I will take up first the erection of a dictatorship. The draft Constitution devotes one whole article, Article XXII for the Transitory Provisions. This is the last article. Before it was revised, this article created a so-called Transition Commission. It is to be composed of the President as chairman and ten others appointed by the President from the list of personalities submitted by a Search Committee. But the members of the search committee are themselves appointed by the President.

Among others, the Commission is empowered to organize or reorganize and fully establish the Federal Government and the governments of the federated regions.  It shall prepare a Transition Plan which, among others, can remove all in the government service, thereby violating the security of tenure guarantee of all government officials and employees.

Section 8 of the Transitory Provisions provides: “All officials of the government under the 1987 Constitution shall continue to hold their office and exercise their respective powers and duties under such terms and conditions or as may be provided in the Transition Plan.”

(Part V)

Any form of dictatorship is undemocratic. The draft Constitution of the Consultative Committee contains other undemocratic provisions.

Here are some of them. First, the people are perpetually deprived of and forever banned from exercising their right to amend or revise the Constitution in respect of “the democratic and republic character of the government in a federal structure, its indissolubility and permanence (Section 4, Article XXI). In the language of this section, these “shall not be subject to amendment or revision.” Yet, Section 1 of Article XI of the draft Constitution provides that the Federal Congress may, by law, create, abolish, merge, divide ther and determine their constituents, political subdivisions, subject to the ratification by the people in a referendum held for the purpose in the affected political subdivisions.  Where is now the underlying principle that in a democratic and republic state sovereignty resides in the people and all government authority emanates from the people? (Sec. 1, Article II of our present Constitution). We should be reminded of what George Washington said in his Farewell address in 1796: “The basis for our political systems is the right of the people to make and to alter their constitutions of government.”

Second, it creates an elitist democracy, an element that in itself weakens democracy, which could easily be pampered and strengthened by old and new political dynasties in the new 18 federated regions.  The new provisions on regulations and control of political parties and the abolition of the party-list system under the present Constitution coupled with the very narrow concepts of political dynasties would in fact be the prescriptions for political elitism. The poor would have no chance for political leadership against these political parties. The poor would remain under the clutches of politicians. The Democracy Fund would only be a screen to cover up elitism.

More elitist is the requirement in Section 4(c) of Article VIII that the President and the Vice President shall be elected as a team.  A vote for the President shall be counted for the candidate for Vice President.  It follows then that a vote for the running mate Vice President will not be counted as a vote for the candidate for President.  This requirement prevents one from running either as President or Vice President as an independent candidate.  The candidate for President may choose who his/her Vice Presidential candidate be.

Then, too, only those with college degrees or its equivalents can run for President, Vice president, or senators and representatives in the Federal Congress.  Those who do not these degrees because of poverty or another other cause would never have a chance of being elected as such.  This is undemocratic, and even anti-poor.  Yet we would never have the assurance that the college degree holder would be a good president, vice president, senator, or representative. We had a president who was a brilliant lawyer, bar topnotcher, yet his regime was one of corruption, oppression, and injustice under martial law, the worst ever for our country.  He was ousted by the People Power revolt, and brought to Hawaii which he thought was Paoay, but whose remains were allowed by the Supreme Court to be buried at the Libingan ng mga Bayani.  We had ap who was a holder of a master’s degree in economics but who was prosecuted for graft and corruption and plunder, was arrested and detained in a hospital, but was thereafter absolved by the same Supreme Court.

The draft Consultative Committee Constitution is anti-Filipino or anti-Philippines.  

First, it adopts the system of government that destroys the unity and solidarity of the Filipino people; that is not suited for the Philippines and the Filipino people and has never been tried and tested in our country; and is evolved in anomalous violation of how federal states and governments are evolved.  

Second, while Article II on National Territory takes the trouble to expand the territory by its long definition, it deliberately did not mention by name the West Philippines Sea. Yet, it specifically mentions by name the Philippine Rise (which is the Benham Rise). Why not clearly specifically mention the West Philippine Sea? Because of the administration’s fear of or love for China? I had earlier mentioned the Philippines becoming a province or colony of China. But let me elaborate further. If you recall in a gathering of Chinese businessmen on 19 February 2018, at the Manila Hotel, the President mentioned of the Philippines being a province of China. Presidential spokesperson Harry Roque tried to cushion the impact of the President’s statement by saying that it was only a President’s joke. But we know for a historic fact that China does not consider serious pronouncements as jokes, especially if it is in her favor. We know too that Chinese leaders, especially its President now – President Xi, whom our president admires much – do not joke on state affairs or matters.

I have spoken of several indicators why the Philippines is getting closer to be a colony or province of China. Just consider a few:  One, almost twice weekly our national broadsheets put in one or two full-page ads pictures of Chinese President Xi showcasing his programs and the progress of Chinese and its world leadership. Two, it was reported that just recently on two occasions, a Chinese military plane landed in Davao City. Three, China has reclaimed parts of our West Philippine Sea. Four, the President has already visited China and met President Xi thrice. Five, the Palace has mentioned China-Philippines co-ownership of the West Philippine Sea. Six, in one of the President’s visits to China, China provided a P3.8-billion assistance to the Philippines and the construction for free of two bridges across the Pasig River. Seven, a few days after the President’s trip to China, Chinese military aircraft landed at our Panganiban reef in our West Philippine Sea. Eight, China unveiled a monument to its island -building in the West Philippine Sea. Nine, China has deployed missiles on the Panganiban, Zamora, and Kagitingan reefs in the West Philippine Sea. Ten, after his last trip to China the President made an offer of 60-40 sharing with China for the joint exploration plan for the West Philippine Sea. Eleven, and to our shock, the front page of the Manila Bulletin issue of 6 July 2018 has this article: “President to seek China’s help if war breaks out in Mindanao.”

