Dependent on Manila, local governments are 'lazy' tax collectors - UP economist

Most municipalities and provinces no longer collect their own taxes because they have grown dependent on the national government's internal revenue allotment (IRA), said Prof. Benjamin Diokno of the UP School of Economics.

Diokno, former budget secretary, said 20 years after the passage of the Local Government Code, “Local government units (LGUs) have become lazy in collecting their own taxes. More so, their delivery of services has not improved, their governance, too.” Diokno made these remarks during the first annual policy forum of PCED Institute of Public Economics and Regulation (PIPER) on Monday. Diokno is the chair of PIPER. He said instead of decentralization fostering autonomy, which is the intent of the Local Government Code, it has bred fiscal dependence. “They (LGUs) no longer seek other sources of funds,” he said. Gilberto Llanto, senior research fellow at the Philippine Institute for Development Studies and former NEDA deputy director general, said some LGUs do not have productive taxes to raise revenues. “There are a good number of taxes, including new ones, but the size of the base is small, especially in lower income LGUs,” he explained. Based on the Local Government Code, the IRA share of LGUs is 40 percent of the national internal revenue taxes collected on the third fiscal year before the current fiscal year. Municipalities get the highest share of IRA at 34 percent, followed by provinces at 23 percent, cities at 23 percent and barangays, 20 percent. This means that for 2012, the IRA share of LGUs will be based on the national internal revenue taxes collected in 2009. The Department of Budget and Management said this year, LGUs will get P273 billion in IRA, 4.8 percent lower than last year's P287 billion because of reduced revenues. Diokno said, for example, municipalities got 78.6 percent of their total internal funds from IRA in 2010 compared to 76.5 percent in 2008. In 2010, municipalities generated only 17 percent from local sources, 4.4 percent from business taxes and 2.9 percent from real property taxes, according to government data. Further, provinces also depended heavily on IRA, which increased  from 73.6 percent share in 2008 to 74.5 percent in 2010. Cities, however, got only half of their total internal funds from IRA from 2008 to 2010. They generated an average of 48% of their total internal funds from local sources during the same period. Most cities receive larger IRA because of their huge population and massive land area. The code states that the determination of IRA of each city will be based on population, which gets a weight of 50 percent, followed by land area, 25 percent, and equal sharing, 25 percent. Diokno said this has encouraged the conversion of more municipalities into cities, which increased from only 60 in 1991 to 138 in 2011. Thus, the number of municipalities dropped from 1,540 in 1991 to 1,496 today. Provinces now total 80 from 76 and barangays, now 42,026 from 41,959 in 2003. The Local Government Code requires LGUs to use IRA to fund basic services and facilities. It also mandates LGUs to set aside at least 20 percent of their IRA for development projects. But former senator Aquilino Pimentel, principal author of the Local Government Code, said during the code's 20th anniversary last October that LGUs have become less dependent on the national government in delivering basic services to their people. He added that LGUs have become financially independent because of their fair share in national taxes through IRA. -- OMG/HS, GMA News