The Supreme Court (SC) ruled with finality in April 10, 2019 on the motions for reconsideration of its initial decision promulgated in July 3, 2018 on the petitions filed by separately by Mandanas et al. and Garcia regarding what petitioners perceived to be errors in the computation of the Internal Revenue Allotment (IRA) or the LGUs' share in national internal revenue taxes (NIRTs) as mandated under Section 284 of the 1991 Local Government Code (LGC). As a result, the IRA in 2022 will increase by P225.3 billion relative to what it would have been prior to promulgation of the said ruling to reach PhP 1,102.7 billion. This study proposes that said increase in the IRA be sourced by unfunding PAPs in the budgets of some national government agencies that are actually intended to deliver functions that are assigned to LGUs under the LGC with the end in view of ensuring sustainability of the national government's fiscal position. It then proceeds to these PAPs on the basis of the 2020 General Appropriations Act. It also evaluates the impact that this manner of financing the increase in the IRA has on the vertical fiscal balance across different levels of local government and horizontal fiscal balance across individual LGUs within each level of local government.
The paper highlights the importance of the design of the fiscal features of the federal system of government in ensuring that the potential benefits from its adoption are realized. The economic literature on fiscal federalism posits a framework that delineates the potential benefits that ensues from the adoption of a federal system of government and expounds on the principles that can guide the design of the elements of the fiscal architecture to support the achievement of said benefits. This paper presents an approach on how to assess the design of the fiscal aspects of alternative federal models and illustrates its application in evaluating the the PDP Laban Model of Philippine Federalism 1.0 and the Gonzales-De Vera model. The approach that is followed in the conduct of the assessment essentially involves the benchmarking of the relevant provisions of these two models against the guiding principles emanating from the fiscal federalism literature related to the design of the fiscal features of a federal system of government. The assessment also takes into consideration current practice by reviewing the constitutions of various countries that have a federal system of government at present.
Despite various reform efforts over the years, the tax system in the Philippines continues to suffer from chronic weaknesses. Tax rates are high relative to the country's ASEAN neighbors, yet revenue productivity remains low. Filipino individual taxpayers are overburdened by personal income tax brackets that have not been indexed to inflation, resulting in bracket creep. The real value of excise tax rates on petroleum products have likewise been eroded by inflation, and the schedule is characterized by a number of exemptions and rates that are low by international standards. The value-added tax base has narrowed from excessive exemptions. The Duterte administration is pursuing a simpler, more efficient, and more equitable tax system to support its economic growth strategy. The administration's Comprehensive Tax Reform Program was filed as House Bill (HB) No. 4774 in January 2017 at the lower house and Senate Bill (SB) No. 1408 at Senate. These bills represent the first of several reform packages that will each focus on different areas of tax policy. The House of Representatives approved a compromise bill, House Bill No. 5636, titled "Tax Reform for Acceleration and Inclusion" or TRAIN in May 2017. HB 4774, HB 5636 and SB 1408 seek to reform the structure of the personal income tax, value-added tax, and excise tax on petroleum products and automobiles, while improving the progressivity of the tax system. A portion of the additional revenues generated will be earmarked for investments in education, infrastructure, and health to stimulate long-term growth. This paper aims to assess the implications of these bills on the distribution of tax burden across income groups, economic incentives in affected sectors, national government revenues, and likely impact on tax compliance. Overall, the proposed reforms are projected to generate additional revenues of PhP 51.3 billion in 2018, PhP 96.5 billion in 2019, and PhP 99.9 billion from 2020 onwards. However, the high estimates are unlikely to be achieved due to an increased risk of noncompliance among SEPs who are expected to face higher effective tax rates under all three bills in comparison to those under the current system. If tax compliance/ efficiency in collecting PIT from SEPs deteriorates, the overall revenue take of national government is likely to be considerably lower than these high estimates. In terms of incidence, the change in the tax burden as a percentage of household income that will result from HB 4774/ HB 5636 and SB 1408 is highest for the poorest income decile and declines as income rises. This reflects the regressive character of the reform when one abstracts from the proposed targeted subsidies intended to mitigate the adverse impact of the reform on the poorer segments of the population. Furthermore, these three bills are estimated to give rise to a net income transfer from households in deciles 1 to 8 in favor of deciles 9 to 10. The results suggest the need to compensate poorer deciles, e.g., the poorest two or four deciles, through targeted subsidies for a longer period than that proposed under HB 4774 and HB 1408.
