Revenue Generation

Erlito R. Pardo
Development Academy of the Philippines
Source: ADB TA Study 4778 for DILG and DOF

DAP-CFG Seminar-Workshop on Updating Local Revenue Code

LGU SOURCES OF INCOME

National Government

Internal Revenue Allotment

Share from National Wealth

Direct Share from National Taxes

Other Grants

Local Sources

Taxes

Fees

Charges

Operations of Economic Enterprises

Other External Sources

Loans

Bonds

Private Sector Participation

Seminar-Workshop on Updating Local Revenue Code

MAJOR PROBLEMS IN REVENUE GENERATION &

RESOURCE MOBILIZATION LGUs ARE FACING
Under-utilization of real property tax bases

Under-assessment of local business taxes

High dependency rate on the IRA
Outdated local tax codes

Poor operation and management of economic

enterprises
Insufficient utilization of available external financial
resources
Poor planning and budgeting
Seminar-Workshop on Updating Local Revenue Code

TO RESPOND TO THESE
CHALLENGES: LGUs .
Must establish an accountable, efficient and dynamic
organizational structure and operating mechanisms.
Must enhance the quality of local leadership.
Should have greater access to financial resources to
meet the priority needs and service requirements of
their respective communities.

Seminar-Workshop on Updating Local Revenue Code

Explore parameters you need for decision making

-- legal bases
-- taxation principles and criteria
-- limits of your revenue raising
powers

Take an in-depth look at internal sources of funds:

tax and non-tax sources

Explore strategies for enhancing revenue

-- collections
-- assessments

DAP-CFG Seminar-Workshop on Updating Local Revenue Code

Constitutional Provision
(Article X, Sec. 5)
Each Local Government Unit shall have the power
to create its own sources of revenues and to levy
taxes, fees, and charges subject to such
guidelines and limitations as the Congress may
provide, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall
accrue exclusively to the local governments.

Seminar-Workshop on Updating Local Revenue Code

The Relationship Between

Resource and Revenue

Resource Mobilization

Revenue Raising

Seminar-Workshop on Updating Local Revenue Code

The Relationship Between

Resource and Revenue
Revenue Raising

Resource Mobilization

LGU has exclusive

authority
LGU develops
partnerships with
private sector/NGOs

Seminar-Workshop on Updating Local Revenue Code

LGUs power to mobilize resources

is built on LGUs dual nature:
LGUs Resource Mobilization Powers

CORPORATE AND
PROPRIETARY
POWERS
(private function)

TAXING AND
POLICE
POWERS
(government function)

Seminar-Workshop on Updating Local Revenue Code

Seminar-Workshop on Updating Local Revenue Code

Seminar-Workshop on Updating Local Revenue Code

PURPOSE OF ALLOTMENTS

Means through which the national

government subsidizes the delivery official
public services.
Used to equalize or lessen disparities in fiscal
capacities among LGUs.
o More allotments can be given to LGUs
with greater needs and less resources.
Allotments can influence the activities of
LGUs.
o More allotments can be given to help
themselves by collecting taxes efficiently.
Seminar-Workshop on Updating Local Revenue Code

Your taxation decisions must be

based on some fundamentals . . . .
3 basic elements of a tax:
Tax subject -- the object to be taxed

land? business? professional? franchise?

Tax base characteristic of object where tax is
indexed

(for land) zonal value? assessed value?

market value?
(for business) gross receipts? production?
capitalization?
Tax rate fixed? percentage of tax base?
combination?
Seminar-Workshop on Updating Local Revenue Code

Seminar-Workshop on Updating Local Revenue Code

Seminar-Workshop on Updating Local Revenue Code

Revenue adequacy: revenue

potentials of a tax
Therefore:
Concentrate on taxes that are cost effective
- - revenues far outweigh cost of collection
Avoid wide range of taxes which include nonproductive taxes
-- subsidized collection costs
-- diffused administrative effort
-- strain patience of public
-- misleading viability impressions

Seminar-Workshop on Updating Local Revenue Code

Tax elasticity: growth in tax

revenues keep pace w/ growth in
tax base, population, inflation,
etc.
Why need for the sensitivity analysis?
to avoid deficits - local budgetary requirements
grow due to population growth and inflation
Dimensions of elasticity:
appropriate tax structure
(e.g. sales tax : ad valorem vs. unit basis)
how easily LGUs exploit growth
(e.g. real property tax on ad valorem rate)

Seminar-Workshop on Updating Local Revenue Code

Equity: perceived fairness in

treatment of individuals
Equity questions:

Who should pay more taxes?

ability to pay principle vs benefit principle

Who bears the tax burden?

consumer vs producer

Is the tax progressive, proportionate, or

regressive?

How susceptible is tax to evasion?

Seminar-Workshop on Updating Local Revenue Code

Economic efficiency: measure of

taxs effects on economic
decisions of people
Ideally, tax should be non-distortionary or
neutral
-- there is nothing person can do to alter tax
liability
-- levied on non-alterable
characteristic like age or sex
-- rates too small to create impact
on economic decisions

Seminar-Workshop on Updating Local Revenue Code

Administrative feasibility: cost

effectiveness of tax
Costs in administering tax system:
-- direct costs
-- indirect costs
Costs affected by:
-- kinds of records necessary
-- complexity of tax structure
-- nature of tax

Seminar-Workshop on Updating Local Revenue Code

Political Acceptability ...

No tax is popular!
Political will is crucial
Factors affecting political sensitivity:
-- visibility of tax
-- discretionary decisions
-- social values and culture

Seminar-Workshop on Updating Local Revenue Code

Adhere to taxation principles in

Code ...
uniformity of taxation
equitable and biased towards ability to pay
only for public purposes

not unjust, excessive, oppressive,

confiscatory
not contrary to law, public and national
economic policy, restraining trade
not let to any private person
for sole benefit and disposition of LGU
LGU to evolve progressive tax system
Seminar-Workshop on Updating Local Revenue Code

Increasing local income depends on

willingness and ability to use your
taxing powers.
Constitution grants you powers
Code sets the operating framework
BUT, provisions not self-executory.

Decisions must be made by the Sanggunian, and

enacted through an ordinance.
Seminar-Workshop on Updating Local Revenue Code

Procedures for issuance of a

valid ordinance
Pre-publication and/or posting
Writing notice to interested/affected
parties
Public hearing
Preparation of minutes
Approval
Publication
Review
Appeal
Seminar-Workshop on Updating Local Revenue Code

The Code removed review powers of

national agencies and strengthened
local fiscal autonomy
You can, within limits:
choose the taxes, fees, and charges to
impose
adjust tax rates every 5 yrs at a maximum
10%
impose penalties and charges
provide tax relief, discounts, and incentives

Seminar-Workshop on Updating Local Revenue Code

What are your common

limitations?
You cant use power, without a valid ordinance
You cant levy impositions on these tax subjects:
-- impositions already allocated to the national
government
-- other sectors and activities
previously granted exemptions
or privileges through special laws
-- the national government, its agencies and
instrumentalities, and the LGUs
Seminar-Workshop on Updating Local Revenue Code

In summary . . . .
Internally generated resources should be your
concern.
They are within your control

Focused efforts will have substantive impact

Seminar-Workshop on Updating Local Revenue Code