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This Act shall be known and cited as the “Local Government Code of ”. SECTION 2. Declaration of Policy. – (a) It is hereby declared the policy of the State. plebiscite to be conducted by the Comelec in the local government unit or such duties and functions, as provided by this Code and other laws. constant prices; a population of at least twenty-five thousand (25,) inhabitants as. REPUBLIC ACT NO. LOCAL GOVERNMENT CODE OF THE PHILIPPINES , DEVOLVING CERTAIN General Power and Attributes of Local Government Units. Section . September 10, and September 12, , respectively.

Local Government Code Of 1991 Pdf

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This Code establishes the system and defines powers of provincial, city, municipal and barangay governments in the Philippines. It provides for a more. This Act shall be known and cited as the "Local Government Code of. ". SECTION 2. Declaration of Policy. - (a) It is hereby declared the policy of the State. of local governments;. WHEREAS, pursuant to this declared policy, Republic Act No. , otherwise known as the Local. Government Code of , affirms.

They are autonomous units of government and have elective and appointive officials. The elective officials are the municipal mayor, vice mayor, and councilors. They are elected by the qualified voters for a term of three years.

The appointive officials are the municipal secretary, treasurer, justice of the peace, and chief of police. The municipal mayor is the chief executive officer of the town. His main functions are: 1 to execute all laws and municipal ordinances; 2 to supervise the administration of the town; 3 to issue orders relative to the maintenance of peace and order; 4 to preside over the meetings of the municipal council; and 5 to recommend measures to the municipal council aimed at the improvement of the social and economic conditions of the people.

The municipal councils is the lawmaking body of the town and is composed of the mayor -- who is the chairman of the council -- vice mayor, and the councilors. The number of councilors for each municipality depends upon the class to which the municipality belongs. Each councilor is in-charge of a village or barangay. Some of the more important mandatory powers of the municipal council are the following: 1 to fix the salaries of all municipal offices and employees, except the treasurer, teachers in the public schools, and staff of national government agencies assigne to the municipality; 2 to provide for expenses necessary to carry out the functions of the municipality; 3 to provide for buildings adequate for municipal uses, including school houses; 4 to provide for the levy and collection of taxes, fees, and charges as sources of municipal revenue; and 5 to establish and maintain an efficient police department and an adequate municipal jail.

It is created by a special law which serves as its charter. The charter is the constitution of the city. The charter creates the city, defines its boundaries, provides its system of government, and defines the powers and duties of its officials.

A city or any of its officials cannot perform any official act which is not permitted by its charter. The city elective officials are the mayor, vice mayor, and the members of the board of councilors. They are elected for a term of three years. The mayor is the executive official of the city, aided by the appointive heads of the various departments.

Local Government Code of 1991 (Republic Act No. 7160).

The vice mayor is the presiding officer of the board. And the city courts exercise judicial functions. The lawmaking body of the city is council. Among its important functions are as folows: 1 to levy and collect taxes in accordance with law; 2 to enact ordinances; 3 to provide for public workds constructions and for the maintenance of a local police force; 4 to establish fire zones within the city and to regulated the type of building which may be constructed within each zone; and 5 to provide for the protection of the inhabitants from public calamities and to provide relied in times of emergency.

Google Scholar Manasan, Rosario G. Google Scholar de Mello, J. Luiz What Does Really Matter?

Google Scholar National Statistical Office. Census of Population and Housing Google Scholar Oates, E. Google Scholar Shah, Anwar. Washington DC: World Bank. Local Government Code. Google Scholar Soriano, Ma. Cecilia G. Makayan and Josefina B.

Cuaresma and Wilhelmina L. Cabo eds. Google Scholar Ursal, Sofronio B. Philippine Law on Local Government Taxation. Nevertheless, the intuition behind the concept is quite clear and tries to give an answer to the question of how we should organize the process of social choice and administration of public affairs, particularly in the context of a democratic society. In his own words: And from the accumulation of these local, active, persnickety freedoms, is born the most efficient counterweight against the claims of the central government, even if it were supported by an impersonal, collective will".