The draft Consultative Committee Constitution is anti-people. Consider its Declaration of Principles alone. It does not contain anymore the guarantee of “full respect for human rights” enshrined in Section 11 of Article II of our present Constitution.

While the draft tries to expand the Bill of Rights (Article III) by stressing that the rights enumerated therein are now “demandable against the State and non-State actors,” it forgot that it has provided in Section 3 of its Article XX (General Provisions) that “The Federal Republic may not be sued without its consent.”  It as well forgot that these rights are demandable even without so providing.  For example, Article 32 of the Civil Code of the Philippines provides that any public officer or employee or any private individual who directly or indirectly obstructs, defeats, violates, or in any manner impedes or impairs the rights and liberties of another person is liable to the latter for damages.

Further, the Bill of Rights actually diminishes the right of the people to be secure in their persons, houses, papers, and effects against unreasonable searches and seizure. It now authorizes, in addition to the search warrant, a so-called “surveillance warrant” [Sec. 5 (b), Article III]. It also did not abolish the death penalty [Sec. 22 (a), Article III]. It should have done so because the Philippines is a state-party to the Second Protocol of the United Nations International Covenant on Civil and Political Rights. This protocol abolishes the death penalty. Section 2 of Article II of the draft Constitution itself provides that the Philippines “adopts the generally accepted principles of international law as part of the law of the land.”

The Bill of Rights in the draft Constitution further diminishes the right of the people in respect of the privilege of the writ of habeas corpus by adding, as I earlier indicated, “lawless violence” as a ground of the suspension of the writ. In this regard, “lawless violence” is now inscribed in the Bill of Rights. “Lawless violence” was not a ground for the suspension of the writ of habeas corpus in our Constitutions of 1935, 1973, and 1987.

Section 4 of the draft Constitution provides:
“The privilege of the writ of habeas corpus shall not be suspended except in cases of invasion, rebellion, or lawless violence, when the public safety requires it. Even when the privilege of the writ of habeas corpus is suspended, the privilege of the writs of amparo and habeas data and other protective writs may still be resorted to unless prejudicial to public order.”

(CONCLUSION)

On the other hand, Section 15 of Article III of our present Construction provides:

“The privilege of the writ of habeas corpus shall not be suspended except in cases of invasion or rebellion, when the public safety requires it.”

The Bill of Rights also reduces freedom of religion by limiting religious beliefs to only the fundamental ones, even though it expands it to include the freedom to “reject” religion. The expansion is meaningless. To one who has no religion, freedom of religion means nothing.
The draft Constitution of the Consultative Committee breeds a tyrannical, oppressive, and unjust regime because it creates a horribly horrendous, bloated, and enlarged bureaucracy to maintain and sustain, which would forever burden the people.

How is this kind of bureaucracy brought about?

The draft Constitution enlarges a Federal Senate and Federal House of Representatives. The Senate will now be composed of 36 senators (two from each federated region) and the House of Representatives of not more than 400 members. Eighteen federated regions with broad exclusive powers, each of which would have its own regional assembly and executive department.
The reorganized Judiciary, Constitutional Commissions, etc. would require the creation of thousands of elective and appointive positions.

To maintain and support this horribly horrendous bloated and enlarged democracy, the Federal Government and the federated regions will have to impose taxes or to resort to borrowings.  As reported in the Philippine Star last 29 July, the debts (domestic and foreign) of the National Government have already reached P7 trillion as of June this year.  And as reported in the Philippine Daily Inquirer issue of 30 July, it would reach P8 trillion in 2019.  We know very well that these debts would in the end be shouldered by our people.  In the final analysis, these would be three things that people cannot escape from – death, debts, and taxes.

And now would you still want to know about the massive overhauling, restructuring, revamp or surgery of the Judiciary under the draft Constitution of the Consultative Committee?

Under the draft there will be two justice systems and two judiciaries, namely: the Federal Justice system and the Regional Justice system; and the Federal Judiciary and the Regional Judiciary.  Under Section 2 of Article XII of the draft Constitution the Federated Regions, within its regional territory, have exclusive powers over, among others, “the justice system.” Under Section 22-C (The Regional Judiciary) of Article XI, the Regional Assembly “shall provide for a Regional Supreme Court, Regional Appellate Court, Regional Trial Courts and such lower courts and special courts in component provinces, cities, and municipalities and define their jurisdiction in accordance with the Constitution.”  The federated regions can pass laws, including penal laws.  Thus there will be regional laws and regional crimes, in addition to the Federal laws and Federal crimes.

On the federal level, the draft Constitution creates four Federal Highest Courts, namely: Federal Supreme Court, Federal Constitutional Court, Federal Administrative Court, and Federal Electoral Court. The first three would be composed of a chief justice and eight associate justices, and the last – the Federal Electoral Court – would be composed of a chief justice and 14 associate justices. Then there would be 18 federal courts of appeals, with one in each federated region; One Federal Trial Court in each province.

