DBM chief warns of SC ruling’s fiscal risk

THE GOVERNMENT’S fiscal position may be at risk from the Supreme Court (SC) ruling that local governments’ share in state revenues includes all national government taxes, not just those collected by the Bureau of Internal Revenue (BIR), Budget Secretary Benjamin “Ben” E. Diokno said on Wednesday.

Mr. Diokno said the national government will file a motion for reconsideration through the Office of the Solicitor General (SolGen), as it cannot afford to comply with the ruling.

“As of now, hindi pa namin nantatanggap ‘yung (we have not received a copy of the) decision,” Mr. Diokno said in a panel discussion at the second Pre-State of the Nation Address Forum in Manila.

“We don’t know how much the damage sa national government. There are varying estimates: it’s P1.2 trillion to about P6 trillion. ‘Yun ‘yung (that is the estimated) effect niya sa gobyerno (on the government),” said the head of the Department of Budget and Management (DBM).

“So ‘yun yung ipapa-apela namin sa (we will ask the) SolGen to (file an appeal to) reverse the decision. Hindi natin kaya ‘yun ganong kalaki (We cannot afford such a huge reduction in retained national government revenues).”

He told reporters afterwards that complying with the high court’s ruling may double the national government’s budget deficit to an equivalent of six percent of gross domestic product (GDP) from a programmed three percent.

“Definitely may (there will be an) effect sa (on) deficit, aabot ‘yung deficit namin ng mga six percent. Ang tawag dun unmanageable public sector deficit. So hindi kaya.”

Although local governments will have more revenues to funds their projects, Mr. Diokno said global debt watchers may take away the country’s investment-grade credit rating — making it harder for the government to secure relatively cheaper credit at a time it implements its more-than-P8-trillion infrastructure development program until 2022.

“Babagsak yung credit rating natin. International confidence will go down. We’ll have to cut significantly ‘Build, Build, Build’,” he said.

The Budget chief described his estimate as “all speculation” as his department has yet to compute the ruling’s impact.

His figures compared to the “P498.85 billion or very close to P500 billion” due local governments for 1992-2012 that was estimated by Batangas Governor Hermilando I. Mandanas, who raised the issue to the high court in January 2012 as legislative representative then of the province’s second district.
Republic Act No. 7160, or the Local Government Code of 1991, provides for internal revenue allotments (IRAs) for local governments amounting to 40% of “national internal revenue taxes based on the collection of the third fiscal year preceding the current fiscal year”.

IRAs are a key source of local government funding, although development planners and economists have taken such units to task for being too reliant on such doleouts and lulling them to complacency in improving their own collections of local taxes for business and real property, as well as fees for services.

Economists interviewed yesterday were divided on the ruling, with one arguing that many local government units (LGUs) have a poor track record in spending wisely and another saying that LGUs are in the best position to identify and implement projects they need for development.

“LGUs have not displayed the capacity to spend resources productively. That’s why I am very skeptical about federalism because it is not very clear about how they will spend resources,” Raul V. Fabella, a retired professor of the University of the Philippines School of Economics, said in a phone interview, adding that carrying out the Supreme Court decision “will cripple or slow down the national government program”.

Describing the ruling as a “bad move,” Mr. Fabella explained that “development of the countryside is dependent on infrastructure spending.”

“You think LGUs with more money will spend it on meaningful infrastructure? I doubt it,” he said.

“I think they’ll spend it on frivolous things. More resources in the hands of Ben Diokno is probably more conducive to regional development than otherwise.”

“The country needs arterial infrastructure which needs huge fiscal resources. Diffusing and dissipating resources is wrong-headed. More basketball courts will not do,” Mr. Fabella said.
But Bernardo M. Villegas, an economist at and one of the founders of the University of Asia and the Pacific, said separately in an e-mail: “I agree with the decision.”

“This can make federalization completely unnecessary. Under the Local Government Code… LGU heads can partner with the private sector to do their own Build Build Build, such as roads, railways, airports, seaports, government centers, public markets, school buildings, etc.,” Mr. Villegas said.

“I know of a good number of very competent mayors and governors who can implement these PPPs (public-private partnerships) more effectively and quickly than the national government agencies,” he explained.