The Supreme Court (SC) ruled with finality in April 10, 2019 on the motions for reconsideration of its initial decision promulgated in July 3, 2018 on the petitions filed by separately by Mandanas et al. and Garcia regarding what petitioners perceived to be errors in the computation of the Internal Revenue Allotment (IRA) or the LGUs' share in national internal revenue taxes (NIRTs) as mandated under Section 284 of the 1991 Local Government Code (LGC). As a result, the IRA in 2022 will increase by P225.3 billion relative to what it would have been prior to promulgation of the said ruling to reach PhP 1,102.7 billion. This study proposes that said increase in the IRA be sourced by unfunding PAPs in the budgets of some national government agencies that are actually intended to deliver functions that are assigned to LGUs under the LGC with the end in view of ensuring sustainability of the national government's fiscal position. It then proceeds to these PAPs on the basis of the 2020 General Appropriations Act. It also evaluates the impact that this manner of financing the increase in the IRA has on the vertical fiscal balance across different levels of local government and horizontal fiscal balance across individual LGUs within each level of local government.
The paper highlights the importance of the design of the fiscal features of the federal system of government in ensuring that potential benefits from its adoption are realized. This economic literature on fiscal federalism posits a framework that delineates the potential benefits ensuing from the adopting a federal system of government and expounds on the principles that can guide the design of the elements of the fiscal architecture to achieve the benefits. This paper also presents an approach on how to assess the design of the fiscal aspects of alternative federal models and illustrates its application in evaluating the PDP Laban Model of Philippine Federalism 1.0 and the Gonzales-De Vera model. The approach of the assessment involves benchmarking of the relevant provisions of these two models against the guiding principles emanating from the fiscal federalism. The assessment also considered current practices through a review of the constitutions of various federal countries.
Despite various reform efforts over the years, the tax system in the Philippines continues to suffer from chronic weaknesses. Tax rates are high relative to the country's ASEAN neighbors, yet revenue productivity remains low. Filipino individual taxpayers are overburdened by personal income tax brackets that have not been indexed to inflation, resulting in bracket creep. The real value of excise tax rates on petroleum products have likewise been eroded by inflation, and the schedule is characterized by a number of exemptions and rates that are low by international standards. The value-added tax base has narrowed from excessive exemptions.Package 1 of the Duterte administration's tax reform program was enacted into law as RA 10963, otherwise known as the "Tax Reform for Acceleration and Inclusion" (TRAIN) Act. It amended structure of the personal income tax, value-added tax, and excise tax on petroleum products, cigarettes, automobiles, sweetened beverages, coal and coke, and mineral products. While the RA 10963 reduced the personal income tax liability of both compensation income earners and the self-employed and professionals, it also raised the excise taxes on the aforementioned products and broadened the coverage of the VAT. This paper provides an assessment of the RA 10963's implications on the economic incentives in affected sectors, national government revenues, distribution of tax burden across income groups, and likely impact on tax compliance.
The adoption of a federal form of government was a key campaign promise of President Rodrigo Duterte, a thrust reiterated in his first State of the Nation Address in 2016. It has strong support among the members of the super majority at the House of Representatives, being part and parcel of proposed constitutional amendments that are currently being deliberated by the Committee on Constitutional Amendments. The federalism discourse in the public arena is oftentimes framed along two strands. First, the adoption of a federal form of government is seen as a means to reverse the unequal allocation of resources between what critics call 'imperial Manila' and the rest of the country. Second, advocates view the shift as key to attaining sustainable peace in Mindanao given its potential to secure national unity while protecting regional diversity. The discussion arising from both strands highlights the fact that there is no single federal model, and that the federal model may or may not work in the Philippine context depending on the specific design features of the particular model that is proposed. Given this perspective, this paper focuses on the design options of the fiscal elements of a federal model that will help ensure the realization of potential benefits from adopting a federal system of government. The paper discusses possible design options along the four pillars of intergovernmental relations: (i) functional or expenditure assignment, (ii) tax/revenue assignment, (iii) intergovernmental transfers, and (iv) subnational government borrowing. These principles are aimed at ensuring that the federal government and subnational governments face the right incentives for efficient and equitable delivery of public services and enhancing accountability of subnational governments to their constituents. The discussion of the same is contextualized by lessons from the country's past decentralization experience under the Local Government Code of 1991. The paper also provides estimates of the cost of shifting to a federal form of government under different scenarios in terms of the number of regions. Finally, it concludes with the discussion of why adopting a federal form of government should take into account not only the net benefits of the reform, but also the preconditions for its success.
