Institute of Politics and Governance

Internal Revenue Allotment: Issues, Incursions and Implications
Atty. Dan Gatmaytan

I. INTRODUCTION

On July 19, 2000, the Supreme Court decided the case entitled Aquilino Q. Pimentel Jr., v. Hon. Alexander Aguirre and Emilia Boncodin. In that decision, the Supreme Court ruled that the President of the Philippines could not withhold the Internal Revenue Allotments (IRA) of local government units.

Response to the decision varied. While majority favored the Court's ruling, some government officials expressed apprehension that they cannot comply with the Court's ruling. In either case, these reactions will show that very few correctly understood the implications of the Supreme Court's pronouncement.

President Estrada welcomed the decision-a surprising reaction considering that the Supreme Court concluded that he violated the Constitution by preventing the release of five percent of the IRA of local governments. More surprising is the fact that despite the statements of the President, other government officials including the Solicitor General were reportedly preparing to ask the Supreme Court to reconsider its decision.

Worse, Department of Budget Secretary Benjamin E. Diokno reportedly stated that the national government will release 7.5-billion pesos to local governments. Diokno said that the release of the LGU budget was in response to a Supreme Court ruling that declared a P 7.5 billion "soft cut" from LGU allocations as unconstitutional. The report continued by saying that the amount, representing the share of LGUs in national taxes, is part of P 10 billion slashed last January from this year's P 629-billion national budget.

On the other hand, the Union of Local Authorities of the Philippines (ULAP) hailed the decision by saying, "We have been right all along in our struggle against the illegal and whimsical intrusion by Congress into the rightful share of LGUs." ULAP leaders called the decision a "landmark ruling because the principles enshrined in the Supreme Court's decision cover all cases concerning IRA reduction which is now deemed violative of the Constitution."

The problem is that there is no Supreme Court decision that said anything like the views expressed in these statements. If Secretary Diokno and ULAP were referring to the case of Pimentel v. Aguirre, the confusion is evident because Pimentel v. Aguirre dealt exclusively with the validity of Administrative Order No. 372, issued by then President Ramos on December 27 1997, and Administrative Order No. 43, which was issued by President Estrada on December 10, 1998.

Pimentel said absolutely nothing about the decision of Congress to slash the IRA of local government units for the year 2000. Obviously, there is a need to clarify what the Supreme Court said in Pimentel and what it did not.

II. THE INTERNAL REVENUE ALLOTMENT

The IRA is mandated by the Constitution. Article X, Section 6 of the Constitution provides that "Local government units shall have a just share, as determined by law, in the national taxes which shall be automatically released to them."

Congress determined the "just share" through the provisions of the Local Government Code of 1991. Under the provisions of the Code, local governments are now supposed to receive a yearly share of 40% of the national internal revenue collected three years earlier. Indeed, the Local Government Code of 1991 was praised for increasing the financial resources available to local government units. The Code generated very high expectations from local officials and the general public since the average IRA of local governments from 1987 to 1990 was around 12.7%.

The Code in part provides:

SECTION 284. Allotment of Internal Revenue Taxes. - Local government units shall have a share in the national internal revenue taxes based on the collection of the third fiscal year preceding the current fiscal year as follows:

(a) On the first year of the effectivity of this Code, thirty percent (30%);

(b) On the second year, thirty-five percent (35%); and

(c) On the third year and thereafter, forty percent (40%).

Provided, That in the event that the national government incurs an unmanageable public sector deficit, the President of the Philippines is hereby authorized, upon the recommendation of Secretary of Finance, Secretary of Interior and Local Government and Secretary of Budget and Management, and subject to consultation with the presiding officers of both Houses of Congress and the presidents of the "liga", to make the necessary adjustments in the internal revenue allotment of local government units but in no case shall the allotment be less than thirty percent (30%) of the collection of national internal revenue taxes of the third fiscal year preceding the current fiscal year: Provided, further, That in the first year of the effectivity of this Code, the local government units shall, in addition to the thirty percent (30%) internal revenue allotment which shall include the cost of devolved functions for essential public services, be entitled to receive the amount equivalent to the cost of devolved personal services.

In addition, the Code reiterates the constitutional mandate for the automatic release of the IRA as follows:

SECTION 286. Automatic Release of Shares. -

(a) The share of each local government unit shall be released, without need of any further action, directly to the provincial, city, municipal or barangay treasurer, as the case may be, on a quarterly basis within five (5) days after the end of each quarter, and which shall not be subject to any lien or holdback that may be imposed by the national government for whatever purpose.

(b) Nothing in this Chapter shall be understood to diminish the share of local government units under existing laws.