Demaala v. COA, G.R. No. 199752, February 17, 2015

Assignee: MACHITO
Case Short Name: DEMAALA vs. COA

Topic: Power of Taxation
LUCENA D. DEMAALA, petitioner, vs. COMMISSION ON AUDIT, represented by its Chairperson

Commissioner MA. GRACIA M. PULIDO TAN, respondents.
G.R. No. 199752. February 17, 2015
Leonen, J.
DOCTRINE
Setting the rate of the additional levy for the special education fund at less than 1% is within the
taxing power of local government units. It is consistent with the guiding constitutional principle of
local autonomy.
The limits on the level of additional levy for the special education fund under Section 235 of the
LGC should be read as granting fiscal flexibility to local government units.
FACTS
 The Sangguniang Panlalawigan of Palawan enacted Provincial Ordinance No. 332-A, entitled
"An Ordinance Approving and Adopting the Code Governing the Revision of Assessments,
Classification and Valuation of Real Properties in the Province of Palawan"
(Ordinance). Chapter 5, Section 48 of the Ordinance provides for an additional levy on real
property tax for the special education fund at the rate of one-half percent or 0.5%.The proceeds
thereof shall exclusively accrue to the Special Education Fund (SEF).
 In conformity with Section 48 of the Ordinance, the Municipality of Narra, Palawan, with
Demaala as mayor, collected from owners of real properties located within its territory an
annual tax as special education fund at the rate of 0.5% of the assessed value of the property
subject to tax. This collection was effected through the municipal treasurer.
 On post-audit, Audit Team Leader Juanito A. Nostratis issued Audit Observation
Memorandum (AOM) in which he noted supposed deficiencies in the special education fund
collected by the Municipality of Narra. He questioned the levy of the special education fund at
the rate of only 0.5% rather than at 1%, the rate stated in Section 235 of Republic Act No. 7160 or
LGC.
 After evaluating AOM, Regional Cluster Director Sy issued Notice of Charge in the amount of
₱1,125,416.56. He held Demaala, the municipal treasurer of Narra, and all special education fund
payors liable for the deficiency in special education fund collections.
 The Municipality of Narra, through Demaala, filed the Motion for Reconsideration. Denied
 Filed an Appeal with COA’s Legal and Adjudication Office (COA LAO). Denied.
 Filed a Petition for Review with COA. Affirmed COA LAO.
ISSUE/S
W/N there was a deficiency in the Municipality of Narra’s collection of the additional levy for the
special education fund? – NO
RULING
NO. Setting the rate of the additional levy for the special education fund at less than 1% is within
the taxing power of local government units. It is consistent with the guiding constitutional
principle of local autonomy.
The limits on the level of additional levy for the special education fund under Section 235 of the
LGC should be read as granting fiscal flexibility to local government units.
Fiscal autonomy entails "the power to create . . . own sources of revenue." In turn, this power
necessarily entails enabling local government units with the capacity to create revenue sources in
accordance with the realities and contingencies present in their specific contexts. The power to
create must mean the local government units’ power to create what is most appropriate and
optimal for them; otherwise, they would be mere automatons that are turned on and off to
perform prearranged operations.
Fiscal autonomy entails "working within the constraints." To echo the language of Article X,
Section 5 of the 1987 Constitution, this is to say that the taxing power of local government units is
"subject to such guidelines and limitations as the Congress may provide." It is the 1% as a
constraint on which the respondent Commission on Audit is insisting.
There are, in this case, three (3) considerations that illumine our task of interpretation: (1) the text of
Section 235, which, to reiterate, is cast in permissive language; (2) the seminal purpose of fiscal
autonomy; and (3) the jurisprudentially established preference for weighing the scales in favor of
autonomy of local government units. We find it to be in keeping with harmonizing these
considerations to conclude that Section 235’s specified rate of 1% is a maximum rate rather than
an immutable edict. Accordingly, it was well within the power of the Sangguniang Panlalawigan
of Palawan to enact an ordinance providing for additional levy on real property tax for the special
education fund at the rate of 0.5% rather than at 1%.
It was an error amounting to grave abuse of discretion for respondent to hold petitioner
personally liable for the supposed deficiency.
Having established the propriety of imposing an additional levy for the special education fund at
the rate of 0.5%, it follows that there was nothing erroneous in the Municipality of Narra’s having
acted pursuant to Section 48 of the Ordinance. It could thus not be faulted for collecting from
owners of real properties located within its territory an annual tax as special education fund at the
rate of 0.5% of the assessed value subject to tax of the property. Likewise, it follows that it was an
error for respondent to hold petitioner personally liable for the supposed deficiency in collections.
DISPOSITIVE
WHEREFORE, the Petition is GRANTED. Decision No. 2008-087 dated September 22, 2008 and
Decision No. 2011-083 dated November 16, 2011 of respondent Commission on Audit are
ANNULLED and SET ASIDE.

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Assignee: MACHITO

Case Short Name: DEMAALA vs. COA

LUCENA D. DEMAALA, petitioner, vs. COMMISSION ON AUDIT, represented by its Chairperson

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