EconomyEditor's PickDiokno urges LGUs to embrace greater role post-Mandanas

September 1, 2022

LOCAL government units (LGUs) will be expected to take on a greater role in guiding the economy to a recovery, after LGUs gained a greater share of funds from the National Government in the wake of the Supreme Court’s Mandanas ruling, Finance Secretary Benjamin E. Diokno said.

“When the pandemic hit, LGUs had to assume new and unfamiliar roles in the delivery of public services to their constituents, especially those in the most vulnerable sectors. As a result, the health crisis had a significant impact on the fiscal resources of many localities,” Mr. Diokno was quoted as saying in a statement issued by the Department of Finance (DoF), detailing his remarks to local officials in Leyte and Samar on Aug. 25.

“Local government finance, in particular, will be even more important now as the revenue share of LGUs has increased with the implementation of the Supreme Court ruling… You are now primarily responsible and accountable for the provision of basic services and facilities fully devolved to LGUs,” he added, calling for improvements in revenue collection and resource mobilization through digitalization, among others.

The Supreme Court granted LGUs a larger share of the national taxes after resolving a long-running dispute over their 40% share of the National Government’s “internal revenue,” as the Local Government Code of 1991 was originally worded. As a result, the National Government used to release to LGUs the Internal Revenue Allotment (IRA), based largely on the collections of the Bureau of Internal Revenue.

The court ruled instead that LGUs were entitled to a 40% share of all national taxes, including those collected by non-BIR agencies. The name of the IRA was duly changed to the National Tax Allotment.

The ruling raised the LGU allocation to P959 billion this year, up 37.89%.

In response, the National Government started devolving some of its functions, which will now be performed at the LGU level.

Mr. Diokno said the issue has become whether LGUs are able to spend their newly expanded take from the national taxes.

“Realistically, because you are giving LGUs more money, the problem pointed out by the World Bank, and I agree, is that many LGUs won’t be able to spend the money. It’s because of the lack of capacity. In fact, even before the crisis, local governments already had a surplus position. They usually have large surpluses because they are not able to spend their money,” Mr. Diokno told the Senate committee on local government last month.

In his message to local leaders, Mr. Diokno called for greater professionalism in the management of LGU finances. He cited the Standardized Examination and Assessment for Local Treasury Service program of the Bureau of Local Government Finance as one such program that will build capacity within the local government treasury service.

He also called on local governments to implement a “just, equitable, and efficient real property valuation system. The measure will assist the LGUs in optimizing revenue collections, which in turn will promote genuine local autonomy.”

Other items in the administration’s legislative agenda for subnational governments include the LGU Income Classification bill and the LGU Property Insurance bill, the DoF said.

The former “seeks to adjust the income thresholds and regularize the review of the income classification of all provinces, cities, and municipalities,” while the latter “proposes to widen the scope of the insurance coverage for local government assets.”

“We are pushing for measures amending certain fiscal provisions of the Local Government Code. These amendments include simplifying the rate structure of local business taxes; assigning more revenue-productive taxes to LGUs; and providing a mechanism for administrative recourse in case of disputes related to LGU taxing powers,” Mr. Diokno said.

Mr. Diokno also asked LGUs to take advantage of recent reforms such as amendments to the Public Service Act, Retail Trade Liberalization Act, and Foreign Investments Act, to achieve self-sufficiency.

“We have brought down the cost of doing business through the Corporate Recovery and Tax Incentives for Enterprises Act or CREATE. The law immediately cuts the corporate income tax rate by 10 percentage points for micro, small, and medium enterprises, and 5 percentage points for all other corporations,” Mr. Diokno said.

“The modernized fiscal incentives system gives superior incentives to investments in the countryside to attract investors to set up their business in areas outside of Metro Manila,” he added. — Diego Gabriel C. Robles

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