Bonanza for local governments

Marinduque Governor Presbitero Velasco had suggestions on how to alleviate the financial challenge. Such options such as direct downloads of National Government funds whose services have already been devolved to LGUS; deferred payment scheme either through bond flotation or monetization were suggested in lieu of an outright payment of the IRAS to the LGUS.

Third of a series

What is the financial impact of the Supreme Court decision on the Mandanas, et al. case increasing the Internal Revenue allotment of the local government units? For the first year of implementation in Fiscal Year 2022, the Department of Interior and Local Government estimates that LGUS will get an additional IRA of P234.39 billion, or an increase of 27.61 percent. the IRA estimate for 2022 has the LGUS sharing P838.44 billion.

With more funds of the national government being allocated and used by the LGUS, the national government will conversely have less disposable cash starting FY 2022. Inasmuch as the government is expected to continue incurring substantial costs and challenges in responding to the Covid-19 pandemic, the Duterte administration will be hard pressed in dealing with this looming financial burden.

It appears that the administration had definite plans already on addressing this major challenge— leave the problem for the next incoming administration to resolve. This decision on the NTA apparently was reached during a Cabinet meeting in September 2019. A Philippine News Agency account of that Cabinet meeting disclosed that “due to the various commitments of the President to the people, such as the implementation of programs designed to combat criminality and corruption, as well as activities of the national government to promote human development and poverty reduction, to name a few, it was agreed that the adjustment of the IRA may not be feasibly effected during this administration. Otherwise, there will be an unmanageable fiscal deficit, while securing loans will be more expensive to the nation as the citizenry will be paying for higher rates.”

It is to be noted that this policy direction of the Duterte administration was made even before the onset of the Covid-19 pandemic.

On a positive side, as carried in League of Provinces of the Philippines web site, Marinduque Governor Presbitero Velasco had suggestions on how to alleviate the financial challenge. Such options such as direct downloads of National Government funds whose services have already been devolved to LGUS; deferred payment scheme either through bond flotation or monetization were suggested in lieu of an outright payment of the IRAS to the LGUS. Gov. Velasco emphasized that both national and local governments share the common objective to ensure compliance with the Constitutional provision and Supreme Court decision guaranteeing the just share of LGUS in all national taxes without necessarily disrupting the fiscal and deficit targets of the country and thereby maintain macroeconomic stability.

It is quite clear that there will be a lot of interplay between the LGUS and the NG as the time of reckoning of the IRA saga approaches the year 2022.

To be continued.

Joel L. Tan-torres is the Dean of the University of the Philippines Virata School of Business. Previously, he was the Commissioner of the Bureau of Internal Revenue, the chairman of the Professional Regulatory Board of Accountancy and partner of Reyes Tacandong & Co. and the Sycip Gorres and Velayo & Co. He is a Certified Public Accountant who garnered No. 1 in the CPA Board Examination of May 1979.

This column accepts contributions from the business community. Articles not exceeding 600 words can be e-mailed to boa.secretariat.@gmail.com.