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Revenue Performance of Local Governments, CYs 2003 - 2007, November-December 2008

The study reviews the revenue performance of local government units (LGUs) from CYs 2003 — 2007 and the extent of utilization of their taxing and revenue raising powers to serve as baseline to any proposed policy reforms in the area of local government finance. Local government revenues are derived from two major sources: local and external. Revenues sourced locally include those coming from property taxes, business tax, and other locally imposed taxes as well as non-tax revenues from operation and miscellaneous income and capital revenues. On the other hand, external source include shares from the internal revenue allotment (IRA), shares from proceeds derived from the development and utilization of national wealth, other shares from national taxes provided under special laws, grants and aids. The enactment of the LGC in 1991 broadened the authority of LGUs to utilize available and potential sources of revenue and strengthen their fiscal position to enable them to provide adequate services to their constituents. However, sixteen (16) years after the enactment of the LGC, it has been noted that the dependency of the LGUs on IRA has not diminished which to a certain extent leads, to the underutilization of local revenue sources. From 2003 to 2007, the average annual revenues of LGUs totaled P 194.71 billion. Of this amount, P 65.46 billion or 33.57% came from local sources while P 129. 35 billion or 66.43% from external sources, the sizeable portion of which (P 125.63 billion or 64.54%), was contributed by the IRA. The gap between the local sources and the IRA in terms of shares to total local government revenues is indicative of the failure of most LGUs to maximize the revenue-raising powers bestowed on them under the LGC and their preference to depend on IRA for their funding needs. The steady growth of the IRA thus served as a disincentive for LGUs to exploit their revenue-generating powers and improve tax collection efficiency. Problems attendant to the administration and collection of locally-generated sources like property taxes and business taxes further aggravated the situation and deterred the potential of these tax sources to become major revenue sources of local governments. In this respect, the recommendations of the recent studies of NTRC and LAMP with regard to locally generated sources of revenues should be given consideration by LGUs. With regard to the IRA, the application of appropriate incentives or indicators of revenue performance as basis for the allocation of IRA to LGUs may be introduced. This can provide a major inducement to enhance the taxing capacity of LGUs. One measure of revenue performance is the collection effiency, which measures the extent to which a local unit makes use of its taxing potential to generate the maximum amount of revenue. It may be worthwhile to mention the strategies adopted by some LGUs to enhance revenue generation and mobilization which can be duplicated or from which other LGUs can draw some insights, as follows: 1. The provincial government of Nueva Ecija - conducted among others, a "door-to-door” service for taxpayers in remote barangays whereby property assessments is done by roving government teams. 2. Iligan City — set up among others a "one-stop-shop” for the taxpayers to be in one complex to make all the necessary payments and initiated business mapping. 3. San Fernando, Pampanga — conducted tax mapping in all their barangays and came up with a master list of establishments operating within the city. 4. Muntinlupa City — adopted the Real Property Tax Computerization and Administration Technology (RPTA) in their system for better service. 5. Quezon City — conducted among others, property auctions for delinquent RPT taxpayers, applied presumptive minimum gross sales/receipts levels for business tax and for markets.


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