Bottom-up budgeting (BUB) is a government program that is envisioned to institutionalize and incentivize grassroots participation in local planning and budgeting in all cities and municipalities. This study aims (i) to examine how the key steps in the planning and prioritization of projects that will be funded under the BUB for the fiscal year (FY) 2016 planning cycle are implemented in terms of extent of participation of civil society organizations (CSO), local government unit (LGU)-CSO engagement, and the integration of BUB processes in the mainstream local planning processes; and (ii) to report on the pace of implementation of FY 2013 and FY 2014 BUB subprojects and to identify the bottlenecks affecting the same. Based on the BUB experience in the 12 case study sites, this study argues that CSO participation in the BUB may be characterized on the basis of how the LGUs actually operationalized the key features of the BUB. The study then juxtaposed the extent of CSO participation in the BUB in the 12 study sites. It measured the share of CSO-identified or proposed projects in the total project cost of all BUB subprojects against the actual conduct of the CSO assembly and Local Poverty Reduction Action Plan (LPRAP) workshop in these LGUs to gain a better understanding of the relative importance of the various aspects that comprise CSO participation in the BUB. On the other hand, the evaluation of the pace of implementation of the subprojects prioritized and included in the LPRAPs of the 12 study sites for FY 2013 and FY 2014 shows mixed results. While the implementation of FY 2014 BUB subprojects is faster than the implementation of FY 2013 BUB subprojects in terms of project completion, procurement, and provision of national government agency feedback to LGUs, some deterioration in the downloading of project funds is evident between these two years.
Proposals to reform the personal income tax have gained prominence in recent months. To date, personal income tax reform is part and parcel of the platform of a number of the candidates in the 2016 presidential elections. This paper aims to evaluate the various proposals in both houses of Congress to amend the existing personal income legislation. Proposals to amend the personal income tax schedule appear to be well-justified from the perspective of (i) the need to eliminate the bracket creep and (ii) easing the tax burden on Filipino personal income taxpayers relative to their ASEAN neighbors. In terms of the progressivity of the personal income tax, all of the proposals to amend the personal income tax are progressive. However, two of the proposals, SB 2149 and HB 4829, are less progressive than the existing rate structure. In terms of revenue yield, all of the proposals are estimated to have a negative impact on government revenue. The projected revenue loss from proposals to restructure the personal income tax is best seen in the context of the government's overall revenue and tax effort. Fiscal prudence dictates that new revenue measures be found to compensate for the projected revenue loss that will arise as a result of the implementation of any one of the various proposals to restructure the personal income tax. Thus, the questions that beg to be asked is: What new revenue measure or combination of measures will allow government to recover the revenue loss from the new personal income tax structure? Possibilities include increasing the VAT rate, excise tax on petroleum products, and road user's tax.
The bottom-up budgeting (BUB) process is one of the major reform initiatives of the Aquino administration and has been tagged as such from several perspectives. First, it is seen as a component of its budget reform thrusts that are aimed at making the national government budgeting process more responsive to local needs. Second, the BUB is viewed as part of the democracy/empowerment reform as it opens another avenue for people's participation in local planning and budgeting and for generating demand for good governance at the local level. Third, it is also perceived as part of local governance reform in the sense that it provides incentives for good local governance.This paper assesses the conduct of the FY 2015 round of the BUB in 12 municipalities in the provinces of Agusan del Norte, Camarines Sur, Negros Occidental, and Quezon. Specifically, it aims to (1) examine how the key steps in the planning and prioritization of projects under the BUB for the FY 2015 cycle are implemented on the ground in terms of extent of participation, LGU-CSO engagement, and integration of BUB process in local planning process; (2) report on the progress and identify bottlenecks in the implementation of subprojects identified during the FY 2013 BUB process; and (3) provide insights on areas for further improvement for the subsequent rounds. In this sense, this assessment focuses on the process rather than on the outcomes of the BUB.
