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Chiz to LGUs: Don’t count on windfall from Mandanas ruling

Press Release
January 9, 2022

SORSOGON CITY – Sorsogon Gov. Chiz Escudero is advising his fellow local chief executives not to count on the additional P234 billion in internal revenue allotment (IRA) expected this year as the national government complies with the Mandanas ruling of the Supreme Court.

Escudero, a veteran legislator, said the cost of the full devolution of services mandated by Executive Order 138 would be twice as much as what local government units (LGUs) are entitled to receive from the national tax collection. He used 2021 data to estimate the gap between the increased IRA and the increased cost of newly devolved services.

“Inisa-isa ko iyon sa national budget ng 2021 dahil line item naman ng budget. Ang kabuuang halaga ng dini-devolve nila sa LGU ay humigit-kumulang P1.3 trillion samantalang ang dagdag na IRA na bigay ng Mandanas ruling ay P695 billion lamang,” said Escudero.

“In other words, they devolved double the amount of what they will be giving LGUs. Iyon pa lang kukulangin palagi yung pondo ng LGUs,” he said.

According to the Department of Budget and Management (DBM), the total IRA for LGUs is projected to increase by 55.7%, from P695.49 billion in 2021 to PHP 1.083 trillion in 2022, which is 4.75% of the country’s gross domestic product (GDP). This is based on the national tax collections in 2019, when the Supreme Court made the landmark decision giving LGUs greater share in national revenue.

The decision, now known as the Mandanas ruling, stemmed from petitions lodged by Batangas Gov. Hermilando Mandanas and former Bataan Gov. Enrique Garcia Jr. seeking local government share in all national taxes, not just in the taxes collected by the Bureau of Internal Revenue but also in the duties collected by the Bureau of Customs.

Because of this, LGU share in the IRA is expected to increase to at least 60% from the current 40%, leaving less money for the national government. As the IRA is based on the collections in the third year preceding the current fiscal year, the adjustment in tax allocations resulting from the Mandanas ruling will take effect in 2022.

“Hindi dapat umasa ang mga LGUs sa sinasabing windfall from Mandanas ruling kasi mas matindi ang windfall ng trabaho at pagkakagastusan nila dahil sa EO 138,” said Escudero, who is seeking a Senate comeback.

“Gaya din ng naranasan natin ngayong COVID-19 pandemic at nitong nakaraang Typhoon Odette, kanya-kanyang diskarte ang mga LGUs para tugunan ang pangangailangan ng kanilang mga constituents. Ganun din ang inaasahan nating mangyayari sa full devolution,” he said.

To mitigate the impact of the Mandanas ruling, the national government through Executive Order 138 signed in June 2021, decided to implement the full devolution of functions, services and facilities to the local government no later than 2024. LGUs and national agencies were instructed to prepare devolution transition plans and capacity development agenda.

Escudero warned that attaching permanent functions and services to a volatile source of funding is detrimental to LGUs and counter-productive to long-term planning. He urged local governments to be extra cautious in their spending because while the devolved functions and services will remain steady in the coming years, their source of revenue will not.

“LGUs should not create recurring expenditure or permanent positions because next year, they might not have the budget for those. By 2023, the IRA will be based on the 2020 national revenue, and we all know the Philippines had its worst economic performance that year due to the pandemic. Our GDP shrank by 9.5% in 2020, the worst since 1947, which means we may also see the worst IRA since then,” Escudero said.