Nothing is mentioned of the existing Court of Appeals, the Sandiganbayan, and the present first and second level courts. At the public hearing of the Senate Committee on Constitutional Amendments and Revision of Codes last 17 July, I inquired from former Senate President Nene Pimentel, a member of the Consultative Committee, why these appellate courts are not at all mentioned in the draft Constitution. His answer was that these courts are considered lower courts in the draft.

Thus, under the draft Constitution, at any given time and simultaneously, there will be four chief justices (one each in the four highest Federal Courts); and 18 chief justices in the Federated Regions (one each per region); 38 associate justices in the four highest Federal Courts; 18 associate justices of the Federal Court of Appeals (one each per region), and as many associate justices in the Regional Supreme Court and Regional Court of Appeals as may be fixed by the Regional Assembly.

The creation of the Federal Constitutional Court, Federal Administrative Court, and Federal Electoral Court is unnecessary and would only complicate our justice system, and diminishes and weakens the historic dignity of the single highest court – the Supreme Court. It shall now be composed of only a chief justice and eight associate justices appointed for a term of 12 years, with seventy as the mandatory age of retirement. The process of their appointment is most unusual and would seriously affect the independence of the court and would subject it to political pressure and interference. Take note that of the nine members of the court, the chief justice and two associate justices shall be appointed by the President, three by the Commission on Appointments, and three by the Federal Constitutional Court.

On the other hand the chief justice and two associate justices of the Federal Constitutional Court shall be appointed by the President, three by the Commission on Appointments, and three by the Federal Supreme Court.

Political interference and pressures would be unavoidable because the President and the members of the Commission on Appointments are politicians.

In addition, removal of the chief justice and the associate justices for every impeachable offense would be far easier. Under the consultative Committee Constitution, a joint Impeachment Committee headed by the president of the Senate and 12 each from the Federal Senate and House of Representatives is created. A complaint for impeachment against the chief justice and associate justices shall be filed with the committee, which shall determine whether the complaint is sufficient in form and substance. Thereafter it will determine if a probable cause exists. If there is, it will prepare the Articles of Impeachment which shall then be filed with the Federal Constitutional Court. This court has the exclusive authority to try and decide the case. A vote of six members of the Federal Constitutional Court would be necessary to convict the respondent. If impeachment is against the chief justice and associate justices of the Federal Constitutional Court, the Federal Administrative Court will have jurisdiction to try and decide the case.

In light of the quo warranto decision of the Supreme Court in the quo warranto case against former Chief Justice Ma. Lourdes P. Sereno, the chief justice and the associate justices of the Supreme Court may still be ousted from office via quo warranto.

As regards appointments to the judiciary and disciplining of judges – a Judicial Appointments and Disciplinary Council is created. The JBC is abolished. The Judicial Appointments and Disciplinary Council is composed of 11 ex-officio members and four regular members.

The 11 ex-officio members are: (1) chief justice of the Federal Supreme Court; (2) chief justice of the Federal Constitutional Court; (3) chief justice of the Federal Administrative Court; (4) chief justice of the Federal Electoral Court; (5) chairperson of the Federal Ombudsman Commission; (6) court administrator of the Supreme Court; (7) A representative from the Senate belonging to the minority; (8) A representative from the House of Representatives belonging to the majority; (9) chairperson of the Civil Service Commission; (10) Chairperson of the Commission on Audit; and (11) Secretary of Justice. The four regular members are: (1) a representative from and designated by the Integrated Bar of the Philippines; (2) a law professor designated by the Philippine Association of Law Schools; (3) a representative from and designated by the Association of Generals and Flag Officers; and (4) a retired member of the Federal Supreme Court to be designated by the Association of the Retired Justices of the Federal Supreme Court (Section 19 (a) and (b), Article IX).

All justices and judges of lower courts shall be appointed by the Supreme Court, upon recommendation of the Judicial Appointments and Disciplinary Council (Section 8 (g), Article IX).
This massive reorganization of the Judiciary with the dichotomy of the justice system and judiciary would create havoc in the administration and delivery of justice.  The regional courts can easily be controlled in both their creation and filling up by politicians.  Many of the courts may remain unfilled for years.  Even now, we have many vacancies.  Lawyers are not attracted to judicial postings.  Undue delay in its administration is unavoidable.  These complexities in the justice system would make our people more litigious, even as it makes difficult access to justice by the poor.
Summing up, the draft Constitution of the Consultative Committee, with Federalism as the Trojan horse, must be rejected because of the following reasons, among others:

First, it divides our people and dismembers our one strong nation under a unitary system which has been with us for at least one hundred and twenty years from 1898 when we gained our independence.  In the Gospel according to Matthew (12:25), “Every kingdom divided against itself will be laid waste, an no town or house divided against itself will stand.”

Second, it is anti-Filipino, anti-people, anti-poor.

Third, it even weakens our democracy as it strengthens the foundation for a dictatorship, creates an elitist body politics, and even weakens the Bill of Rights.

Fourth, the division of the country into 18 federated regions creates new feudal states which can be lorded over by new political dynasties and new warlords.

