NTRC wants IRA allocations to LGUs based on performance

MANILA, Philippines - The National Tax Research Center (NTRC), the think-tank of the Department of Finance (DOF) wants the government to look into the collection efficiency of local government units (LGUs) so that they can make better use of their internal revenue allotment or IRA and improve the collection of their local taxes.

The NTRC said the government can impose the application of “revenue performance” such as the collection efficiency as basis for the allocation of IRA to LGUSs.

“This can provide major inducement to enhance their taxing capacity,” it said in a recent study.

NTRC said that LGUs have become overly dependent on their IRA that they have failed to boost their local tax collections.  

It noted that the gap between local tax collection and the IRA share has widened, indicating the failure of most LGUs “to maximize the utilization of their revenue-generating powers bestowed on them under the Local Government Code.”

Under the Local Government Code, the government provides IRA to LGUs to augment their financial resources and ensure delivery of basic services.

The IRA is now the single most important component of LGUs’ sources of revenues constituting 64.54 percent while the rest are sourced from local taxes such as real property tax (RPT), local business tax, special education fund tax, transfer tax, special assessment tax, and idle land tax.

NTRC said LGUs have become heavily dependent on IRA that they no longer exert efforts to raise their own revenues.

“The dependence on the IRA has apparently demotivated the LGUs to exert efforts to maximize their own revenue-raising powers, particularly the RPT,” the NTRC said in its latest report on revenue performance of LGUs.

NTRC cited for instance the collection of RPT, a tax levied on owners of land and building, which had suffered declining efficiency from 2003 to 2007.

The NTRC said the RPT “appears underutilized” with a collection efficiency of only 39 percent.

It noted that the LGU sector only posted an annual growth of 5.46 percent in RPT collection as their IRA steadily climbed by 6.85 percent per year from 2003 to 2007.

Data from the government showed that LGUs’ IRA has ballooned from P113.33 billion in 2003 to P146.56 billion in 2007 or a growth of P33.23 billion.

On the other hand, data showed that revenues from RPT only registered an increase of P2.53 billion to P13.77 billion from P11.24 billion in 2003.

Furthermore, NTRC also noted that yearly collection from business tax increased from P16.02 billion in 2003 to P23.40 billion in 2007 or an average growth of 9.99 percent.

This growth NTRC said is not enough considering the potential of business taxes as a major source of revenue growth.