According to this principle, the EU may only act i. During the second half of the past century, this theoretical body gets enriched by multiple contributions stressing the political consequences of decentralization as a tool to control governmental power - Brennan and Buchanan , - and its role improving democratic decision making due to its proximity to voters and local preferences - Oates -.

Summing up, the basic message is clear and appealing: But, how do we translate this theoretical guideline into the practical design of expenditure and revenue functions across levels of government? Decentralization Guidelines. The expenditure side of the equation seems to follow in practice quite closely the theoretical recommendations, preserving macroeconomic stabilization, income redistribution and the provision of global public goods as central level functions, while local public goods are decentralized to subnational governments4.

On the other hand, the revenue assignment process, also has developed recommendations to design the distribution of revenue sources in a decentralized context, well aware that without a strong link between expenditure and revenue competences the whole mechanism gets weak in terms of autonomy and accountability of the different levels of government creating malfunctions in terms of efficient provision and democratic control.

Nevertheless, while guidelines to local taxation can also be found in the theory of federalism, their impact on actual arrangements is considered too often remarkably weak5. Some experts, as Martinez-Vazquez , point out that there is no unified theory of revenue assignment that will enable an identification of the best division of taxes between local governments and higher levels of government, even arguing that general principles can provide useful guidance.

Following Bird, 4 Not without conflicts, of course, concerning externalities, economies of scale, administrative capacity, etc. Consult Yilmaz et al , in example, for a recent review on this topic. Keeping these caveats in mind, and being aware that no magical, one-size-fits-all and free-of-problems solution can be recommended, it is still useful to consider the main theoretical guidelines available to solve the revenue assignment problem in a decentralized country Figure 1.

Revenue decentralization should follow expenditure responsibilities if the whole process is meant to work promoting efficiency, accountability and democratic control, giving the subnational governments not only the amount of revenue they need but also the responsibility to get it. Putting this general recommendation into work is much more difficult.

The benefit principle: In particular, subnational governments should not be able to export to non-residents much of the burden of the taxes that they impose. The tax bases should be relatively evenly distributed across jurisdictions to minimize territorial revenue raising differences. Tax bases should be as immobile as possible to reduce inefficiencies and in order to permit subnational authorities some leeway in varying rates without losing most of their tax base.

The decision to levy the tax, the tax base or, much better, the tax rate choice exerted by the subnational government should be transparent, to ensure accountability. The tax should be relatively easy to administer efficiently and effectively.

The cost of efficient administration should be a reasonable proportion of revenue collections. These topics are summarized, in example, in Bird That is, they should be able to increase or decrease spending in any budget period only by increasing or decreasing their revenues in such a way that they are publicly responsible for the consequences of their actions8.

Stability, predictability, sustainability: At the same time, tax yields should be sufficiently buoyant over time to maintain fiscal sustainability: The global design of the transfers system and borrowing capacities must be taken into account in the design of tax decentralization9 and the whole system should be considered fair in order to avoid complaints used to curve fiscal responsibility.

Whatever the specific final design of the revenue sources would be, a global hard budget constraint should exist.

Tax Policy Options This set of principles is clearly useful even if it involves certain trade-offs, which are oftentimes present in the design of a tax system To fully understand how to apply these guidelines in the field, it is convenient to take into account the considerations in Martinez- Vazquez et al.

Meanwhile, the potential mobility of taxpayers and tax bases can actually increase efficiency in the delivery of subnational government services by forcing local and regional officials to provide a balanced basket of subnational services and subnational taxes. However, if non-benefit taxes are applied to mobile bases, inefficiencies can arise from tax avoidance costs, as taxpayers could try to reduce their subnational tax liability by moving between subnational jurisdictions without affecting the benefits received from publicly provided goods and services.

This argument implies that transfers should be inframarginal, so that rich and poor local governments alike face the full marginal tax price of their spending decisions. Bird suggests that it would also be a good practice if subnational taxes provided sufficient revenue for at least the richest subnational units to be essentially fiscally autonomous in the sense of being able to raise sufficient revenue through taxes and revenue instruments like user charges that they control to cover the expenditures for which they are directly responsible.

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The pieces of the system have to fit together properly if decentralization is to work properly. One cannot develop a good subnational tax system without having first established clear and logical expenditure assignments to the different levels of government. Similarly, given political realities, one cannot in most countries decentralize significant revenues to subnational governments without having in place an intergovernmental transfer system to offset at least some of the disequalizing effects that would otherwise occur.

