MANILA, Philippines – Local governments must be given stronger taxing powers or at least commensurate to the expenditure functions assigned to them, the Congressional Planning and Budget Department (CPBD), the think-tank of the House of Representatives, said in a paper.
In its report entitled “Public Sector Government and Decentralization in the Philippines” authored by executive director Romulo Miral Jr., CPBD said that while major expenditure functions have been devolved to local governments, the National Government continues to have exclusive authority over productive and broad based taxes.
The think-tank noted that local governments have inadequate tax powers, resulting in ineffective decentralization.
“Government resources continue to be centralized, resulting in common pool problems and local governments remain very dependent on National Government transfers and the direct provision of devolved services. This undermines local autonomy and government accountability,” CPBD said.
Seventeen years after the passage of the Local Government Code of 1991 – the landmark law that decentralized the government, CPBD said government revenues, however, remain centralized.
The think-tank attributes this to the exclusive authority of the National Government over major taxes.
These include taxes on income of individuals and corporations, excise taxes, value added tax (VAT), travel tax, motor vehicle tax and international trade taxes.
“The only major taxes assigned to local governments are real property and business license taxes, with allowable rates and exemptions prescribed by the National Internal Revenue Code,” CPBD said.
It also pointed out that local taxes are administered independently by each local government unit and do not coordinate with national tax authorities in practice.
Republic Act 7160 or the Local Government Code of 1991 devolved the responsibilities and powers over certain basic services and regulatory functions to local governments from national authorities.
The law increased the local tax rates and local governments’ share in the internal tax revenues to 40 percent from 11 percent.
To achieve a more effective government decentralization, the CPBD said the national and local governments can do joint taxation of major taxes such as individual and corporate income tax.
“To accommodate the additional taxes to be imposed by local governments without increasing the overall burden on taxpayers, National Government tax rates could be commensurately reduced,” it said.
The CPBD also believes that with increased tax powers, local governments will subsequently be made responsible for the provision of local services largely from their own revenues.