Supreme Court: LGU shares shall be sourced from all national taxes

Lian Buan

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Supreme Court: LGU shares shall be sourced from all national taxes
The SC ruling effectively increases the portion of local government units from the national wealth, but law professor Lyssa Grace Pagano says the 20-80 sharing under Federalism is better

MANILA, Philippines – The Supreme Court (SC) announced on Wednesday, July 4, its ruling that the “just share” of local government units shall be sourced from “all national taxes and not only national internal revenue taxes.”

The SC ruled on a 6-year-old petition filed by then representative now Batangas Governor Hermilando Mandanas. Mandanas had wanted to stop in 2012 the Aquino administration’s Internal Revenue Allotment (IRA) saying it was below the “just share” of local government units (LGUs).

“The Court, voting 10-3, interpreted the basis for the ‘just share’ of local government units under Section 6, Article X of the 1987 Constitution as being based on all national taxes and not only national internal revenue taxes, as provided in Section 284 of the Local Government Code,” the SC said.

Acting Chief Justice Antonio Carpio, Associate Justices Teresita Leonardo De Castro, Presbitero Velasco Jr, Diosdado Peralta, Lucas Bersamin, Mariano Del Castillo, Estela Perlas Bernabe, Noel Tijam, Samuel Martires and Alexander Gesmundo voted in the majority.

Associate Justices Marvic Leonen, Benjamin Caguioa and Andres Reyes Jr dissented. Associate Justice Francis Jardeleza did not take part.

Increase in allotment

Mandanas said in his petition that from 1992 to 2012, the national government did not release P500 billion worth of “just shares” from national taxes. The SC announcement did not mention whether there was a ruling in this aspect; a full copy of the decision is yet to be released.

But in essence, the SC’s interpretation of where the LGU’s “just shares” should come from would increase what they would be getting.

Under the local government code, the LGUs shall get 40% of national wealth. This is a long standing dispute because the setup only takes 40% from Bureau of Internal Revenue (BIR) collections.

University of the East Law Professor Lyssa Grace Pagano said that by expanding the source of the allotment, LGU’s would now be able to get a cut from franchise fees and customs duties which the government did not share with them before.

Every year, the national government passes the General Appropriations Act (GAA) which provides for the IRA for that same year. In the 2018 GAA, the LGUs will get P522.7 billion under the IRA.

Senator Ralph Recto, who wants to push for bigger cuts for LGUs, said that if customs duties were included, the IRA in 2018 would have been P644 billion.

That’s how big a money is at stake.

Is federalism better?

Recto said increasing the LGU shares can be done without a charter change. Measures like these abound in Senate and at the House, we can fast track the approval. Instead of arguing over Charter Change, let’s unite first over IRA change,” Recto earlier said.

But Pagano, who has been holding dialogues with LGUs all over the country during this proposed transition to federalism, said the increase provided by the new Supreme Court ruling is “not as significant as it would be under federalism.”

The ruling of the Supreme Court is a welcome ruling for LGUs. However, in the proposed sharing (20-80) under federalism, the share of the states would still be higher,” Pagano said.

A 20-80 sharing in favor of regional governments is one of the proposals for a federal government.

Pagano said that under this setup, the sharing would be reversed. If at present, the national government is releasing shares of national wealth to LGUs, under the 20-80 federal setup, the LGUs would be generating its own revenues and remitting 20% of it to the national government.

“That’s why Mindanao is pushing for federalism, because they are supposed to generate their own revenues, unlike now that they just have a share in the national wealth. In Mindanao, they see that they have more resources but that they are subsidizing other regions,” Pagano said. 

“What is important in federalism is the autonomy of LGUs to utilize those funds and resources,” she added.

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Lian Buan

Lian Buan is a senior investigative reporter, and minder of Rappler's justice, human rights and crime cluster.