Tax Decentralization Guidelines 1. Tax assignment should follow expenditure responsibilities 2. The benefit principle 3.

Evenly distributed tax bases 4. Immobile tax bases 5. Visibility of tax choices 6. Efficient tax administration 7. Fiscal responsibility at the margin 8. Stability, predictability, sustainability 9.

Global approach: Hard budget constraint This flexible and theoretically consistent point of view on the application of these guidelines and the emphasis on the relevance of the marginal tax decisions, expand the potential toolbox for tax decentralization. The traditional candidates In practice, user charges, special assessments and betterment levies or fees are the best examples of efficient and feasible instruments for decentralized taxation, because they are connected to the provision of specific goods and services, However, they are not always enough to finance local public goods.

To do that, we have to rely on other taxes as close to the benefit principle as possible. The traditional ones are property taxes ownership; transfer; value increases reflecting the value of local services capitalized in the value of the assets, and motor vehicle taxes, connected with infrastructure, congestion and pollution. Property tax is the classic theoretical best —and, sometimes, only - option for local governments, considering its immobile tax base and its benefit link with some of the services provided, but in practice it has to face serious setbacks.

For a start, property tax administration is difficult and 12 Spahn , p. As the tax is levied on the value of the asset, it is not connected to an income flow and could be considered unfair or confiscatory, especially if its level is high. In addition, the property tax can have an important political cost due to its visibility. Another tax option, automotive taxation, also presents a clear benefit link at a decentralized level, and can be designed to take into account certain characteristics of the vehicle age and engine size; axle-weight; etc.

As far as the above mentioned sources seldom yield enough revenue to finance all potential subnational services, decentralization faces three options: It is relevant to point out upfront that most central governments are reluctant to concede more taxing power to subnational governments, specially on their basic tax bases, because they are understandably concerned about their own revenue positions13, losing macroeconomic control, the risk of creating horizontal imbalance in favor of rich territories, the capacity to administer those taxes or about the complexity that this decentralization could create in tax terms.

These concerns are totally rational and should be taken into account, but tax decentralization, at least theoretically, can be designed in such a way that global revenue is not reduced, but results in a net increase taking advantage of the proximity advantages of decentralized governments and reducing transfers.

Tax decentralization may assist improved responsibility and accountability of local governments and lead to improved fiscal stability.

Tax administration arrangements can help maintain efficiency in tax collection sharing administrative structures when feasible and the expected complexity of a decentralized tax system can be minimized by choosing correctly the tax powers to be decentralized i. Concerning the decentralization of consumption taxes, excises are considered, in general, more suitable for decentralization than general sales taxes. The decentralization of the latter, nowadays VAT in most countries, would be possible only at a regional —not local- level - and would create high administrative and compliance costs, cross-border trade problems and evasion opportunities.

Even taking into account the Canadian experience — perhaps the only positive one - most studies recommend looking for alternative tax 13 Bird Corporate taxation or, broadly speaking, business taxation is another option for subnational taxation already in place in developed and developing countries It can produce substantial revenue, it is more elastic than property taxation and its political costs could be considered lower compared with direct taxation of individual citizens, income or property.

Clarifying and dealing with these flaws and trade-offs requires considering the different options available to define the specific business taxation: Additionally, the destination-origin conflict will always arise i.

Summing up, it is quite difficult to consider business taxation as an optimal option for decentralization on the grounds of the above mentioned guidelines, but as far as decentralized governments are going to use business taxes as a source of revenue due to their political advantages, the technical task should be to minimize their economic distortions. The last tax base mentioned above, personal income, could embody two different kinds of taxes: In practice, pay-roll taxes, do not seem to be the best option for decentralization, as they fall pretty much the same tax base as personal income taxes —wages and taxes - with some additional disadvantages.

As they are imposed on an origin basis, accountability may be weakened, resource allocation may be distorted as they tax just labor and, lastly, in most countries pay-roll taxes are already used to finance social security If we consider the developed countries experience, it is one of the main sources of tax autonomy and the bigger this autonomy is, the higher personal taxation role is.

