Why the Mandanas decision is a major economic issue

LOCAL governments are expected to receive nearly 1,000 billion pesos next year in tax revenues from the national government.

According to the Department of Budget and Management (DBM), the share of the National Tax Allocation (NTA) for local governments will be 959.04 billion pesos, up from 263.54 billion pesos or 37.89 % of this year’s allocation.

This is thanks to the Madanas-Garcia decision of the Supreme Court of 2018, which declared that the “fair share” of the revenues of a local government includes all the taxes of the national government, not just those collected by the Bureau of Internal Returned.

Governor Hermilando Mandanas of Batangas province and then Governor Enrique Garcia Jr. of Bataan province were the main claimants in the 2012 case.

The whole story of the Madanas-Garcia decision was discussed in an article published by the Philippine Institute for Development Studies (PIDS) and authored by Rosario Manasan.

In the article, Manasan stated that Mandanas et al. argue that certain national revenue tax (NIRT) collections by the Customs Office (BoC) – excise duty, value added tax or VAT and documentary stamp duty or DST – were not included in the base amounts for calculating the Internal Income Allocation Tax (IRA), but that said, the taxes, even if collected by the BoC, are in fact NIRTs and therefore should legitimately be part of the base amount for the calculation of the IRA.

For his part, Garcia argues that the use of the term national taxes on internal income in Article 284 of the LGC of 1991 reduces the basis for determining the fair share of local authorities in all national taxes, as provided for Article 6, Article X of the 1987 Constitution, and that it should be declared unconstitutional, according to Manasan.

“In addition, Garcia argues that the exclusion of certain taxes and accounts in application or in accordance with special laws was also unconstitutional”, she added.

Mansan also said that the two petitioners advocated payment of arrears from the national government by the local governments ‘fair share in all national taxes if the High Court agrees with the petitioners’ claim that the calculation of the amount basic IRA is unconstitutional.

The Supreme Court ruled that these requests were “partly meritorious” in its July 3, 2018 decision, she said. First, he agrees with Garcia that the current articulation of Article 284 of the LGC 1991 deprives local governments of their fair share in other national taxes not considered to be national taxes on domestic revenue under Article 21 of the National Internal Revenue Code.

And on April 10, 2019, the tribunal de grande instance ruled in the last resort on the requests for review of its initial decision in 2018.

Development projects

According to the Budget Department, the NTA will provide funding to 43,649 local municipalities. Of the total, 82 provinces will receive P220.57 billion; 146 cities will get 220.57 billion pesos; 1,488 municipalities will get 326.07 billion pesos; and 41,933 villages will receive 191.80 billion pesos.

On the other hand, local governments have been asked to set aside at least 20 percent of their NTA allocation for development projects.

“Local budget plans and targets should, to the extent possible, be harmonized with national development plans, targets and strategies in order to optimize the use of resources and avoid duplication in the use of fiscal resources. and physical, ”noted the DBM.

Local governments have also been urged to continue to cover Covid-19 related initiatives, programs and activities (APPs) as needed, given the uncertainties surrounding the end of the pandemic.

“PPAs and expenses related to Covid-19 that can be funded by LGUs (local government units) may include those related to preventing the spread of Covid-19, providing basic services to the affected population , the necessary support for front-line workers, the purchase and administration of Covid-19 vaccines, and ancillary supplies and services, subject to the provisions of the “Covid-19 Vaccination Program Act of 2021 “(Law of the Republic 11525) and other PPAs related to the response to Covid-19 and stimulus measures”, underlined the Directorate of the Budget.

PIDS said in a recent discussion paper that the Mandanas-Garcia decision will allow local governments to take on additional devolved tasks.

“To help solve the problem of horizontal imbalance, a fiscal equalization called the Equity for Growth Fund (GEF) has been introduced,” he said.

PIDS said the GEF works to address challenges such as uneven development, high poverty rates and gaps in the fiscal capacity of local governments.

The GEF, which was created by Executive Decree 138 and is included in the 2022 Draft Budget under National Budget Memorandum 140, will provide “assistance to LGUs with the highest incidence of poverty and who have financial difficulties to level the playing field in the implementation of decentralized services, ”he explained.

According to the PIDS, the GEF can finance basic infrastructure as well as other programs, projects and activities of poor, disadvantaged and lagging local governments, including capacity building requirements, to enable them to implement more effectively. and more effectively the functions and services devolved to LGUs by the relevant laws.

“The GEF is different from previous programs under the aegis of LGSF (Local Government Support Fund) which in recent years were specific programs at LGU level for specific purposes in the case of provinces and cities”, a- he continued.

PIDS said the fund is managed by DBM and the Ministry of Interior and Local Government, with the Development Budget Coordination Committee setting the execution criteria.

In the meantime, he advised that the rules clearly spell out the criteria for target beneficiaries and that their execution be monitored to ensure that the money reaches the appropriate local governments and is used to contribute to the local economy.

Key role in economic recovery

Local governments will play a vital role in the country’s economic recovery, according to the finance ministry.

Finance Secretary Carlos Dominguez 3rd recently said the national government wants local governments to take the lead in grassroots planning, community infrastructure and further economic linkage on behalf of their constituents.

“Local government finances in particular will be even more important next year, as the share of local government revenues increases dramatically. Underline.

Improved revenue collection and resource mobilization strategies, Dominguez added, are needed for local governments to develop fully as self-reliant communities.

As a result, he said, local governments should continue to strengthen their skills and improve their absorption powers. For example, by embarking on a full digital transformation, which aims to increase the efficiency and reliability of frontline agencies, while ensuring that they can accomplish much more with less money in the long run.

“Local governments need to keep pace with this digital transition – starting with local government finances. I strongly urge local governments to adopt electronic facilities for registering and renewing businesses, and especially for assessing and collecting local taxes, fees and other charges, “the CFO noted.