Taxation and its equitable distribution

If we are to take at face value what core endorsers define as benefits of a federal form of government are, it would all boil down to an “equitable” distribution of the country’s wealth.

The conjured problem of an “Imperial Manila” has been with us since time immemorial, starting when the archipelago was united as one nation. Yes, this could have been as early as the Spanish era.

How Manila grew to become the seat of economic and political power is logical. Traders and businessmen had to have a base where they could transact their operations — and Manila had it all: the network of contacts, central government offices, highest population density, etc.

Economic growth also usually follows a certain pattern, from the central point radiating outwards. It is also dictated by many factors, foremost of which would be the affluence of communities. If there was no potential market, commerce would likely not sprout.

Mindanao, of course, had always felt left out. While it had bountiful resources, and blessed with fairly good weather, it complained of receiving the short end of the stick whenever “wealth” was distributed. Basic infrastructure needs took an inordinately long time to be approved by Imperial Manila.

Imperfect code

More than 25 years ago, recognizing the need to empower more local governments and channel part of the resources that the national government collected, the Local Government Code of 1991 was passed.

However, despite a provision in the law that called for a comprehensive review every five years, very few changes were made to make it truly more meaningful and relevant for the country.

Among the outstanding complaints of local governments was the small revenue allotment from the national government despite the increase in responsibilities in governance, and the absence of additional budgetary allocation for new programs.

A review was in the offing in 1997, but somehow, the Congressional review committee in charge got so overwhelmed with the sheer number of modifications and corresponding work that had to be undertaken, including introducing changes in the Constitution, that nothing came of it.

In 2014, another review was initiated, this time with a $250 million grant support from the Asian Development Bank. Not surprisingly, this seems to have lost its momentum with the incumbency of the current president, who had vowed to usher in a federal government.

For all the imperfections of the existing code, however, many political scientists do not find it a piece of legislation that needs to be set aside, even with the envisioned federated structure being fleshed out by the consultative committee created by Duterte to propose revisions to the 1987 Constitution.

In truth, the power of local governance has significantly increased over the years, and the proof of a healthier democracy at the grassroots level cannot be ignored or undermined.

Changing the Constitution

The consultative committee or ConCom, now chaired by former chief justice Reynato Puno, will present a draft Constitution — supposedly in time for the third State of the Nation Address — that would then need to be worked on by Congress before presented to the public in a referendum.

Among the deliverables of the ConCom is starting the groundwork for the establishment of 17 (more or less) federated regions and a federal capital region (National Capital Region), to be later fleshed out by a Transition Commission on Federalism.

Potential foreign investors would be interested to know that the ConCom is also working on facilitating the lifting of foreign equity limits of companies operating in the Philippines, although the committee had ruled out any changes in foreign ownership of land. Under Philippine laws, foreign equity is currently restricted to 40 percent, and is totally restricted for mass media, except in the recording business.

Uncertainties

Advocates of federalism are optimistic a change in government will bring about better growth for more areas outside Imperial Manila. Of the many versions of government, the ConCom had adopted a presidential-parliamentary system.

A recent survey by the Social Weather Station has put awareness of federalism, including the government’s current efforts, at a low level, which has prompted the government machinery to ramp up its information campaign.

Even the business sector is apprehensive about the proposed change in the political and economic system, citing that the proposed appropriation of 70 percent of tax revenues to the federal states may not necessarily mean better local governance.

In fact, revamping the whole tax system to suit the monetary demands of a federal system is already sending off warning alarms, not because they would be difficult to implement, but rather how complicated the whole process of changing them would be.

Complicated tax system

We have a complicated tax system that is based on a unitary system, one that has evolved when the first Philippine Constitution was adopted and taxation laws were passed.

To understand the existing VAT system and its applications, for example, will need weeks of study. Changing it for a federal system of government will definitely be more strenuous.

If Duterte and his ConCom would have their way, the Philippine Federal Constitution would be truly in effect by 2022 when the current administration, to include the senators going for reelection next year, would have ended its term.

Discussions for a federal government have been ongoing for decades now, and the enormity of taking this leap is truly one that spawns so many questions – and uncertainties. It will really take a determined government to pull this one through.

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