However, if we attend to developing countries practice, the role of decentralized personal income taxes is practically nil. Theoretically, personal income should be considered a clear candidate for decentralization.

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The "Local Government Code of " LGC devolved to local government units relevant responsibilities in the provision of some 20 The need to include in the full scheme borrowing capacities and the existence of a global hard budget constraint are also fundamental but fall out of the main goal of this report. Toward this end, the State shall provide for a more responsive and accountable local government structure instituted through a system of decentralization whereby local government units shall be given more powers, authority, responsibilities, and resources.

Summing up: The LGC was aimed at the devolution of expenditure and revenue responsibilities, and, consequently, increased autonomy and accountability.

How does reality compare with these goals? Tax and revenue assignments in the Local Government Code Revenue assignment and tax and expenditure devolution are detailed in the LGC e according to the political subdivisions see Figure 3 and Annex 1. Figure 3. The main responsibilities go as follows: Barangay Village: However, the Section 17 c allows national central government agencies to continue with the implementation of devolved public works and infrastructure projects, and other programs and services.

Table 1: Local Government Code. The LGC establish the characteristics and minimum or maximum26 levels of local taxes: Cities, may levy the taxes, fees, and charges which the province or municipality may impose. Provided, however, That the taxes, fees and charges levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of the Code.

The Barangays may levy taxes on stores or retailers with fixed business establishments with gross sales of receipts of the preceding calendar year of Fifty thousand pesos P50, The Local Government Code defines the maximum assessment level for each type of real property Section According to Section , a province, city or municipality may impose a special levy on the lands comprised within its territorial jurisdiction specially benefited by public works projects or improvements funded by the local government unit concerned.

Additionally, Local government units may exercise the power to levy 29 An annual tax of Five pesos P5. All local taxes, fees, and charges shall be collected by the provincial, city, municipal, or barangay treasurer, or their duly authorized deputies Section and , LGC. The share of local government units in the internal revenue allotment Section are The share of each barangay with a population of not less than one hundred inhabitants shall not be less than Eighty thousand P80, Title IV completes the revenue framework of local governments 36 regulating credit financing of LGUs to finance local infrastructure and other socio-economic development projects in accordance with the approved local development plan and public investment program and to stabilize local finances.

Table 2. Local Government Units in Figures In order to assess this legal framework, the first step is to quantify revenue and expenditures assignments and to compare the results with international experience Table 3. Nevertheless, the degree of internal decentralization in the expenditure side is quite high and closer to international average, showing the importance of the devolution process.

The problems arise when observing the tax side of the equation: LGUs are responsible for only a 6. Note 1: OECD data correspond to or the last year available for individual countries. When the classification of local taxes in the Philippines and OECD did not match exactly, the closest correspondence has been chosen. Note 2: Property Taxes: Business Taxes: Amusement Tax; Business Tax; Taxes on gross sales or receipts of manufacturers, assemblers, wholesalers, retailers, distributors, exporters, etc.

Other Taxes: Community taxes; Professional taxes; Real Property Transfers tax; fines and penalties and others. This tax revenue structure shows relevant differences with OECD average: Besides, it has to be pointed out that fiscal autonomy indicators are very different for cities: The opposite can be observed in provinces and municipalities: Local Governments. Commission on Audit.

Finally, Table 6 analyses global current income of the LGUs on per capita terms. Population figures: Census and How can we assess fiscal decentralization and local finance in the Philippines taking into account the legal devolution framework, income figures and international experience?

Embodies too many different tax items —weakening visibility-. Requires an extremely decentralized tax administration. Most taxes are relatively unproductive in terms of revenue.

The burden falls specially -leaving apart Property Taxes- on businesses with a design that taxes indirect signs of real ability to pay. Most important —and elastic- tax bases —income; consumption- are excluded. Tax rates level and changes are limited. Tax liabilities are often expressed in nominal terms and tax base actualization restricted.

The transfer system, the IRA especially, meets the vertical gap but its design presents important flaws. Thus, in case of central government deficit as it was the case in it can be reduced. Third, the distribution inside each LGU lacks of any short or medium term dynamic adjustment factor population changes —the only dynamic element- cannot be taken into account on a yearly basis and there is no reference to fiscal capacity in order to equalize horizontal differences Summing up, as it happens in most countries, it comes as no surprise that the revenue side of the decentralization equation is the weak one.

