THE DEPARTMENT of Finance (DoF) is moving to further strengthen local government finances — this time including through tax reform — to reduce these units’ dependence on annual national government doleouts.
“There is a much needed balance here: LGUs must build their revenue base to fund their projects, and the effect on the national government’s fiscal space as a result of continued dependence of LGUs on national transfers,” Finance Undersecretary Antonette C. Tionko said of local government units (LGUs) in a press release on Wednesday.
She said that LGUs rely on Internal Revenue Allotment (IRA) — their annual share in national taxes — to fund up to 99% of their operations and programs.
According to Ms. Tionko, locally generated revenues account for less than one percent of the country’s gross domestic product (GDP).
IRAs are automatically earmarked funds for LGUs equivalent to 40% of national taxes collected three years prior to the planned fiscal year, as mandated by Republic Act (RA) No. 7160, or the Local Government Code of 1991.
About 34% of the IRA are given to municipalities, while provinces and cities receive 23% share each, while barangays get the 20% balance.
Local Budget Memorandum No. 74 set the IRA level this year at P486.885 billion, 13.59% more than P428.62 billion in 2016.
For 2018, IRA set by Local Budget Memorandum No. 75 is at P522.75 billion, up 7.37% from 2017.
RA 7160 also authorizes LGUs — provinces, cities, municipalities and barangays — to levy taxes, fees or charges on any base not covered by the National Internal Revenue Code.
In this regard, Ms. Tionko noted that the Finance department is also preparing property valuation and taxation reforms under the third package of the comprehensive tax reform program.
The first tranche of up to five planned tax reform packages — estimated initially to yield more than P90 billion in additional revenues in the first year of implementation in 2018, from P130 billion initially — was signed into law last Dec. 19. That package consists of reduced personal income, estate and donors’ tax rates. Foregone revenue will be offset by the removal of some exemptions from value-added tax; increased tax rates for fuel, automobiles, tobacco, coal, minerals, documentary stamps, foreign currency deposit units, capital gains for unlisted stock, and stock transactions; as well as new taxes for sugar-sweetened drinks and cosmetic enhancements.
“The DoF is one with the LGUs in promoting fiscal decentralization and advancing their interests by way of strengthening foundations,” Ms. Tionko said. — Elijah Joseph C. Tubayan