Fifth, it creates a horribly horrendous, bloated, and expanded bureaucracy, the support and maintenance of which can be done only by increasing taxes or imposing new taxes or by borrowing money.  Not far behind these would be increases in the prices of almost everything, e.g,. food, medicines, etc. They create and unbearable burden on the people.  It would be tyranny, oppression and injustice.

Sixth, this horribly horrendous, bloated, and expanded bureaucracy creates breeding grounds for massive graft and corruption; discourages businessmen and foreign investors.

Seventh, this horribly horrendous bloated and enlarged bureaucracy makes extremely difficult the pursuit and implementation of good governance, transparency, and accountability.

Eighth, the reorganized justice systems and judiciaries would in fact delay the administration of justice and impair the independence of the judiciary, especially the Supreme Court.  It would as well make difficult access to justice by the poor.

             Ninth, it robs and takes away from the Local Government Units their guaranteed and ensured autonomy under the present Constitution and makes them slaves of the Federated Regions.

Tenth, in the final analysis, it is a prescription for economic disaster, and a formula for national and regional bankruptcy.

While the massacre of the LGUs in the draft Constitution of the Consultative Commission would be enough reason for you and all elected and appointive officials under the Local Government Code to reject it, all that I have painfully pointed out to you may provide you additional strong reasons for your rejection.

They only prove that our 1987 Constitution is still the best for our country and for our people.  I have said many times before that our 1987 in the best we even had, even if it is imperfect.  Only God is perfect.  It is the only Constitution we ever had that is pro-God, pro-Filipino, pro-People, pro-Life, pro-Marriage, pro-Family, pro-Poor, pro-Social Justice, pro-Human Rights, pro-Women, pro-Youth, pro-Environment, among others.  It is the only Constitution which has not been amended or revised for that past 31 years.  Several attempts to amend or revise its all failed.  As I solemnly pledged when I explained my affirmative vote on the draft of that 1987 Constitution at the plenary session of the 1986 Constitutional Commission on 12 October 1986:  “This is the Constitution I am willing to die for.”  I repeat that pledge now before you.

As among the first victims of federalism under the draft Constitution of the Consultative Committee, do not commit suicide by supporting it or by campaigning for the approval of this proposed Constitution, this Federalism.

God bless the Philippines.
God bless the League of Vice Governors of the Philippines.
God Bless our people.
Thank you, and all the best.

source:  Manila Bulletin Column of HILARIO G. DAVIDE JR., Former Chief Justice

Central Luzon as federal state

Instead of wasting our time debating on the pros and cons of federalization, which obviously is a non-starter because of its numerous conceptual and practical flaws, it would be more productive for us to
identify certain regions of the Philippines which can already be encouraged to act like federal states under the Local Government Code.  There are many provisions of this Code that already permit enlightened, honest, and competent Local Government heads to constitute their respective geographical territories as de facto federal states, even without amending the Constitution.  They can levy their own taxes, issue municipal bonds, partner with the private sector in building all types of infrastructures such as public school buildings, railroads, airports, toll ways, sea ports, etc.,  without having to go to NEDA or other national government agencies for authorization.  As another enabler for greater financial autonomy, the National Government can execute the recent mandate of the Supreme Court to automatically release the Internal Revenue Allotment (IRA) due the LGU units.  What President Duterte legitimately desires — to “decapitate” Imperial Manila — can be more quickly achieved through this more aggressive implementation of the Local Government Code.
If there is a region that is ready to constitute itself as a de facto federal state, it is Central Luzon with the Pampanga Triangle (San Fernando, Angeles City, and Clark) as the strategic center.  It is a happy coincidence that former President Gloria Macapagal Arroyo is now the new speaker of the House and has at least the next 11 months to champion the long-term development of Central Luzon as a de facto federal state.   She can use her moral authority to motivate and lead the LGU heads in Central Luzon to implement a long-term (at least the next ten years) plan to endow the region with the best infrastructures,  high-quality educational institutions, and good governance practices that are indispensable for sustainable and inclusive development.  I see her role there (together with Governor Lilia  Pineda of Pampanga) similar to what Senator Frank Drilon played in making Iloilo City one of the most promising business centers in the Visayas today. In fact, some are hoping that before Speaker GMA retires from politics, she could have a stint as governor of Pampanga.

In 2017, while the whole national economy was growing at 6.7%, Central Luzon’s GRDP grew at 9.3%, next only to the Cordillera Administrative Region (CAR) that grew at 12.1% and Davao at 10.9%.  The region is highly industrialized with industry contributing the largest share to the regional economy at 48.3% in 2017.  Within the industrial sector, construction led with a whopping 22.3% growth in 2017, followed by manufacturing at 13.2%, and electricity, gas, and water at 8.5%.  With these strong growth rates of the component sectors of industry, it was industry that contributed most to the region’s overall growth with 6.4 percentage points, followed by services with 2.3 percentage points and agriculture, hunting, forestry, and fishing at 0.6 percentage point.  Central Luzon has the third largest population in the Philippines at 11.2 million, next only to Calabarzon (14.4 million) and the National Capital Region (12.9 million).  With a population density of only 510 per square kilometer (compared to NCR of 21,000 per square kilometer), Central Luzon has much more room for further expansion and, with the appropriate infrastructures, can still count on producing most of its food requirements, especially the higher-value crops like fruits, vegetables, and livestock.  Central Luzon could be an agro-industrial power in the country.