All the elements —taxes and transfers; status quo; dynamics- have to be taken into account to design a successful reform. In the next section we are going to focus in one of the factors limiting LGUs ability and willingness to generate own-source revenues, analyzing the possibility of opening up some of the tax bases now assigned to the central government to subnational governments, incorporating best international practices to the Philippines context.

In any case, these options will be put into the global context of local and central finance, pointing out other connected elements of the system that would have to be adjusted in a far- reaching reform process. Central Government reserves for itself the bulk of the potential tax bases and the tax structure that emerges is quite classical in the context of developing countries Company, corporate enterprise Insurance Premiums 0.

Amusements 0. Other Percentage 1. Individual Franchise Tax 0. Tax on Property 0. Documentary Stamp tax 3. Travel Tax 0. Others 2. Miscellaneous 0. Alcoholic Products 2.

Tobacco Products 4. Petroleum Products 0. Miscellaneous Products 0. Figure 4. Table 8 shows that public sector size in Philippines is well below the Asian average In addition, only two countries report lower public expenditure to GDP ratio than Philippines i.

Taipei and Singapore. Our initial assessment concludes that the nominal level of tax rates does not seem to be the problem -in general nominal tax rates in Philippines are above the Asian average Table 9. However, the Philippines is limited in its revenue collection by large tax incentives, exemptions and tax administration deficits This encompasses revenue mobilization through tax policy and tax administration reform, boosting social and infrastructure spending, introducing meanstested social programs e.

More details on tax administration in Asian countries in Araki et al See Vicente for an evaluation of tax leakages. Asia Pacific country tax profiles 1. On the basis of the theoretical framework, and taking into account the tax bases nowadays closed to LGUs, personal income should be considered as a serious option to assign additional fiscal space to local government units. Based on residence, the tax shows a benefit link, it is quite immobile, more evenly distributed and more elastic than other possible tax bases, potentially visible and positive in terms of accountability, and its potential revenue is clearly relevant.

Tables 10 and 11 below try to evaluate different options for the decentralization of the PIT tax base and the administrative options available for the implementation of this policy tool, respectively Tax Base options Beginning with the Tax Base, we can distinguish three basic options rows in Table 10 and seven different dimensions columns in Table 10 that should be considered in assessing the suitability of this proposal: Quite the same happens with the opportunities to introduce progressivity in the local tax.

CHAPTER 2 General Power and Attributes of Local Government Units

The only option that cannot be considered progressive is the single rate surtax on central taxable income proportional. The autonomous decentralized PIT and the surtaxes on the different tax brackets would open to LGUs the design of the whole decentralized tax schedule.

The surtax on central tax liability, even if less flexible, would always preserve the same degree of progressivity of central PIT. Table This option —surtax on central tax liability- is also the worse from a political point of view, as long as the nominal level of the tax rates —to collect a certain revenue target- would be always higher, obviously, as the tax base is lower.

Simplicity, administrative and compliance costs are the worst characteristics of the autonomous PIT and, to a lesser extent, of the decentralized tax schedule on central taxable income, especially when considering local, and not only regional, tax autonomy.

Finally, decentralized PIT and surtaxes on tax liability seem less suitable if we want to encourage effective use of tax autonomy for different reasons: The other critical dimension to consider is whether to focus on an employer or employee residence basis. Administrative and compliance costs considerations would lend support to the use of central tax administration of the new tax, even if some problems will arise when considering employee residence that would have to be solved improving withholding process at central level.

Performance of Sangguniang Kabataan Officials As Mandated By the Local Government Code of 1991

On the other side, tax autonomy visibility —and accountability- would be higher with decentralized administration or, at least, employee residence basis, an option that, in any case, reinforce the benefit link. Complianc Visibilit Benefit Jurisdicc. Finally, decentralized tax administrations based on employee residence could be more efficient concerning tax fraud fight, due to its proximity to taxpayers, while it could be the worse option on employer residence basis.