Given the importance of tertiary education in promoting human development and improving the economy's competitiveness, the state universities and colleges (SUCs) in the Philippines have always faced issues on the quality of education, management, and access. This study aims (i) to review and assess the programs being offered by SUCs vis-Ã -vis their mandates, the courses being offered by other SUCs in the region, and the quality of graduates produced; and (ii) given the findings, to recommend courses of action to improve the relevance and quality of course offerings of the SUCs.A review of the mandates of the various SUCs in the selected regions covered by this study (Regions IV-A, VII, XI, and VI, respectively) indicates that the mandates of a number of SUCs are fairly broad to start with. Also, many SUCs offer programs outside of their core mandates because the charters of most SUCs allow them to. Given these broad mandates, it is expected that there is substantial duplication in their program offerings relative to those of private higher education institutions (HEIs) and other SUCs in the same region. Moreover, high rates of program duplication appeared to be associated by an increase in the number of programs offered by SUCs. Program duplication may be considered a problem because of its tendency to increase per student cost of SUCs and the issue of SUCs crowding out private higher education institutions (PHEIs). Many PHEI officials also report that while the Commission on Higher Education (CHED) strictly enforces its Policies, Standards and Guidelines (PSGs) on PHEIs, the same rules are not applied as strictly on SUCs. Furthermore, the low quality of instruction is evident in the poor performance in the professional board examinations (PBEs). The median passing rate for 36 PBEs for 2005-2010 ranged from 40 percent to 45 percent during the period. Additionally, only 7 out of these 36 PBEs had average passing rates above 60 percent and only two have passing rates above 70 percent. There is also a preponderance of SUCs/PHEIs with zero passing rate in many PBEs and passing rates that are below the national average passing rate in 2005-2010.Given these findings, it is recommended that (i) the CHED enforces more vigorously its policy of closing existing programs of SUCs and PHEIs alike where these HEIs' performance is under par year after year; (ii) the CHED ensures that SUCs' program offerings comply with its PSGs; (iii) the CHED weighs the advantages/disadvantages of centralization over decentralization with respect to the monitoring of SUCs; (iv) the CHED regional director becomes a regular member of the SUC Board; (v) the normative funding formula is adjusted so that SUCs do not get an additional subsidy from the national government for the additional enrollment resulting from their offering popular programs (i.e., SUCs may be allowed to offer popular programs provided they meet CHED standards and shoulder the full cost of doing so); and (vi) in order to uplift the overall quality of instruction, the more effective measures, such as faculty development and facilities upgrading, be considered.
This study presents an evaluation of the National Expenditure Program for 2013. First, this paper projects that the fiscal targets set out in the Budget of Expenditures and Sources of Financing (BESF) for 2013 are likely to be met. Specifically, fiscal deficit is projected to be PHP 9.6 billion lower than the BESF at PHP 231 billion, while government revenue is estimated to be equal to PHP 1.8 trillion in 2013 which is also higher than the BESF projection. This is despite the expectation that the BOC collections and nontax revenues will be just equal to the 2011 and 2012 levels. Additional revenues is thus sourced from the BIR collections, which is estimated to reach PHP 1.26 trillion in 2013, exceeding the President's Budget's estimate of PHP 1.24 trillion. Second, although a more balanced distribution of the budget between the social services and economic services sectors is emphasized in the 2013 National Expenditure Program, the services sector still accounts for more than half of the increase in expenditure program in 2013. Finally, the improving debt profile of the country will continue in 2013. National government borrowing will continue to be biased in favor of domestic borrowings.
This study aims to review and assess (i) the sources and uses of funds of state universities and colleges (SUCs); (ii) the impact of the application normative funding formula (NFF) for SUCs; and (iii) the utilization of the Higher Education Development Fund (HEDF) with the end in view of rationalizing the allocation of national government funding of SUCs by improving the effectiveness in the use of public funds for higher education and by increasing the efficiency of SUCs spending.The study found that while the application of the normative funding formula has clearly resulted in the SUCs' greater reliance on internally generated income, the implementation of the NFF has not exhibited the desired effect on (i) shifting SUCs enrollment toward priority courses; and (ii) improving the quality of instruction.On the other hand, the study's inquiry into the major cost drivers of SUCs provision of higher education indicates that there are economies of scale in the SUC sector that can be harnessed. This finding supports proposals for the amalgamation of SUCs. Also, the multiplicity of program offerings among SUCs is found to push SUCs' per student cost upwards. The number or the proportion of faculty members who are MS/PhD degree holders are likewise found to have a significant influence on per student costs. In contrast, the analysis also reveals that the number of satellite campuses and the size of SUCs enrollment in MS/PhD programs are not good determinants of per student costs.The study also looked into the determinants of the quality of education provided by SUCs (as proxied by the passing rate in licensure examinations). The analysis reveals that the number of faculty with MS/PhD degrees and the number of centers of developments (CODs) both have positive and statistically significant relationship with the passing rate in licensure examinations. Surprisingly, per student cost is not found to have statistically significant influence on the licensure examinations passing rate. This result suggests that there is some scope for reducing per student cost without necessarily affecting the quality of education provided by SUCs.
