MANDANAS RULING AND THE LGU’S BIGGER BUDGET THIS FY 2022

By: #Ana_Nymous, the Econo-Politics Noob

Antecedents:
In the case of Mandanas vs. Executive Secretary Ochoa (G.R. No. 199802, July 03, 2018) a.k.a
Mandanas Ruling, the Supreme Court ruled that the just share of the LGUs, known as the
Internal Revenue Allotment (IRA), should come from all national taxes collected by the
government as enshrined under to Section 6, Article X of the 1987 Constitution.

Presently, the Congress, through Section 284 of the Local Government Code (LGC), has sought
to carry out this provision of the Constitution by computing the just share from the national
internal revenue taxes, the composition of which was enumerated under Section 21 of the
National Internal Revenue Code and which is collected by the BIR.

This current situation is, in effect, restricting the base amount from which to compute the just
share of the LGUs. Section 284 has effectively deprived the LGUs from deriving their  just
share from other national taxes, like the customs duties collected by the Bureau of Customs
(BOC). Congress thereby curtailed the guarantee of fiscal autonomy in favor of the LGUs under
the Constitution.

Hence, the national taxes to be included in the base for computing the just share the LGUs shall
henceforth be not limited to those collected by the BIR, but also the tariff and customs duties
collected by the BOC, and those in accordance with special laws such as those from the
exploitation and development of the national wealth; excise taxes collected from locally
manufactured tobacco products, franchise taxes paid by franchise holders, and many more.

As to what constitutes the LGUs' just share, it shall be 30%, 35% and 40%, as the case may be,
of the national taxes based on the collection of the third fiscal year preceding the current fiscal
year.

In fact, the SC even ruled that having established the just share through the LGC, the inclusion of
the just share of the LGUs in the annual GAAs is unnecessary, if not superfluous. Hence, the just
share of the LGUs in the national taxes shall be automatically released to them without need of
yearly appropriation.

The new computation is scheduled for implementation this 2022. Consequently, the IRA of LGUs
is expected to increase whoppingly next year.

(To read the Case Digest of the Mandanas Ruling, click the link:
https://www.scribd.com/document/494276127/Case-Digest-Mandanas-vs-Secretary-Ochoa-G-R-No-
199802-July-03-2018)

Increase in IRA means transfer of functions:

One of the key features of the 1987 Constitution is its push towards decentralization of
government and local autonomy. Decentralization is viewed to contribute to the continuing
improvement of the LGUs and the quality of community life. It is also a process that transfer
responsibilities, resources or authority from the national to the local government.

The Mandanas Ruling therefore strengthened the mandate of Local Autonomy in favor of the
LGUs.
Concomitant with the increase in IRA of the LGUs is the decrease of funds for the National
Government Agencies (NGA). There were speculations, or expectations, for a devolution or
transfer of some of NGA’s programs, activities, and projects in favor of the LGUs as a result of
the inter-governmental fund transfer this year 2022.

Simply stated, funds always follow the function in administering governmental affairs.

LGU’s IRA in 2022:

At present, LGU’s IRA is derived from only 40% of national internal revenue taxes collected by the
BIR instead of the 40% of all the national taxes.

As the high court ruling will be implemented in 2022, Development Budget Coordination Committee
(DBCC) estimates had shown that LGUs’ 2022 IRA, coming from 2019 BIR and BOC collections,
would carve a bigger chunk from the record P5.024-trillion national budget proposal for next year,
instead of only P848.44 billion under the current computation. (https://business.inquirer.net/316885/duterte-eo-
transferring-national-govt-functions-to-lgus-out-this-year?fbclid=IwAR0DkWiBF5FsRMGKHb1o6KpwowOR5JllCSajfj7xHxOmmtdE59NhVVXu0fk)

Hence, Local governments’ internal revenue allotment (IRA) will balloon to more than P1 trillion in
2022. (https://business.inquirer.net/305888/lgus-to-get-p-1-1t-in-funding-in-2022)

With bigger budgets in 2022, the DBM said LGUs must “undertake necessary actions to prepare
for the greater role and responsibilities they are expected to assume.”
(https://business.inquirer.net/316885/duterte-eo-transferring-national-govt-functions-to-lgus-out-this-year?
fbclid=IwAR0DkWiBF5FsRMGKHb1o6KpwowOR5JllCSajfj7xHxOmmtdE59NhVVXu0fk)

The significant increases in their share of internal revenue allotment should help LGUs pump-
prime their local economies,” said Dominguez. (https://www.manilatimes.net/2020/10/06/business/business-top/lgus-must-
prepare-for-new-responsibilities-%E2%80%95-dominguez/776898/)

National Government’s situation:

Budget Secretary Wendel E. Avisado said some agencies at the national level may have to be
downsized, merged, or even be abolished as several projects will be devolved to LGUs in 2022
to comply with the SC ruling on the Mandanas case. Mr. Avisado said affected agencies will have
to reduce their workforce by next year because of the limited budget for the National
Government. https://www.bworldonline.com/national-government-may-cut-workforce-in-2022/)
According to the National Budget Memorandum No. 138 dated Jan. 6, some of the functions of
the Executive Branch that will be fully devolved to local governments include: agriculture; local
infrastructure services such as school buildings and other facilities; environmental services such
as forestry, pollution control, and the implementation of small-scale mining laws; modernization
of tax collection services; health services like hospitals; inter-municipal telecommunications
services; buildings, parks, sports facilities and jails; roads, bridges and drainage systems and
industry research and tourism development. https://www.bworldonline.com/national-government-may-cut-workforce-in-
2022/)

Other projects that could be transferred to the LGUs are low-cost housing projects, irrigation
systems, social protection programs and other livelihood programs. https://www.bworldonline.com/national-
government-may-cut-workforce-in-2022/)
The Development Budget Coordination Committee (DBCC) earlier said it is looking to shift the
implementation of various programs, activities, and projects worth P404.5 billion to LGUs.
https://www.bworldonline.com/national-government-may-cut-workforce-in-2022/)

Expectations/Speculations:

An impending order (EO) to transfer some executive functions to local government units is
expected to be issued this year ahead of an increase in LGUs’ internal revenue allotment (IRA)
shares in 2022. EO will transfer expenditures on local infrastructure, agriculture, social welfare,
health care and livelihood, among other sectors listed in the Local Government Code of 1991
which LGUs can implement. It would also provide options for national government employees who
may lose their jobs once more functions get transferred to LGUs. (https://business.inquirer.net/316885/duterte-eo-
transferring-national-govt-functions-to-lgus-out-this-year?fbclid=IwAR0DkWiBF5FsRMGKHb1o6KpwowOR5JllCSajfj7xHxOmmtdE59NhVVXu0fk)

Finance Secretary Dominguez said the huge increase in IRAs should help the local governments
boost their economies and recover from the impact of the coronavirus pandemic.
(https://www.centennialasia.com/the-asian-pulse/daily-news/the-philippines-lgus-to-absorb-ng-programs-in-2022/)

My Personal Bias:

I have set high hopes for this reform. As I am also a believer of the Federalism as a system of
government, I view this change as an avenue for promoting economic prosperity in the locality.
There will be more financial support to LGUs which would help accelerate their economic
development.

In fact, I used this hope in doing my stint in the stock market (yes, I do stock trading/investing).
After painstaking review, I chose an emerging fintech company (because the world is dramatically
shifting towards technology) who is invested into taking partnerships with LGUs in promoting their
digital platforms and services.

And yes, this move would also serve as a personal experiment of whether or not my expectations
would materialize both for my financial freedom, and the local economic progress.

It will take years to discover the answer, but a little step goes a long way, nonetheless.