• The P600-B question

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    Ben D. Kritz

    Ben D. Kritz

    IN a seminar presented at the University of Asia and the Pacific last week, officials from local government units were told they may soon receive a P600-billion windfall in overdue Internal Revenue Allotment (IRA) payments from the national government, if the Supreme Court rules favorably in a suit brought by a former lawmaker.

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    Former Batangas Rep. Hermilando I. Mandanas told an audience of budget and finance officials from local governments as far away as Mindoro and northern Luzon that unpaid IRA now totaled more than P600 billion, of which P300 billion has accumulated in government coffers in just the past four years alone.

    The internal revenue allotment is equivalent to 40 percent of internal tax revenues collected by the Bureau of Internal Revenue or its agents, which is shared with local government units.

    The large unpaid amount resulted from the failure of government to fully implement the revenue-sharing provisions of the Local Government Code, Mandanas explained.

    The former chairman of the House Ways and Means committee filed a lawsuit against the government at the Supreme Court in early 2012, arguing that taxes collected by the Bureau of Customs have never been included in the revenues shared with LGUs, contrary to the terms of the Local Government Code.

    “Actually, it’s a case of technical malversation,” he observed.

    Mandanas said there were ‘indications’ the Supreme Court would soon rule in favor of the petition, without elaborating. “The case is pending,” he said. “It has been delayed since last year because of the PDAF and DAP issues,” he added, referring to the scandals surrounding the Priority Development Assistance Funds allocated to legislators and the Disbursement Acceleration Program under the Office of the President.

    A bill supported by the Department of Interior and Local Government and filed by Senator Aquilino Pimentel 3rd in the Senate last year would raise the IRA from 40 percent to 50 percent and clarify the sources of internal revenue to be shared with LGUs, presumably closing the loophole that ‘exempts’ Customs collections.

    Inclusion of the internal tax revenue collections of the BOC would amount to a 25-percent increase in their current IRA amounts, Mandanas told the local officials.

    The argument certainly sounds plausible, but the inconvenient fact that the current arrangement in which Customs collections are ignored in the calculations of IRA has not been practically altered in 22 years suggests it might not be a legally valid argument. Mandanas’ petition has two key points: First, that taxes and duties collected by Customs are internal revenue according to the way internal revenue is defined by the Local Government Code; and second, that Customs is an ‘agent’ of the BIR in the context of the Code.

    Strictly speaking, the collections made by the Bureau of Customs are internal revenue—they are taxes made payable by the arrival goods into the Philippines, charged to Philippine businesses or individual citizens. The Local Government Code, however, does not explicitly define ‘internal revenue,’ so it is left to the Supreme Court to decide what the law’s implicit meaning is.

    The second part of the argument is necessary because the law stipulates that the IRA is determined by the collections of the BIR; and according to its legal mandate, the BIR is required “to assess and collect all national internal revenue taxes, fees and charges.” If, according to the first part of the argument, customs collections are internal revenue, then the BOC is, in effect, an agent of the BIR. Again, this is something that is subject to interpretation by the court; in reality, the BOC is not subordinate to the BIR, but rather is a sister agency under the umbrella of the Department of Finance.

    Former Gov. Mandanas and his colleagues are optimistic about a forthcoming favorable SC ruling. Given the nature of the case, that could very well be the outcome; but there are other scenarios that are just as likely. The SC could simply maintain the status quo by rejecting the argument; in that instance, the court would be defining customs revenues as being somehow different from ‘internal revenue’ that is otherwise under the purview of the BIR. Or the Court could take a compromise path with a ruling that confirms customs collections are part of the internal revenue, but that the designation of the BIR in the Local Government Code should be taken at face value; in other words, the intent of the law is that only collections of the BIR count toward the IRA.

    There is no empirical reason collections by the BOC should be regarded any differently from collections by the BIR, and on that basis, the most logical decision would be the one Mandanas is seeking. Anything that helps to decentralize resources and responsibilities also helps to make the use of those resources more efficient and responsive to the community’s needs.

    As we should all know by now, however, there’s regular logic, and then there’s political logic. According to the latter, the “strong executive” form of government—which is defined by the Constitution—is better supported by less devolution of authority.

    Regardless of the final outcome, it is not out of line to strongly urge the Supreme Court to act on the question quickly; a 20-plus-year period is far too long to wait to resolve a critical ambiguity in one of the Republic’s most fundamental laws.

    ben.kritz@manilatimes.net

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    1 Comment

    1. E. G. Festin on

      Hurray for former governor/former congressman Mandanas. If his line had been followed by local government heads, there would have been fantastic growth all over the Philippines. He has been advocating regional initiative and development even in international trade and commerce. Sadly, only a few regions and provinces heeded his advocacy.