All in all, central tax administration on employee residence basis seems to be the best design option for the tax administrative arrangements, especially in a local context, if administrative and compliance costs are not excessive and a one-tax rate on central PIT taxable base is considered. CT-Central government tax liability net of central government tax credits; CTg-Central government tax gross of tax credits; TY-Taxable income for central government tax purposes; TYs-Taxable income modified for state government tax purposes; TYI-Taxable income modified for local government tax purposes.

BOX 1. PIT Decentralization in particular countries Belgium: Canada Revenue Agency collects all provincial personal income taxes on behalf of all provinces except Quebec, through a system of unified tax returns.

Alberta PIT is a flat tax. Inhabitants Tax: Such inhabitants taxes are levied on a per-capita basis and per-income basis for those who have an address domicile as of January 1, and inhabitants taxes on a per-capita basis on those who have an office or a house even if they do not live there.

The amount of inhabitant tax is calculated on the basis of income earned in the previous year. In addition a standard fixed annual per-capita amount of Prefectural inhabitants tax of JPY 1 , and a standard fixed annual per-capita amount of Municipal inhabitants tax of JPY 3 are applied recently a Tohoku earthquake restoration surtax has been passed: Local taxes are administered by the Local Tax Bureau, an internal organ of the Ministry of Public Management, Home Affairs, Posts and Telecommunications, which is responsible for planning local taxes such as prefectural tax and municipal tax and for determining which governmental body has the right to levy taxes.

The actual administration such as tax assessment and collection is executed by the local government that has the right of taxation. The prefectural tax offices and municipalities cities, wards, towns and villages are in charge of assessment and collection of prefectural taxes and municipal taxes respectively.

These rates are surtax rates, that is, the sub-central rates Provinces and Metropolitan cities including Seoul are a percentage of the central government tax rate. Local governments are free to set sub-central rates between 5 and 15 per cent, but in practice all use the 10 per cent rate. Local governments are free to reduce the sub-central rates, but in practice all use the maximum rate.

State -regional- governments can change personal exemptions and tax credits. There is a county and a municipal share. In addition to the proportional tax, every individual also has to pay a lump sum tax of SEK In most cantons middle level of government , local governments are permitted to levy surcharges at locally established rates on cantonal income taxes, not on the income tax of the central government.

United States: Local PIT is not allowed in 6 States. Tax administration of Local PITs is not homogeneous. For instance, in Maryland and New York City, residents pay their local income tax when they file their state income tax.

However, there are examples of extreme compliance burdens associated with local income taxes collected by local authorities. As one example, taxpayers in Albion, Michigan, must fill out a city income tax form of 16 pages, with instructions, separate from state and federal income tax forms. Complexity is also a problem at the State level. The page instruction booklet issued to taxpayers in the New York State with the PIT tax form demonstrates how complicated the tax can be. Its complexity results in a lack of transparency, an important indicator of a good tax.

The booklet contains instructions for three tax forms, several tables to assist the taxpayer in calculating tax liability and instructions for claiming tax credits and deductions. Once that we have analyzed personal income taxation potential to increase autonomy and accountability of local governments taking into account theoretical background, international experience, public sector and decentralization figures and technical alternatives , the final section of this report will try to assess the revenue potential of a Local-PIT as a surtax on central PIT taxable income in the Philippines, administered by the BIR and based on tax payers residence.

The FIES was conducted in two visits July and January and it gathered data on family income and family living expenditure and related information affecting income and expenditure levels and patterns in the Philippines. The survey involves a national sample of about 50, households, deemed sufficient to provide reliable estimates of income and expenditure levels for each region The current PIT tax rate schedule will be used Table The domains are the regions which were stratified by province, highly urbanized city HUC , independent component city ICC , and other factors within the geographical strata.

The overall sampling fractions vary across regions to generate adequate sample size for each region. Survey weights are used in order to produce valid estimates of the population parameter.

Base weights are computed to compensate for the unequal selection probabilities in the sample design. These were adjusted to account for unit nonresponse and to conform to known population distributions eg. The Optional Standard Deduction OSD is not considered it allows the self-employed to opt for 40 percent deduction based on the gross sales or gross receipts of the self-employed and has no limitations on the gross sales and gross receipts.

