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Publication Detail
TRJ 2008 Vol XX No 1: Shares of Local Government Units From National Taxes, January - February 2008

The paper discusses the share of local government units (LGUs) from national taxes as well as other related issues. The share of local government units (LGUs) from national taxes is mandated under Section 6, Article X of the Philippine Constitution which provides that LGUs shall have a just share, as determined by law, in the national taxes which shall be automatically released to them. The earmarking is intended, among others, to augment local resources to ensure that the minimum level of basic services is delivered to the LGUs� constituents. Under the Local Government Code (LGC), LGUs are given shares from national tax revenues in the form of Internal Revenue Allotment (IRA) and proceeds from the utilization and development of national wealth. Additionally, revenues from other national taxes are shared with some LGUs under special laws, such as a share from the value added tax (VAT), share from excise taxes on locally-manufactured Virginia type cigarettes and share from the income earned of businesses and enterprises located within the ecozones. In terms of contribution to total local government revenues, national taxes shared an average of 66% from 2001 to 2006, of which the IRA contributed the biggest share at 65% while the remaining 1% came from shares from other national taxes. The following summarizes the share of LGUs from national taxes:? ? Internal Revenue Allotment (IRA) The LGUs share 40% of the national internal revenue taxes based on the collection of the third fiscal year preceding the current fiscal year pursuant to the provisions in the LGC. The doubling of the IRA from 20% to 40% under the LGC demotivated the LGUs to maximize their own resources of revenues; the creation of new provinces and cities has the effect of reducing the individual shares of existing provinces and cities; and the present IRA allocation formula creates bias for large land area and bigger population results in disparity in the IRA allocation wherein higher IRA generally goes to well developed LGUs which tend to have bigger population and land area. ? Share in the Proceeds from the Development and Utilization of National Wealth The share is 40% of the gross collections derived by the national government from excise taxes on mineral products, royalties and such other taxes, fees or charges including related surcharges, interest or fines and from its share in any co-production, joint venture or production sharing agreement in the utilization and development of the national wealth within their territorial jurisdiction. Among others, not all LGUs have a share in the proceeds but only those endowed with natural resources and engaged in their utilization and development. ? Share from the 5% Final Tax on Registered Enterprises in Subic, John Hay and Poro Point Special Economic Zones The share is 2% of the proceeds from the 5% final tax on gross income earned by registered enterprises operating within Subic, John Hay and Poro Point Special Economic Zones per Republic Act (RA) No. 7227 . The LGUs, which received shares in 2007 were Angeles City, Porac and Mabalacat, Pampanga; Capas and Bamban, Tarlac; Baguio City; Olongapo City, Castillejos, Subic; San Marcelino and San Antonio, Zambales; and Dinalupihan, Hermosa and Morong Bataan. ? Share from 5% Tax on Peza-Registered Enterprises The share is 2% of the proceeds from the 5% tax on the gross income earnings of PEZA-registered enterprises per Sections 12 (c) and 15 of RA No. 7227 and Sections 24 (b) and (c) of RA 7916. The BIR reported that since 2004 only Mactan City in Cebu Province requested DBM certification for the release of this share. ? Share from Value Added Tax The share is 20% of the 50% VAT collections in excess of the increase in collections for the immediately preceding year per Section 283 of the National Internal Revenue Code (NIRC), as amended by RA Nos. 8424 and 9337 . The share accrues to the city or municipality where such taxes are collected and is allocated in accordance with the rule on the situs of the local business tax per Section 150 of the LGC. Among others, the failure of some LGUs to avail of this share is attributed to the complicated procedure in adopting the rule on the situs of the local business tax and the absence of computer linkages in the VAT payment stations makes it difficult for the BIR to monitor and verify the accuracy of the LGU share from the gross receipts of business taxpayers maintaining branches, plants/plantations or factories in different localities. ? Share from Excise Taxes on Virginia Type Cigarettes The share is 15% of the excise taxes collections on locally manufactured Virginia-type cigarettes as certified by the BIR for the second calendar year preceding the year of distribution per RA 7171 . The beneficiary provinces producing Virginia Tobacco are determined by the DBM based on their average annual production of not less than one million kilos for the immediate past two years using as basis the certification duly approved by the National Tobacco Administration (NTA) Administrator. ? Share from Excise Tax on Tobacco Products The share is 15% of the incremental revenue collected from the excise tax on tobacco products under Republic Act (RA) No. 8240. It shall be allocated and divided among the provinces producing burley and native tobacco in accordance with the volume of tobacco leaf production. The fund shall be exclusively utilized for programs in pursuit of the following objectives: a. Cooperative projects that will enhance better quality of agricultural products and increase income and productivity of farmers; b. Livelihood projects, particularly the development of alternative farming system to enhance farmer�s income; and c. Agro-industrial projects that will enable tobacco farmers to be involved in the management and subsequent ownership of projects, such as post-harvest and secondary processing like cigarette manufacturing and by-product utilization. The DBM in consultation with the Oversight Committee created shall issue the corresponding rules and regulations governing the allocation and disbursement of this fund. The Oversight Committee shall be composed of the Chairmen of the Committees on Ways and Means of the Senate and the House of Representatives and four additional members from each House to be designated by the Senate President and Speaker of the House of Representatives, respectively. The Oversight Committee shall monitor and ensure the proper implementation of said Act. However, the DBM has not yet issued the rules and regulations governing the allocation and disbursement of this share.

National Tax Research Center
Authors Keywords
National Tax Research Center; internal revenue allotment; national tax;
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