Budget for LGUs seen to hit P 986.4B in 2022

The Department of Finance (DOF) has estimated the national tax allotment (NTA)—formerly called the internal revenue allotment (IRA)—which local government units (LGUs) will divide among themselves next year would hit P986.44 billion, based on the agency’s computations taking into account the implementation of the Mandanas ruling.

This is higher than the P841.3-billion allocation for the local governments if the Mandanas ruling would not be implemented and their 2021 allotment of P695.49 billion. In 2020, the local governments’ IRA amounted to P648,92 billion. But in 2023, the local governments’ NTA will be smaller due to the dip in tax revenue during the pandemic-induced recession last year, Finance Assistant Secretary Maria Teresa Habitan told the Inquirer last week. The 2022 tax allotment will be equivalent to 40 percent of all tax revenues in 2019 while the 2023 allotment will be based on 2020 collections. The DOF’s calculation of the local governments’ total budget next year was below the P1.09 trillion computed by the Department of Budget and Management (DBM) earlier.

Budget Assistant Secretary Rolando Toledo told the Inquirer that discussions to finalize the computation of local governments’ 2022 NTA were ongoing. Habitan said they were awaiting certifications from the revenue agencies.

Budget Secretary Wendel Avisado also told the Inquirer that the annual NTA to be determined by the DOF for the periods 2022 onward would be the basis for the setting of the proposed growth equity fund (GEF), which would be included in the yearly national budget to support local governments during the transition.

The GEF is one of the priorities in the crafting of the proposed P5.024-trillion 2022 budget currently being shepherded by the DBM, which would be pitched to Congress when it resumes session in July.

While the Supreme Court’s Mandanas ruling will provide local governments with more money, they were expected to struggle spending their bigger budgets to implement big-ticket programs and projects devolved by the national government through Executive Order (EO) No. 138 issued by President Duterte early this month.

Both the Manila-based Asian Development Bank and the Washington-based World Bank already flagged potential underspending by local governments next year. The World Bank had estimated local governments might fail to spend as much as P155 billion from their NTA in 2022.

To recall, the Supreme Court granted in 2018 and reaffirmed a year later the petitions of Batangas Gov. Hermilando Mandanas and former Bataan Gov. Enrique Garcia Jr., which stated that the local governments’ IRA should come from 40 percent of the collection of all national taxes—the Bureau of Internal Revenue’s (BIR) tax take, as well as the Bureau of Customs’ (BOC) collections of import duties and other taxes.

Up to this year, the local governments’ IRA represented two-fifths of national internal revenue taxes collected by the BIR.

Habitan told a recent forum that the NTA would also include tax collections by other government offices besides the BIR and the BOC.

The Mandanas ruling nonetheless provided for allowable deductions and earmarking against total tax collections, Habitan noted.

Based on the DOF’s calculations, the Mandanas ruling would cover P1.96 trillion from the BIR’s 2019 collections as P211.74 billion was to be deducted from the total tax take of P2.18 trillion.

The base for the BOC, meanwhile, would be P499.64 billion as its 2019 collections of import duties and other taxes amounting to P630.31 billion had P130.67 billion in allowable deductions.

As for other offices’ tax collections, a net of P2.69 billion would be the basis of the Mandanas ruling implementation as P19.14 billion would be taken out of the P21.83-billion collection in 2019.

As such, the total net tax collection worth P2.47 trillion in 2019 would be the base amount from which the LGUs’ 2022 NTA would be carved out, Habitan said. At a 40- percent share, this would amount to P986.44 billion.

Had the Mandanas petition not prospered, LGUs would be receiving a smaller IRA of P846.31 billion in 2022.

Habitan said that per Section 285 of the Local Government Code of 1991, LGUs’ NTA shall be distributed this way: 23 percent of total each to the 82 provinces and 146 cities; 34 percent to the 1,488 municipalities, and the remaining 20 percent to the 41,933 barangays nationwide.

Budget Undersecretary Laura Pascua told the forum that the LGUs’ higher budgets next year reduced the national government’s fiscal space, which was already being pressured by the pandemic-induced weakening of revenue collection amid larger expenditures for COVID-19 response.

As such, EO 138 transferred to LGUs spending on local infrastructure, agriculture, social welfare, health care, and livelihood, among other sectors included in the Local Government Code. INQ