Estimates for LGUs are, statistically, only second-best proxies, the better the bigger the province or the city population would be. In any case, in order to improve administrative efficiency, employers should be provided with yearly updated withholding software to take into account changes in tax structure and including employee residence.

Annual Income Tax Returns BIR Forms — compensation earners- and —self-employed- would be used to assess the whole tax base and to collect the tax and the surtax on individuals required to file income tax returns.

Ideally, all this process could be used to improve global collection and to reduce tax fraud, specially by self-employed individuals as long as LGUs proximity to local business and their experience managing local taxes could be used to control tax compliance if information is shared between both levels of government.

Sharing the tax base introduces incentives to collaborate, as long as both benefit from tax evasion control. Territorial distribution of the Local-PIT Revenue potential must be analyzed taking into account the territorial distribution of the Local-PIT and pointing out some possible links with the transfer system. Table 16 shows the distribution of population, taxable income and revenue collection from a proportional Local-PIT implemented as single-tax rate surtax on central PIT taxable income.

The results are perhaps expected and reflect the differences in the territorial distribution of personal income. Makati City leads the ranking, accounting for 0. How can we organize overlapping between Provinces, Cities and Municipalities? The answer to the last two questions depends on the development and experience of tax administration, and at the first stage of the process it would be advisable to limit tax rate decentralization to Cities and Provinces.

This way, departing from a uniform tax scenario across the country, LGUs and BIR would have the time to evaluate the mechanism, to solve its administrative challenges and to know better their taxable basis in order to evolve to higher steps in the decentralization process On the other side, differences in per capita taxable income could be offset in the first steps of the reform adjusting the Cities share in IRA.

There are currently eight 8 bills filed in the House of Representatives and three 3 bills in the Senate seeking to lower income tax rates or initiate re-bracketing Table Ponce-Enrile Increasing the tax brackets from 7 to 13 with a rate ranging from HB 2. Tan, Maximo B. Recto SB Adjusting tax brackets and lowering income tax rates, with automatic indexation to inflation every 6 years without need for legislative action Source: Quimbo et al 58 If the tax brackets are not adjusted for inflation over time and nominal incomes increase, a growing number of income taxpayers are pushed into higher tax brackets, even if their real or inflation-corrected incomes have not or not by as much increased.

Schedule Tax rate 30 Tax rate 25 IMF, is the most demanded reform. The new schedule would be: As long as PIT is considered progressive the Local-PIT surtax would increase its redistributive potential due to its positive revenue effect.

Theoretical guidelines provide useful help, even if it is impossible to avoid the obvious trade-offs among competing goals, such as autonomy and equity, and international experience can help showing the road undertaken previously by other countries. This report deals with this topic focusing in Philippines actual situation and figures, exploring different options to improve devolution at the revenue side and identifying personal income taxation as a likely field to work on.

But Political Economy considerations are fundamental to make a reform work in practice. Administrative and juridical challenges could be easily overcome if the positions of the different stakeholders are taken into account, balancing benefits, and the appropriate timing is chosen. The Philippines face now a window of opportunity not to waste. Central government could be clearly better off if it decides to lead a global reform including central taxation, specially PIT, and Local Government Units finance arrangements, creating a Local-PIT and strengthening their accountability.

On their side, LGUs could benefit from the reform protecting their revenues, improving autonomy and transforming horizontal relationships. This kind of no-losers no winners approach does not transform the scenario radically at the first stage, but allow all the participants to participate in the agreement, while setting up the basis for future developments.

The dynamics of the system and the learning process would the protagonists in future stages, once the cornerstones of the reform are settled in a vertical and horizontal cooperative decentralization process. Policy Focus Report. Lincoln Institute of Land Policy. Bird, R. Annual Report. Brennan, G. Canberra, pp. Cnossen, S. Martinez-Vazquez, J.

Bahl, J. Linn and D. Wetzel, Cambridge, MA: McLure, C. Musgrave, R.

New York:The LGC itself calls on Congress to undertake a mandatory review of the Code at least once every five years. Rodriguez Ave. Institutional arrangements. Google Scholar Balisacan, M. All courts in the Philippines are under the Supreme Court of the Philippines and therefore there are no local-government controlled judicial branches.