ALLOTMENT OF IRA AND SHARE OF LGU IN THE NATIONAL WEALTH

The share of local government units (LGUs) from national taxes is mandated under Section 6, Article X
of the Philippine Constitution which provides that LGUs shall have a just share, as determined by law,
in the national taxes which shall be automatically released to them.

The earmarking is intended, among others, to augment local resources to ensure that the minimum
level of basic services is delivered to the LGUs constituents.

Under the Local Government Code (LGC), LGUs are given shares from national tax revenues in the
form of Internal Revenue Allotment (IRA) and proceeds from the utilization and development of
national wealth.

Additionally, revenues from other national taxes are shared with some LGUs under special laws, such
as a share from the value added tax (VAT), share from excise taxes on locally-manufactured Virginia
type cigarettes and share from the income earned of businesses and enterprises located within the
ecozones.

Internal Revenue Allotment (IRA)

The LGUs share 40% of the national internal revenue taxes based on the collection of the third fiscal
year preceding the current fiscal year pursuant to the provisions in the LGC. The doubling of the IRA
from 20% to 40% under the LGC demotivated the LGUs to maximize their own resources of revenues;
the creation of new provinces and cities has the effect of reducing the individual shares of existing
provinces and cities; and the present IRA allocation formula creates bias for large land area and bigger
population results in disparity in the IRA allocation wherein higher IRA generally goes to well-
developed LGUs which tend to have bigger population and land area.

IRAs are shares equivalent to 40% of the national taxes collected three years prior to the fiscal year
as mandated by the Local Government Code of 1991. The share of each Local Government Unit
(barangay, municipality, city and province) is determined by its population, land area and the so-
called equal sharing formula.

IRA shares of the barangays will be budgeted to pay for the salaries and benefits of officials and
employees, fund infrastructure projects, for disaster management and for gender and development
initiatives. Some barangays receive additional funds from Real Property Tax, royalty tax, fees and
charges collection, among other sources of revenues.

What constitute the National Internal Revenue Taxes being used as bases for the
computation of IRA? The following are deemed as national internal revenue taxes:
• Income tax
• Estate tax and donor’s tax
• Value-added tax
• Other percentage taxes
• Taxes imposed by special laws, such as travel tax

Share in the Proceeds from the Development and Utilization of National Wealth
The share is 40% of the gross collections derived by the national government from excise taxes on
mineral products, royalties and such other taxes, fees or charges including related surcharges, interest
or fines and from its share in any co-production, joint venture or production sharing agreement in the
utilization and development of the national wealth within their territorial jurisdiction. 

Where mining operations occur within the ancestral lands of indigenous peoples, the Philippine Mining
Act obliges the operator to pay royalties equal to at least one percent of total to indigenous groups.
Under the Indigenous Peoples’ Rights Act, any mining activities in ancestral lands can only be
undertaken with free and prior informed consent (FPIC) of the local indigenous peoples, providing
some indigenous groups with an opportunity to negotiate higher revenue shares. In practice, few
groups collect their entitlements or negotiate higher shares.

Share from the 5% Final Tax on Registered Enterprises in Subic, John Hay and Poro Point
Special Economic Zones
The share is 2% of the proceeds from the 5% final tax on gross income earned by registered
enterprises operating within Subic, John Hay and Poro Point Special Economic Zones per Republic Act
(RA) No. 7227. The LGUs, which received shares in 2007 were Angeles City, Porac and Mabalacat,
Pampanga; Capas and Bamban, Tarlac; Baguio City; Olongapo City, Castillejos, Subic; San Marcelino
and San Antonio, Zambales; and Dinalupihan, Hermosa and Morong Bataan.

Share from 5% Tax on Peza-Registered Enterprises

The share is 2% of the proceeds from the 5% tax on the gross income earnings of PEZA-registered
enterprises per Sections 12 (c) and 15 of RA No. 7227 and Sections 24 (b) and (c) of RA 7916. The
BIR reported that since 2004 only Mactan City in Cebu Province requested DBM certification for the
release of this share.

Share from Value Added Tax

The share is 20% of the 50% VAT collections in excess of the increase in collections for the
immediately preceding year per Section 283 of the National Internal Revenue Code (NIRC), as
amended by RA Nos. 8424 and 9337. The share accrues to the city or municipality where such taxes
are collected and is allocated in accordance with the rule on the situs of the local business tax per
Section 150 of the LGC. Among others, the failure of some LGUs to avail of this share is attributed to
the complicated procedure in adopting the rule on the situs of the local business tax and the absence
of computer linkages in the VAT payment stations makes it difficult for the BIR to monitor and verify
the accuracy of the LGU share from the gross receipts of business taxpayers maintaining branches,
plants/plantations or factories in different localities.

Share from Excise Taxes on Virginia Type Cigarettes

The share is 15% of the excise taxes collections on locally manufactured Virginia-type cigarettes as
certified by the BIR for the second calendar year preceding the year of distribution per RA 7171. The
beneficiary provinces producing Virginia Tobacco are determined by the DBM based on their average
annual production of not less than one million kilos for the immediate past two years using as basis
the certification duly approved by the National Tobacco Administration (NTA) Administrator.

Share from Excise Tax on Tobacco Products

The share is 15% of the incremental revenue collected from the excise tax on tobacco products under
Republic Act (RA) No. 8240. It shall be allocated and divided among the provinces producing burley
and native tobacco in accordance with the volume of tobacco leaf production. The fund shall be
exclusively utilized for programs in pursuit of the following objectives: a. Cooperative projects that will
enhance better quality of agricultural products and increase income and productivity of farmers; b.
Livelihood projects, particularly the development of alternative farming system to enhance farmer�s
income; and c. Agro-industrial projects that will enable tobacco farmers to be involved in the
management and subsequent ownership of projects, such as post-harvest and secondary processing
like cigarette manufacturing and by-product utilization. 

The DBM in consultation with the Oversight Committee created shall issue the corresponding rules and
regulations governing the allocation and disbursement of this fund. The Oversight Committee shall be
composed of the Chairmen of the Committees on Ways and Means of the Senate and the House of
Representatives and four additional members from each House to be designated by the Senate
President and Speaker of the House of Representatives, respectively. The Oversight Committee shall
monitor and ensure the proper implementation of said Act. However, the DBM has not yet issued the
rules and regulations governing the allocation and disbursement of this share.