The Build, Build, Build program of the Duterte administration is highly visible in Central Luzon.  For example, Angeles City has rolled out 14 road and bridge projects to alleviate traffic problems prior to the completion of the P211-billion Malolos-Clark Railway (to be built with Japanese funding) and the P13-billion expanded Clark International Airport at the Clark Freeport Zone scheduled for completion in 2020.  These 14 projects include the construction of the North Luzon Expressway (NLEx)-Subic Clark Tarlac Expressway (SCTEx) Connecting Road or Abacan Expressway; the East Circumferential Road; the Furniture Village Bypass Road; Angeles Livelihood Road in the Export Processing Zone Authority; the Angeles SCTEx Toll Exit Interchange in Barangay Margot; a flyover at the Angeles-Magalang Road; and the Angeles-Porac (Pampanga)-Dinalupihan (Bataan) Road. With all these infrastructure projects, no wonder the country’s leading real estate developers like Ayala Land, Megaworld, Robinson, SMDC, Filinvest, Century Properties, and many others are investing heavily in townships, resorts, and industrial estates in the region.

The National Government is doing much to help Central Luzon become the next Metro Manila area.   DPWH has started the construction of the access roads amounting to P476 billion leading to the new Clark City (NCC).   Also programmed for Clark is the widening of the Clark-Angeles perimeter road, the Manila North Road, the Pulung Maragul Bridge, Pulung Cacutud Bridge, Cutud Bridge, and Telebastagan-Friendship Road.  A dike is programmed to rise at the Malabanias section of the Abacan River.  The projects also include the improvement of the city’s watershed in Barangay Sapang Bato.  The new Clark terminal, which is expected to serve eight million passengers annually, is expected to significantly benefit Angeles City which is fast becoming a tourism, entertainment, and culinary destination in Central Luzon, attracting—in addition to foreign tourists—some of the more than 60 million domestic tourists who are discovering the many attractive sites in their own country.  Mayor Edgardo Pamintuan of Angeles City declared that the 1,167 flights registered in and out of Clark  from January to May in 2017 served 146,000 passengers and contributed 12,908 registered business establishments—of which 1,589 were new business ventures.

The Duterte administration has to be complimented for finally declaring the inevitable —  that Clark will be the major international airport of the country to replace NAIA which is handicapped by very limited runway capacity while Clark has almost unlimited capacity because of the huge land area for further expansion.  The Clark Freeport Zone is being recognized as the next aerotropolis in Asia, considering its potential to develop into an aircraft repair hub and to host other aviation-related businesses.  The first Aeromart Summit held at the CFZ last April 6, 2017, was an indication that the Philippines is already being recognized as a major player in the aviation industry.   The Aeromart Summit aimed at promoting the country’s capabilities in aerospace parts manufacture, aircraft MRO, and aviation training programs.  It is also expected to maximize the investment and outsourcing opportunities in the Philippines, especially in Clark for aerospace and aviation by serving as the platform to expand the reach of the local aerospace industry players through business-to-business meetings.  (To be continued).

source:  Manila Bulletin Column of BERNARDO M. VILLEGAS

DBM chief warns of SC ruling’s fiscal risk

THE GOVERNMENT’S fiscal position may be at risk from the Supreme Court (SC) ruling that local governments’ share in state revenues includes all national government taxes, not just those collected by the Bureau of Internal Revenue (BIR), Budget Secretary Benjamin “Ben” E. Diokno said on Wednesday.

Mr. Diokno said the national government will file a motion for reconsideration through the Office of the Solicitor General (SolGen), as it cannot afford to comply with the ruling.

“As of now, hindi pa namin nantatanggap ‘yung (we have not received a copy of the) decision,” Mr. Diokno said in a panel discussion at the second Pre-State of the Nation Address Forum in Manila.

“We don’t know how much the damage sa national government. There are varying estimates: it’s P1.2 trillion to about P6 trillion. ‘Yun ‘yung (that is the estimated) effect niya sa gobyerno (on the government),” said the head of the Department of Budget and Management (DBM).

“So ‘yun yung ipapa-apela namin sa (we will ask the) SolGen to (file an appeal to) reverse the decision. Hindi natin kaya ‘yun ganong kalaki (We cannot afford such a huge reduction in retained national government revenues).”

He told reporters afterwards that complying with the high court’s ruling may double the national government’s budget deficit to an equivalent of six percent of gross domestic product (GDP) from a programmed three percent.

“Definitely may (there will be an) effect sa (on) deficit, aabot ‘yung deficit namin ng mga six percent. Ang tawag dun unmanageable public sector deficit. So hindi kaya.”

Although local governments will have more revenues to funds their projects, Mr. Diokno said global debt watchers may take away the country’s investment-grade credit rating — making it harder for the government to secure relatively cheaper credit at a time it implements its more-than-P8-trillion infrastructure development program until 2022.

“Babagsak yung credit rating natin. International confidence will go down. We’ll have to cut significantly ‘Build, Build, Build’,” he said.

The Budget chief described his estimate as “all speculation” as his department has yet to compute the ruling’s impact.

