During the national election campaign, then presidential candidate Rodrigo R. Duterte was vocal about pushing for a federal form of government. A staple of his stump speeches, federalism was one of Duterte’s answers to the problem of inclusive growth.
Fast-forward to his first State of the Nation Address (SONA). He reiterated the call for a shift to a federal system, urging all those gathered in the Session Hall of the House of Representatives to submit the proposal to a referendum.
What exactly is the President asking for?
Quite simply, federalism is the decentralization of power whereby a national government shares power with various regional governments. Some of the countries under the federal system are Germany, India, the United States, Singapore, Malaysia, and Australia.
The Philippines has a unitary or centralized structure of government, with power, influence, and finance concentrated in the capital, Metro Manila. However, not all things can be seen clearly from Mount Olympus. Provinces and municipalities far from the epicenter may be left marginalized, without means of advancement or sustainable development.
From a revenue generation and tax perspective, while collection is made by local government units (LGUs), big ticket tax items such as income tax, customs duties, capital gains tax, documentary stamp tax, donor’s tax, estate tax, excise taxes, value-added tax, etc. all go to the national government. Only a portion of these revenues is cascaded to LGUs through internal revenue allotment (IRA). As it is now, revenue generation for LGUs is limited to small items such as mayor’s permits, real property taxes, and other miscellaneous fees. As a result, some LGUs are left begging for funds from the central government.
Under a federal system, revenue generation will be the sole responsibility of the LGU. With this, LGUs will be encouraged to put up economic zones that could support manufacturing and service facilities, shipping ports where goods can be directly traded, local and international airports that will boost tourism, and other infrastructure using the income tax they directly generate. (How and from where the LGUs will get the needed funds to kick-start this is a different matter, which could be discussed in a separate article).
In the meantime, other benefits of federalism include the following:
Individuals and corporations located in the area under LGUs will be more motivated to pay taxes since the taxes they pay will redound directly to their benefit.
Metro Manila will be decongested as more employment opportunities are created in other locations by LGUs.
LGUs need not wait for central government assistance, resulting in shorter turnaround time in dealing with emergencies.
Easier said than done
The major obstacle to federalism is the 1987 Constitution, which stipulates the centralized system of government. The Constitution can be amended only through one of three means—a Constituent Assembly that requires the support of 3/4 of all members of Congress; a Constitutional Convention that needs 2/3 votes of all members of Congress (both these options may take some time despite the supermajority obtained by the ruling party); or by people’s initiative upon petition of at least 12 percent of the total number of registered voters in the country with every legislative district represented by at least 3 percent of registered voters.
This early in his term, President Duterte is already setting the wheels in motion.
At the general membership meeting of the Management Association of the Philippines, the Speaker of the House of Representatives, Pantaleon Alvarez, made the case for federalism, saying that the President prefers forming a Constituent Assembly, which will be given one year to present revisions in the Constitution. In time with the midterm elections due in 2019, the President wants to submit the revised draft to a plebiscite, and when his six-year term ends in 2022 the President wants the federal system to take effect.
It’s an ambitious timeframe for such a Herculean task and a historic change. But then again, this President has promised to be a man of action. Let’s see if he can convince the rest of the nation to get on board.
The author is a Director with the Tax & Corporate Services division of Navarro Amper & Co., the local member firm of Deloitte Southeast Asia Ltd., a member firm of Deloitte Touche Tohmatsu Limited—comprising Deloitte practices operating in Brunei, Cambodia, Guam, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.