Filipino inventions

What are the new sources of local governments’ IRA share?

Lian Buan
What are the new sources of local governments’ IRA share?
The Supreme Court says the ruling is prospective and that local governments will start to receive the adjusted amount only in 2022

MANILA, Philippines – Local government units (LGUs) will get bigger Internal Revenue Allotment (IRA) starting 2022, pursuant to a Supreme Court (SC) ruling that redefined the “just share” of LGUs in national income to be derived from a wider base.

The SC upheld its July 2018 ruling that amended 3 provisions in the Local Government Code that used to define the “just share” of an LGU as being sourced from “national internal revenue taxes.” The phrase “internal revenue taxes” is now deleted from the provisions and replaced with “national taxes.”

It means that, starting 2022, the IRA share of LGUs – which remains at 40% – will be computed based on a wider range of sources, and therefore bigger than its current share based on the internal revenue collection alone. 

“I believe there’s a 3-year period for which the government will have to compute and probably collect all these national taxes, so starting 2019, you have 3 years, the LGUs will start receiving the adjusted amount by 2022,” SC Spokesman Brian Keith Hosaka explained on Thursday, April 11. 

The SC denied the appeal of the winning petitioners to make the decision retroactive, saying the operative fact doctrine applies. It means that there should be no effect to the past once a law is declared unconstitutional. The petitioners, applying the new interpretation, wanted to charge the government all arrears that it was not given since 1992. 

Breakdown

What are the additional sources of IRA share for local governments?

The Supreme Court ruling says “collections of national taxes for inclusion in the base of the just share the Local Government Units shall include, but shall not be limited to, the following”:

  • The national internal revenue taxes enumerated in Section 21 of the National Internal Revenue Code, as amended, collected by the Bureau of Internal Revenue and the Bureau of Customs
  • Tariff and customs duties collected by the Bureau of Customs
  • 50% of the value-added taxes collected in the Autonomous Region in Muslim Mindanao, and 30% of all other national tax collected in the ARMM. The remaining 50% of the collections of value-added taxes and 70% of the collections of the other national taxes in the ARMM shall be the exclusive share of the ARMM pursuant to Section 9 and Section 15 of Republic Act 9054.
  • 60% of the national taxes collected from the exploitation and development of the national wealth. The remaining 40% of the national taxes collected from the exploitation and development of the national wealth shall exclusively accrue to the host Local Government Units pursuant to Section 290 of Republic Act 7160 (Local Government Code)
  • 85% of the excise taxes collected from locally manufactured Virginia and other tobacco products. The remaining 15% shall accrue to the special purpose funds created by Republic Act 7171 and Republic Act 7227
  • The entire 50% of the national taxes collected under Sections 106, 108, and 116 of the NIRC as provided under Section 283 of the NIRC
  • 5% of the 25% franchise taxes given to the National Government under Section 6 of Republic Act No. 6631 and Section 8 of Republic Act No. 6632

Other declarations

The SC declared as valid the laws that say 25% of franchise taxes collected the Manila Jockey Club and Philippine Racing Club shall be distributed as follows: 5% to the national government, 5% to the host municipality or city, 7% to the Philippine Charity Sweepstakes Office, and 6% to the Anti-Tuberculosis Society, and 2% to the White Cross.

Except for the expansion to include all national taxes, the past setup of the IRA remains the same.

The SC also ordered the Department of Finance, Department of Budget and Management, Bureau of Internal Revenue, Bureau of Customs, and the National Treasury “to include all collections of national taxes in the computation of the base of the just share of the Local Government Units.” – Rappler.com

Lian Buan

Lian Buan covers justice and corruption for Rappler. She is interested in decisions, pleadings, audits, contracts, and other documents that establish a trail. If you have leads, email lian.buan@rappler.com or tweet @lianbuan.