His figures compared to the “P498.85 billion or very close to P500 billion” due local governments for 1992-2012 that was estimated by Batangas Governor Hermilando I. Mandanas, who raised the issue to the high court in January 2012 as legislative representative then of the province’s second district.
Republic Act No. 7160, or the Local Government Code of 1991, provides for internal revenue allotments (IRAs) for local governments amounting to 40% of “national internal revenue taxes based on the collection of the third fiscal year preceding the current fiscal year”.

IRAs are a key source of local government funding, although development planners and economists have taken such units to task for being too reliant on such doleouts and lulling them to complacency in improving their own collections of local taxes for business and real property, as well as fees for services.

Economists interviewed yesterday were divided on the ruling, with one arguing that many local government units (LGUs) have a poor track record in spending wisely and another saying that LGUs are in the best position to identify and implement projects they need for development.

“LGUs have not displayed the capacity to spend resources productively. That’s why I am very skeptical about federalism because it is not very clear about how they will spend resources,” Raul V. Fabella, a retired professor of the University of the Philippines School of Economics, said in a phone interview, adding that carrying out the Supreme Court decision “will cripple or slow down the national government program”.

Describing the ruling as a “bad move,” Mr. Fabella explained that “development of the countryside is dependent on infrastructure spending.”

“You think LGUs with more money will spend it on meaningful infrastructure? I doubt it,” he said.

“I think they’ll spend it on frivolous things. More resources in the hands of Ben Diokno is probably more conducive to regional development than otherwise.”

“The country needs arterial infrastructure which needs huge fiscal resources. Diffusing and dissipating resources is wrong-headed. More basketball courts will not do,” Mr. Fabella said.
But Bernardo M. Villegas, an economist at and one of the founders of the University of Asia and the Pacific, said separately in an e-mail: “I agree with the decision.”

“This can make federalization completely unnecessary. Under the Local Government Code… LGU heads can partner with the private sector to do their own Build Build Build, such as roads, railways, airports, seaports, government centers, public markets, school buildings, etc.,” Mr. Villegas said.

“I know of a good number of very competent mayors and governors who can implement these PPPs (public-private partnerships) more effectively and quickly than the national government agencies,” he explained.

“The IRA that goes to the LGUs can be used by them as the counterpart for these PPP. The national government can just delegate some of the public works and other expenditures on educational and health facilities to the LGUs. By devolving part of these projects to the LGU, the national government does not have to increase its deficit as Secretary Diokno maintains.”

Mr. Fabella, however, said that many local government projects are not bankable compared to those of the national government, hence, may not be attractive to the private sector.

Department of Budget and Management data show P522.75 billion worth of IRAs to 43,607 LGUs this year, 7.37% more than last year’s P486.89 billion.

RA 7160 also requires local governments to spend no less than 20% of their IRA on social development projects.

source:  Businessworld

DoF says SC ruling on LGU revenue share not final

THE Finance department will await a final decision from the Supreme Court on local government units’ (LGUs) “just share” of national government revenue before it makes a decision on filing a motion for reconsideration.

“Just heard the unverified rumor that the SC decision on the LGU’s share of taxes is still for editing and proofreading, then for signature of the justices,” Finance Secretary Carlos G. Dominguez III told reporters via mobile phone message when asked about the government’s plans after the ruling.

Although it has yet to provide a public copy of the resolution, the Supreme Court announced in a statement via its Public Information Office that the court, sitting en banc, voted 10-3 in favor of the LGU internal revenue allotment to include all national taxes, not just those collected by the Bureau of Internal Revenue.

The court ruled on a petition by former Batangas governor Hermilando I. Mandanas, who filed it six years ago, when he was a member of the House of Representatives for the province’s second district. The petition claims that the national government owes local governments about P500 billion between 1992 and 2012, based on an interpretation of the LGUs’ “just share” as stated in the Local Government Code.

Internal Revenue Allotments are LGUs’ main source of revenue. The Local Government Code requires that 40% of the national government’s internal revenue three years preceeding the current fiscal year, should automatically be earmarked to LGUs.

Each LGUs’ share is determined by its population and land area.

Apart from IRAs, LGUs have the authority to impose taxes to generate income, including real property tax, business tax, and other fees.

This year, the Department of Budget and Management has set aside P522.75 billion for IRAs, up 7.37%.

source:  Businessworld

SC rules LGUs’ IRA funding includes BoC collections

THE SUPREME COURT (SC) has ruled that the local government unit (LGU) “just share” of the national government’s tax revenue should factor in Customs collections.

The Court, sitting en banc, issued the ruling in favor of a petition filed six years ago by Batangas governor Hermilando I. Mandanas, at the time a member of the House of Representatives for the province’s second district, which claimed that Internal Revenue Allotments (IRA), through which the national government funds LGUs, was short by about P500 billion from 1992 to 2012.

Voting 10-3 on Tuesday, the high court “interpreted the basis for the ‘just share’ of local government units… as being based on all national taxes and not only national internal revenue taxes,” according to a statement released by the SC Public Information on Wednesday.

Section 284 of Republic Act No. 7160, or the Local Government Code of 1991, states: “Local government units shall have a share in the national internal revenue taxes,” which are the taxes collected by the Bureau of Internal Revenue (BIR), according to the National Internal Revenue Code (NIRC) of 1997.

