No Free Lunch

Focus on LGUs

/ 04:25 AM December 13, 2019

Local governments are all too often seen to be the very obstacles to creating more jobs in the Philippine countryside. Not a few regard them with cynicism and distrust because prominent examples of bad governance at the local level are not hard to find. Critics point to extravagant city and municipal halls as monuments to the fiscal irresponsibility of some local government units (LGUs).

And then there are the not uncommon stories of local officials “shaking down” prospective investors, insisting on getting a piece of the business as a condition for allowing them in. Once in, the firm could be subjected to various undue pressures from their hosts, ranging from hiring certain protégés, qualified or not, to demands for payment of arbitrary fees and charges with flimsy legal basis (and with dubious intended uses). Not surprisingly, there have been calls for the extension of the economic zone concept for export industries to “local economic zones” for domestically oriented businesses, mainly to get LGUs’ hands off them.


Critics also fault LGUs for overdependence on national government resources via the Internal Revenue Allotment (IRA) for funding for their annual budgets. The situation has varied widely. Exceptions to this overdependence are cities like Makati and Quezon City, which can raise substantial local revenues even from just parking fees alone. It depends, among other things, on the inherent circumstances of the LGU, and on the proactiveness and political will of local officials. An LGU may have an inherent advantage or disadvantage from its sheer location alone (i.e., whether it’s in the urban centers or in the remote countryside), which is an obvious factor that determines how easily the LGU can raise revenues on its own. There are also cases like that of Los Baños, Laguna where the bulk of the territory is public land exempt from real property taxes, with the University of the Philippines owning the better part of the town’s land area. And then there is Lanao del Sur, where provincial officials had told me before that there is hardly any business to tax, for obvious reasons, and real property taxes are virtually unenforceable on recalcitrant landowners.

Many observers—including some international institutions—believe that the IRA mechanism itself may have fostered the LGUs’ dependency syndrome that they lament. LGUs argue in turn that the revenues raised by and for the national government actually originate from taxpayers, assets and economic activities at the local level, with some revenues even collected through the LGUs themselves. I had heard LGUs express unhappiness about how they are required to promptly remit collections to the national treasury, then must go through all sorts of hurdles to obtain release of their budgets from the national government.


And there are more hurdles. LGU officials had also pointed out to me that the national government itself often puts obstacles to their ability to raise more local revenues. A traditional issue is the inability of LGUs to adequately tax branches of big businesses located within their jurisdiction, for lack of accurate information on these establishments’ gross revenues made within the locality. Years ago, a project I led helped convince the Bureau of Internal Revenue to be more open with the needed information to the LGUs to address this issue. Meanwhile, the LGUs hosting the headquarters of such companies (especially Makati) tend to get an undue share of the local business tax revenues due, at the expense of LGUs where the firm’s branches generate much of their actual business.

I have long felt that if there’s any government entity best placed to help uplift people’s lives, it would be the units of government closest to the people, and more direct witnesses to the challenges they face—provided they do things right. Amid shortcomings and issues with the national government and national government officials that we often trace our country’s troubles to, there are numerous “islands of excellence” among local governments, as the World Bank has put it, from which we can draw inspiration.
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TAGS: bad governance, fiscal irresponsibility, Internal Revenue Allotment, local governments
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