“The IRA that goes to the LGUs can be used by them as the counterpart for these PPP. The national government can just delegate some of the public works and other expenditures on educational and health facilities to the LGUs. By devolving part of these projects to the LGU, the national government does not have to increase its deficit as Secretary Diokno maintains.”

Mr. Fabella, however, said that many local government projects are not bankable compared to those of the national government, hence, may not be attractive to the private sector.

Department of Budget and Management data show P522.75 billion worth of IRAs to 43,607 LGUs this year, 7.37% more than last year’s P486.89 billion.

RA 7160 also requires local governments to spend no less than 20% of their IRA on social development projects.

source:  Businessworld

DoF says SC ruling on LGU revenue share not final

THE Finance department will await a final decision from the Supreme Court on local government units’ (LGUs) “just share” of national government revenue before it makes a decision on filing a motion for reconsideration.

“Just heard the unverified rumor that the SC decision on the LGU’s share of taxes is still for editing and proofreading, then for signature of the justices,” Finance Secretary Carlos G. Dominguez III told reporters via mobile phone message when asked about the government’s plans after the ruling.

Although it has yet to provide a public copy of the resolution, the Supreme Court announced in a statement via its Public Information Office that the court, sitting en banc, voted 10-3 in favor of the LGU internal revenue allotment to include all national taxes, not just those collected by the Bureau of Internal Revenue.

The court ruled on a petition by former Batangas governor Hermilando I. Mandanas, who filed it six years ago, when he was a member of the House of Representatives for the province’s second district. The petition claims that the national government owes local governments about P500 billion between 1992 and 2012, based on an interpretation of the LGUs’ “just share” as stated in the Local Government Code.

Internal Revenue Allotments are LGUs’ main source of revenue. The Local Government Code requires that 40% of the national government’s internal revenue three years preceeding the current fiscal year, should automatically be earmarked to LGUs.

Each LGUs’ share is determined by its population and land area.

Apart from IRAs, LGUs have the authority to impose taxes to generate income, including real property tax, business tax, and other fees.

This year, the Department of Budget and Management has set aside P522.75 billion for IRAs, up 7.37%.

source:  Businessworld

SC rules LGUs’ IRA funding includes BoC collections

THE SUPREME COURT (SC) has ruled that the local government unit (LGU) “just share” of the national government’s tax revenue should factor in Customs collections.

The Court, sitting en banc, issued the ruling in favor of a petition filed six years ago by Batangas governor Hermilando I. Mandanas, at the time a member of the House of Representatives for the province’s second district, which claimed that Internal Revenue Allotments (IRA), through which the national government funds LGUs, was short by about P500 billion from 1992 to 2012.

Voting 10-3 on Tuesday, the high court “interpreted the basis for the ‘just share’ of local government units… as being based on all national taxes and not only national internal revenue taxes,” according to a statement released by the SC Public Information on Wednesday.

Section 284 of Republic Act No. 7160, or the Local Government Code of 1991, states: “Local government units shall have a share in the national internal revenue taxes,” which are the taxes collected by the Bureau of Internal Revenue (BIR), according to the National Internal Revenue Code (NIRC) of 1997.

These include income tax, value-added tax, excise tax, and other taxes collected by the BIR.
National taxes were also ruled to include the remaining taxes collected by the government like those brought in by the Bureau of Customs (BoC), the LGUs’ share of which Mr. Mandanas alleged was not being forwarded.

LGUs, based on the Local Government Code, are entitled to 40% of national internal revenue taxes, but Mr. Mandanas claimed it should include taxes not collected by the BIR.

Mr. Mandanas was asked for comment but his office did not respond to calls.

Those who voted in favor of the decision were Acting Chief Justice Antonio T. Carpio, Associate Justices Teresita L. De Castro, Presbitero J. Velasco, Diosdado M. Peralta, Lucas P. Bersamin, Mariano C. Del Castillo, Estella M. Perlas-Bernabe, Noel G. Tijam, Samuel R. Martires, and Alexander G. Gesmundo.

Meanwhile, those who dissented were Associate Justices Mario Victor F. Leonen, Benjamin S. Caguioa, and Andres B. Reyes, Jr. Associate Justice Francis H. Jardeleza did not take part in the voting.

source : Busnessworld