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IRA rationale



After six years the Supreme Court (SC) has ruled on the controversy over the “just share” of local government units on national taxes and declared it should not be limited to national internal revenue taxes but also include all national taxes as well.

The ruling settled the proper interpretation of Section 6, Article X of the 1987 Constitution which provides: “Local government units (LGU) shall have a just share, as determined by law, in the national taxes which shall be automatically released to them.”

Section 284 of the Local Government Code of 1991 mandated local government units to have a share in the “national internal revenue taxes,” or what is now known as IRA (Internal Revenue Allotment).

As a consequence of the wording of the code the national government interpreted the law to mean the 40 percent share of LGU on the national taxes should be determined based solely on Bureau of Internal Revenue collections.

Under the SC ruling, the LGU share in IRA was expanded to now include franchise fees and custom duties.

In his petition, former representative now Batangas Governor Hermilando Mandanas, pointed out that from 1992 to 2012 the LGU were deprived of a staggering amount of P500 billion worth of their IRA share from national taxes.

Just to put the SC ruling in perspective, the 2018 General Appropriations Act allocated P522.7 billion for the IRA. If the SC ruling is applied to the 2018 GAA, a lawmaker said the IRA of LGU for 2018 should have amounted to P644 billion, or a difference of P121.3 billion.

In numerous cases the SC has pointed out the axiom that taxes are the lifeblood of government. With such massive loss in IRA share, it is no wonder that development and services in many local government units are lethargic.

Unfortunately, only a few LGU like Makati and Quezon City have adequate revenues so as not to depend largely on IRA for their operation.

Data from the Department of Budget and Management indicate that for many LGU, 90 percent of financial resources are from the IRA. Figures from 2009 to 2014 indicate that, on average, 80 percent of the operating incomes of municipalities and provinces were sourced from national government transfers.

Such data were the basis of the view that IRA is a double-edge sword because while these ensure operating funds for LGU on the one hand, these also are disincentives to generate more local sources of revenue.

Then, there is also the political angle that IRA-dependency perpetuates the political stranglehold of the incumbent administration over LGU, who have to beg and cajole the national government for projects they have no capacity to finance themselves.

The SC ruling and the sorry lack of genuine fiscal autonomy of LGU provide an even more compelling argument in favor of the proposed shift to a federal form of government.

Advocates of federalism noted the highly centralized system of government has brought about a spotty development of the nation where preferential treatment has been given to localities whose officials are friendly with or have easy access to an incumbent administration.

Likewise, they noted the lopsided relationship between the national government and LGU have had spawned a host of problems including massive nationwide poverty to runaway insurgencies fueled by societal inequalities.

Federalism, they pointed out, is not only meant to give LGU a larger share in the national revenues but also the concomitant political power to chart their own destiny and unleash their development potentials.

Was it mere coincidence that the SC ruling on IRA was announced on the heels of reports that the Consultative Committee tasked by President Duterte to draft a new Federal Constitution has completed its job?

As the saying goes, only a fool does the same thing and expects a different result. We have been under a centralized government since the colonial times but it brought us little progress. Maybe it’s time to consider federalism.