SC: No P1.5 T IRA arrears to LGUs

The national government does not have to shell out around P1.5 trillion to comply with a Supreme Court (SC) ruling increasing the internal revenue allotment (IRA) of local government units (LGUs).

In a 42-page decision released on Monday, the SC said the implementation of higher IRA is prospective.

The high court rejected the petition filed by Batangas Gov. Hermilando Mandanas to retroactively apply the increase in IRA funds for the past 26 years or since the Local Government Code was implemented in 1992.

“Logic demands that LGUs should receive the difference between the just share they should have received had the Local Government Code properly reckoned such just share from all national taxes on the one hand, and the share... the LGUs have actually received since the effectivity of IRA under the LGC, on the other,” the ruling penned by Associate Justice Lucas Bersamin read.

Finance Secretary Carlos Dominguez had earlier expressed concern that the government may not be able to pay LGUs in full because of the huge amount.

Dominguez said the prospective application of the SC ruling would be manageable for the national government as they would just “sit down with the LGUs and work it out.”

But while the SC ruling did not allow LGUs to retroactively collect higher IRAs, it will be implemented immediately without waiting for the approval of the national budget for next year.

The SC decision increased the IRA of LGUs to include tax collections of other agencies apart from the Bureau of Internal Revenue. It included tariff and duties collected by the Bureau of Customs, 50 percent of value-added tax, 30 percent of national taxes collected in the Autonomous Region in Muslim Mindanao, 60 percent of national taxes collected from the exploitation and development of national wealth, 85 percent of excise tax from tobacco products, and a portion of franchise tax under Republic Acts 6631 and 6632 (Horse Racing Laws), among others.

In the ruling promulgated last July 3, the SC voted 10-3 to partially grant the petition of Mandanas, who had questioned the process of allocating IRA funds for the LGUs.

Section 284 of Republic Act 7160, which created LGUs, stated that provincial, city and municipal governments should receive 40 percent of total national internal revenue taxes collected by the national government.

Next steps

Meanwhile, the Development Budget Coordination Committee will deliberate on the next steps of the government following the SC ruling, the Department of Finance said yesterday.

Dominguez cited the possible impact of the SC decision on the country’s fiscal position, which even Fitch Ratings and Moody’s Investors Service had flagged.

He had earlier said a prospective implementation of the SC ruling could result in devolving some government programs and projects.