These include income tax, value-added tax, excise tax, and other taxes collected by the BIR.
National taxes were also ruled to include the remaining taxes collected by the government like those brought in by the Bureau of Customs (BoC), the LGUs’ share of which Mr. Mandanas alleged was not being forwarded.

LGUs, based on the Local Government Code, are entitled to 40% of national internal revenue taxes, but Mr. Mandanas claimed it should include taxes not collected by the BIR.

Mr. Mandanas was asked for comment but his office did not respond to calls.

Those who voted in favor of the decision were Acting Chief Justice Antonio T. Carpio, Associate Justices Teresita L. De Castro, Presbitero J. Velasco, Diosdado M. Peralta, Lucas P. Bersamin, Mariano C. Del Castillo, Estella M. Perlas-Bernabe, Noel G. Tijam, Samuel R. Martires, and Alexander G. Gesmundo.

Meanwhile, those who dissented were Associate Justices Mario Victor F. Leonen, Benjamin S. Caguioa, and Andres B. Reyes, Jr. Associate Justice Francis H. Jardeleza did not take part in the voting.

source : Busnessworld

Proposed hike in Baguio real estate values defended

The proposed increase in market values for land in the city is realistic and reasonable and will not result to confiscatory taxes.

Mayor Mauricio Domogan and city council appropriations committee chair Councilor Elmer Datuin maintained thus in a riposte to the business groups’ opposition to the proposal.

The Chamber of Real Estate and Builders’ Associations Inc. (Creba), the Philippine Chamber of Commerce and Industry Inc. (PCCI) Baguio-Benguet Chapter and the Hotel and Restaurant Association of Baguio submitted their position papers on the proposed revised schedule of market values for lands which is due for deliberation on second reading after publication by the city council.

All groups opposed the proposed adjustment claiming that the new rates are “unrealistic, unreasonable, burdensome and confiscatory.”

Domogan and Datuin reminded the groups that the city’s failure to revise the schedule for 21 years has rendered the market values outdated and unrealistic.  

The city officials said that the resulting increase in the market values which, as defined, are the prices of lots at which the seller is willing to sell and the buyer is willing to buy was expected to reach high proportions but this cannot be deemed as unfair and unreasonable as this was based on actual conditions prevailing in the city at present.

They cited the current market value of lots in Session Road which is pegged at P5,500 per square meter but in reality  the lots in this area at present fetch a price of as much as P150,000 per square meter. The city has proposed to raise the market value in this area at P110,000 per square meter which is still lower that the prevailing price.

“Under the law, the city is duty-bound to impose the correct market value of the properties in our area of jurisdiction and we have been negligent and remiss on this duty since we did not impose any adjustments for 21 years,” the mayor said.

“But now, it is high time to correct this and also address the falsehood bred by our outdated market values which the city unwittingly tolerated with its failure to update the market values. Dapat tumugma sa kung ano ang totoo,” he intoned.

Furthermore, the city made sure that the new market values are comparable to zonal valuation of the Bureau of Internal Revenue which is still in the 1998 level so the new rates cannot be dismissed as unreasonable.

The officials also assured that this will not result to confiscatory taxes as they have proposed to lower the assessment levels to temper the effect of the increased market values from the current assessment levels of 12 percent to just six percent for residential lands; 35 percent to eight percent for commercial and industrial lands; and from 12.5 percent to just five percent for cultural, scientific and hospital lots.

“That to me is already going down nearly to the bottom just to ensure that the resulting taxes will not go beyond what is reasonable,” the mayor said.
Citing examples, City Assessor Almaya Addawe said a 100-square meter lot along Benin Road in Pinsao Proper commands a P25.20 annual tax at present. With the proposal, this tax will increase to just P270 annual tax.

Residential lots within subdivisions in certain barangays are presently charged P212.40 per 100 square meters annual tax and after the proposal, they will be paying P864 per 100 square meters after the 20 percent prompt payment discount. 

This tax rate applies to most subdivisions and residential areas as per the proposal, Addawe said.

As to commercial areas like Session Road, they pay P5,775 per 100 square meter annual tax and with the proposal, they will be assessed P21,120 per 100 square meter or a 357 percent tax increase for these profitable businesses, Addawe added.

To further cushion the impact of the increase, the city is willing to implement the adjustment in three tranches for three years. This is on top of the 20 percent prompt payment discount being given by the city every year, the city officials said.

The officials reiterated that the adjustment is long overdue as the city has for years been berated by no less that the Bureau of Local Government Finance for its failure to comply with Section 219 of the Local Government Code which mandates the city assessor to undertake a general revision of real property assessments within two years after the effectivity of the Code in 1992 and every three years thereafter.

If religiously followed, then the city should have implemented the realty tax revisions for seven times now since 1996.

“But of course we do not want our people to bear the brunt of the seven-year absence of tax increase in one blow so we made sure that this proposal will not result to confiscatory taxes,” the mayor said.

The mayor appealed to the people to “understand what is reasonable” for both the city government and to them.

“By now, our people should have realized that we do not want to impose the new rates just for the sake of increasing taxes. This and other humanitarian considerations are the reasons why we have stalled on imposing the increase that long,” he said.

“We want to impose what is reasonable for both the taxpayers and the city government and we believe that this proposal is as fair as it gets.”

The city officials also assured that the proceeds of the increase in taxes will not be squandered and will be used for its intended purpose in the form of basic services to the public.

