In 2019, the Supreme Court of the Philippines ruled with finality on separate petitions filed by Batangas Governor Herminaldo Mandanas and Bataan Governor Enrique Garcia regarding the share of local government units (LGUs) in national internal revenue taxes as mandated under Section 284 of the 1991 Local Government Code (LGC).
According to the petitioners, the computation of the internal revenue allotment (IRA) allocated to local government units was erroneous. With the Supreme Court having ruled in the Governors’ favor, the IRA in 2022 will increase by PHP 225.3 billion (to reach PHP 1,102.7 billion) relative to what it would have been prior to the promulgation of the Supreme Court’s ruling.
To ensure the sustainability of the national government’s fiscal position, a recent study by Rosario Manasan of the Philippine Institute for Development Studies (PIDS) proposes that the increase in the IRA be sourced by unfunding programs, activities, and projects in the budgets of some national government agencies that are actually intended to deliver functions assigned to LGUs under the LGC.
The analysis further evaluates the impact of the change in this financing scheme on the vertical fiscal balance across different levels of local government and horizontal fiscal balance across individual LGUs within each level of local government.
Access the Research Paper on the Philippine Institute for Development Studies website:
Rosario G. Manasan. 2020. Fiscal Sustainability, Equity, and Allocative Efficiency in the Light of the 2019 Supreme Court Ruling on the LGUs’ Share in National Taxes. Philippine Institute for Development Studies.
Rosario G. Manasan is a Senior Research Fellow at the Philippine Institute for Development Studies (PIDS) where she coordinates the research program on public finance and fiscal policy.