By Elijah Joseph C. Tubayan
THE NATIONAL GOVERNMENT may have to reduce local governments’ take in national taxes should the Supreme Court, in a final ruling, stand pat on a bigger revenue base for these units’ “just share,” Budget Secretary Benjamin E. Diokno said last week.
Mr. Diokno cited the need to ensure the fiscal deficit remains manageable amid higher spending on state infrastructure and social services and a bigger Internal Revenue Allotment (IRA) for local governments.
“Worst case, i-invoke namin ’yung unmanageable public sector deficit. Gagawin namin (We will make it) 30%… of the total (national government tax collections) which is approximately equal to the current system,” Mr. Diokno said in an interview on Wednesday last week.
According to section 284 of Republic Act No. 7160, or the Local Government Code, the President can reduce the IRA to 30% in the event of an unmanageable public sector deficit, from 40% currently.
The high court released a decision in July, ordering the “automatic release without further action” of local governments’ “just share” of internal revenues that includes all national government taxes, including collections of the Bureau of Customs — not just of the Bureau of Internal Revenue, as practiced currently — and that the national government should implement the ruling prospectively.
The national government filed a motion for reconsideration in August as it sought to keep its fiscal position intact.
The Supreme Court has yet to rule on the government’s motion.
In the wake of the court decision, state economic managers had considered devolving more national government programs such as conditional cash transfers for the poorest of the poor, farm-to-market roads and local health care programs, although they doubted the capacity of some local governments to take on this additional burden.
The government has programmed its fiscal deficit at 3.2% of gross domestic product (GDP) in 2019 and three percent in 2020-2022.
State economic managers have cautioned that complying with the Supreme Court decision and keeping the IRA at the current proportion would push the fiscal deficit to four percent of GDP and may, in turn, threaten the investment-grade standing of Philippine debt which the country bagged and has maintained since 2013.
Complying with the Supreme Court decision is estimated to cost the national government an additional P195 billion, on top of the P522.75 billion in national tax share allocated to local governments this year.
“We cleared that (IRA stand) with the President. He said (of bigger fiscal deficit proportion to GDP) ‘not during my watch,’” Mr. Diokno recalled.
Under the current IRA scheme, local governments will get P575.52 billion next year, to be divided among provinces, cities, municipalities and barangays, depending on size of the population and land area.
IRAs are automatically appropriated every fiscal year, based on internal government revenues three fiscal years prior. Local governments are mandated by law to allocate 20% of their annual IRA shares to development projects.
While the national government has been goading local units to be more financially independent, IRAs have so far been most local governments’ main source of funds for programs and projects, although they have the authority to impose local levies like real property tax, business tax, and fees for services.