SOURCE:  Baguio Midland Courier

Holding firms’ exemptions reconsidered in their favor

Every January, during the renewal of local business permits, I collect anecdotes from our staff, specifically actual stories of the challenges faced while processing the business permits of our clients. They range from the usual time wasting queue in certain local government offices to technical issues. At times the problem is not even a technical issue -- like a local government unit’s refusal to process an application simply because the latest sales figure is lower than the previous year’s.

So as not to delay the renewal of their required business permits, some taxpayers have resorted to “paying under protest,” reserving their right to dispute the assessed local business tax (LBT) because they do not believe that they are subject to the (additional) tax. On the other hand, the local government is hell-bent on collecting.

This has been the case for some holding companies. The issue arose when some local government units (LGU) introduced amendments in their local revenue codes by inserting the term “holding companies” among the entities subject to LBT. Other LGUs classified holding companies as non-bank financial intermediaries and imposed the corresponding LBT.

This is why the recent decision of the 3rd Division of the Court of Tax Appeals (CTA) promulgated on April 6 is a very welcome development.

It involves the case of a holding company against the City Treasurer of a city down south. The taxpayer was seeking a refund or tax credit on the LBT that it paid under protest in 2011.

The taxpayer’s income comprises dividend and interest income, from its shareholdings in a local company and from money market placements, respectively. Based on the holding company’s investment activities and the primary purpose provided in its Articles of Incorporation, the city classified the taxpayer as a non-bank financial intermediary. This left the taxpayer with no other choice but to pay the assessed LBT under protest and subsequently file a claim for refund or credit.

However, due to the inaction of the city on the refund claim, the taxpayer filed a case with the Regional Trial Court, with no success. On appeal, the decision was reversed, with the CTA declaring the taxpayer a non-financial institution, and thus, not subject to LBT. The CTA’s conclusion was based on the following considerations:

• The definitions under the Manual of Regulations for Non-bank Financial Institutions as prescribed by the Bangko Sentral ng Pilipinas (BSP) do not qualify the taxpayer as a non-bank financial intermediary;

• No document can show that the principal activities of the taxpayer qualifies it as a financial intermediary;

• The taxpayer has no secondary license and does not hold itself out as a financial intermediary nor perform functions as such;

• Its Articles of Incorporation shows that its principal purpose cannot fall under the definition of a financial intermediary; and

• The LGU was not able to present any proof that the BSP has authorized the taxpayer to operate as a non-bank financial intermediary.

As I mentioned earlier, this decision is a very positive development for holding companies. While it may have gone the opposite direction against two previous decisions of the CTA (concerning the same taxpayer), it is hoped that this latest decision be the last straw on this issue.

In this case, the court also ruled that even without addressing the issue on financial intermediaries, the taxpayer shall still be exempt from LBT. This is based on the fact that while the taxpayer is a private holding company, its investments in shares of stock are government-owned. Therefore, the related revenue earned by such shares (dividend and interest) likewise belong to the government. Hence, it is not subject to LBT following Section 133(o) of the Local Government Code, which provides that the exercise of the taxing power of the LGU shall not extend to the levy of taxes, fees or charges on the National Government, its agencies and instrumentalities.

Based on the CTA’s rationale in resolving whether or not the dividend and interest income of a holding company is subject to LBT, it is clear that, in this particular case, the holding company is not subject to LBT.

The Bureau of Local Government Finance (BLGF) may have solidified further the position taken by the court. In its recent memorandum circular, the BLGF categorically provided that passive income (i.e., interest, dividends, gains from the sale of shares) should not form part of gross receipts subject to LBT.

It may be worth mentioning also that in another case, decided upon by the CTA En Banc in 2016, the court ruled that imposing LBT on the dividend income of holdcos is beyond the scope of the LGU’s taxing powers. Doing so was considered to be a deliberate circumvention by the LGU of the prohibitions laid down in the LGC which limits their income taxing powers to banks and other financial institutions -- especially in particular cases wherein the LGU merely inserted a provision in its local revenue code subjecting holding companies to LBT.

Of course, one can say that the issue as to whether holding companies are subject to or exempt from LBT is not yet fully resolved since the case may still be appealed to the Supreme Court. But in the case at hand, in my opinion, an appeal to the high courts may be futile.

The CTA decision addressed two important points: 1) the holding company does not qualify as non-bank financial intermediary and 2) the investment in shares of stock is government-owned. Both aspects exempt the holding company from LBT. Furthermore, the source upon which the CTA based its decision seems impregnable.

As taxpayers, we understand our role in nation-building through paying the proper taxes. But then, the implementation of the taxing power by our tax authorities be it national or local, should be just and equitable. The challenges that taxpayers encounter during the renewal of business permits, as I have mentioned in this article, are becoming common and alarming. It also goes against the reform programs that the current administration wants to carry out.

As for LGUs that continue to make the renewal of business permits difficult for resident businesses, while their zeal in exercising such power may help them attain their collection targets, such practices can backfire. Taxpayers will continue to look for more investor-friendly locales where they can operate their business without going through the hassle of renewing annual permits.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from the article.

John Edgar S. Maghinay is a director at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.

(02) 845-2728

john.edgar.s.maghinay@ph.pwc.com 

source:  Businessworld