Recently, a Rappler news article reported of the Bureau of Internal Revenue's (BIR) shaming of provinces being too dependent on national government allocation without developing their own local revenue generation sources.
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"In its latest Tax Watch ad released Wednesday, June 18, BIR said that locally sourced income (LSI) of 56 of 80 provinces accounted for less than 15% of their regular income in 2013," the article reads.
It has been 20 years since the enactment of the Local Government
Code (LGC) of 1991. The code primarily sought to institutionalise genuine and
meaningful autonomy for local government units (LGUs) after problematic years of
politico-administrative centralization in the nation’s capital of Manila. It
transferred to LGUs significant responsibilities and powers of service
delivery, regulatory enforcement and fiscal policy. The ultimate rationale of
the LGC of 1991 being as LGUs are the government institutions that are
spatially and knowledgeably closest to the people, they are the most efficient
and democratic mechanism of governance at the grassroots.
The code however, as the news report proves, has largely failed in
its purpose. Over twenty years into decentralization in the Philippines, the
promises of the LGC and decentralisation have been hampered by numerous
problems and drawbacks. At large, the problems have been on the fiscal side;
fiscal decentralisation in the Philippines for the past twenty years has not
produced capable and genuinely autonomous LGUs. Despite the significant
resources given through the Internal Revenue Allotment (IRA) and taxing powers,
evidence suggests the lack of sharp improvements in service delivery,
decreasing local budget shares of devolved functions such as in health and
social welfare and de-incentivised local revenue generation.
Much
of the failures of decentralisation in achieving genuine autonomy, efficiency
and effectiveness at the local level have been caused by the unforeseen and
unintended consequences of the Internal Revenue Allotment (IRA). As the IRA’s
share in the total LGU income increased through the years, local tax revenue
and nontax revenue shares have decreased. There are simple political and
economic explanations for such a trend. Politically, it is only logical for
local politicians to rely on the IRA instead of taxing his constituents which
might cause unpopularity. Economically, the dependence on IRA is a result of
the absence of a tax base for local revenue generation in most LGUs.
The
local fiscal capacity of LGUs is grossly lacking. Most LGUs simply do not have
wide enough of a tax base to generate revenue. According to World Bank data,
LGUs with relatively more narrow tax bases such as provinces and municipalities,
when compared to cities, receive 46 percent and 47 percent of the cost of
devolved functions, respectively. Further, they divide the pie of the IRA with
more players when compared to cities. An anecdotal account of the Mayor of
Valenzuela City Sherwin Gatchalian the problems with the technicalities of the
tax system. He explains that San Miguel Corporations largest brewery is located
in his city while the head office is in Pasig City. The only tax revenues
Valenzuela City gets from the corporation are real property taxes. The huge
sales of the corporation that can amount to billions of pesos are taxed in
Pasig City because the corporation is registered there. Mayor Gatchalian
justifiably complains “San Miguel uses Valenzuela roads; San Miguel uses the
groundwater of Valenzuela; its employees, a thousand of them, attend our
schools, use our health centers, but we do not get anything from its sales.”
A reformulation of the IRA, however, cannot solve the problem of
local misallocation of funds. The problem moves beyond technicalities to now
become a politico-governance issue. The already limited resources of LGUs are
often easily misspent; resources are often spent on projects
that provide the most visible impact such as basketball courts with backboards
declaring the politicians name or the welcome signs found at boundaries. The
allocation of resources are “likely to be based more on electoral considerations
than technical assessments” (Hutchroft, 2012). Further, local executives are
“budget dictators” who hold the power of the purse over councilors. He further
notes that coupled with high proportion of local spending in personnel, mayors
utilise a spoils system where patronage is the basis of who he hires within the
city hall, with complete disregard for civil service laws. With national
political figures as the patrons of local executives, the fiscal problems of
LGUs are ultimately a problem of national patronage.
So
how do we begin to address such problems?
Book
IV, Title II, Section 521 of the Local Government Code provides:
“SECTION 521. Mandatory Review Every Five Years. - Congress shall undertake a mandatory review of this Code at least once every five (5) years and as often as it may deem necessary, with the primary objective of providing a more responsive and accountable local government structure.”
Two decades and three administrations have passed yet no
comprehensive review and amendments have been made on the LGC of 1991.
Fortunately, in another Rappler news report, a $250-million loan approved by
the Asian Development Bank on February 13, 2014 will make a review of the 20
year old LGC finally possible. Any review and corresponding amendments to the
LGC of 1991 must take into account not only the efficiency and economic aspect
of the code, but especially its political outcomes and consequences. The
problems of efficiency in the IRA must be placed in context of a larger
patronage structure.
First,
the IRA must be reformulated to be performance-based and with respect to
resources-to-functions ratio; LGUs with the least local resources such as tax
bases and greater share of functions and constituent needs must be given a
higher share in the IRA. Such a measure will, at best, solve the problems of
dependence, local revenue generation lag, deterioration of public services
delivery and gerrymandering. As for the governance aspect, stricter
transparency and accountability measures that look beyond just mid-term
elections must be set in place to counter the authoritarian-like rule of the
local politician. Institutions outside the state apparatus such as media must
be strengthened at the local level to provide a feasible challenger to the
monopoly of power local executives. Policy makers must be careful not to focus
too much on the economic and efficiency issue of the LGC; a politically
insensitive reform will not yield any desired economic outcome. In the final
analysis, while these practical measures may curb unwanted tendencies and
patterns at the local level, only a national-level political reform that
destroys the systematic patronage structure of the Philippine state can any
decentralisation framework genuinely achieve its purpose.
