INTERNAL REVENUE ALLOTMENT (IRA): Allotment of Internal Revenue Taxes Local government units shall have a share in the

e national internal revenue taxes based on the collection of the third fiscal year preceding the current fiscal year. The IRA is mandated by the Constitution, Article X, Section 6 of the Constitution provides that Local government units shall have a just share, as determined by law, in the national taxes which shall be automatically released to them. The just share determined by Congress under the provisions of the Local Government Code of 1991, the local government are supposed to receive a yearly share of 40% of the national internal revenue collected three years earlier. Under Section 286. Automatic Release of share states that the share of each local government unit shall be released without need of any further action, directly to the provincial, city, municipal or barangay treasurer, as the case may be, on a quarterly basis within five (5) days after the end of each quarter. The funds generated from local taxes, IRAs and national wealth utilization proceeds accrue to the general fund of the local government and are used to finance its operations subject to specified modes of spending the same as provided for in the Local Government Code and its implementing rules and regulations. For instance, not less than twenty percent (20%) of the IRAs must be set aside for local government projects. The IRA are items of income because they form part of the gross accretion of the funds of the local government unit. In the study conducted by the Local Development Assistance Program noted that in the past decade, the IRA accounted for at least 36% of the total local revenues and went up to almost 56% in 1992, after the Local Government Code took effect. The study noted that in lower income municipalities, the IRA contributes from 65% to 90% of their total revenues. Therefore, the IRA now remains a major revenue source of local governments as their share to total local income. Automatic appropriations obviously appeal to many politician and the attractiveness and availability of IRA fuels the fragmentation of local government units. The Bureau of Local Government Supervision in a recent study claimed that the proliferation of local government unit is fueled by parochial concerns, the product of strong political lobby, which increased after the enactment of the Local Government Code. In aiming for a piece of the IRA pie, fragmentation of local government units ironically reduces the available IRA because a fixed amount of money is now divided among several governments. Worse, the limited tax base also accounts for the failure of local governments to generate local income to match the IRA. In other words, without a corresponding increase in the number of taxable entitles, local government cannot increase the local generated revenue.

This could help explain why officials of the Department of Finance claim that local government officials are totally dependent on their IRA and are neglecting other revenue generating mechanisms that are available. THE CASE On December 27, 1997, President Fidel V. Ramos issued Administrative Order No. 372, which requires local government units to reduce their expenditures by 25% of their authorized regular appropriations for non-personal services, and withholds 10% of the IRA of local government units. On December 10, 1998, President Estrada issued Administrative Order No. 43 and reduced the amount to be withheld from the LGUs to five (5%) percent.

Senator Aquilino Pimentel, the principal author of the Local Government Code, filed a Petition with the Supreme Court, asking to annul Section 1 of AO 372 and to enjoin respondents from implementing Section 4 of the Order, which withholds of their internal revenue allotments. Senator Pimentel was of the opinion that Section 1 of the Order is in effect a form of control over local government officials prohibited by the Constitution and Section 4 violates the Constitution and the Local Government Code, because it prevents the automatic release of IRA. HOWEVER, the government claimed that Section 1 of the Order was a mere act of supervision and defended Section 4, by saying that there is no violation of the laws because the withholding was merely temporary. Before resolving the main issue, the Supreme Court reviewed the scope of the Presidents power of general supervision over local governments and the extent of the local government autonomy under Philippine law. The Constitution confines the Presidents power over local government to one of general supervision. It provides that, The President of the Philippines shall exercise general supervision over local governments. According to the Court, this provision excludes the power to control. The Court further explain that the supervisory power of the President is the power of mere oversight an inferior body, it does not include any restraining authority over such body. While the members of the Cabinet are subject to the power of control of the President, the people elect the heads of political subdivision. As such, local officials derive powers from the electorate to whom they are directly accountable. Thus, the President may not withhold or alter any authority or power given them by the Constitution and the law.

Section 4 of Administrative Order No. 372 violates a basic feature of local fiscal autonomy. Which is the automatic release of the shares of local government in the national internal revenue. The Section violates the Constitution and the Local Government Code. According to the Court, the Local Government Code specifies that the release of the IRA shall be made directly to the LGU concerned within five days after every quarter of the year. The Code also provides that the IRA shall not be subject to any lien or holding back that may be imposed by the national government for whatever purpose. The Court held that the work shall is a word of command that must be given a compulsory meaning. The provision is, therefore, imperative. The Court also brushed aside the governments defense that the withholding of the IRA was merely temporary. Section 4 therefore has no color of validity at all. The latter provision effectively encroaches on the fiscal autonomy of local governments. Concededly, the President was well intentioned in issuing his Order to withhold the LGUs IRA, but the rule of law requires that even the best intentions must be carried out within the parameters of the Constitution and the law. The amount of 10 billion withheld by Congress was moved under unprogrammed funds. It may be argued that Congress decision to place a portion of the IRA to unprogrammed funds is also unconstitutional because it amounts to placing conditions on its relase. It may be argued that placing this amount under unprogrammed funds transgresses the automatic release provisions of the law. The fact is that there is no ruling from the Supreme Court on this issue as of now. Congress is not under any legal obligation to allocate an additional 10 billion pesos to cover the amount that was placed under unprogrammed funds in the national budget. Senator Pimentel does not concern the action of Congress. If there is a view that Congress violated the Constitution by placing conditions on the release of IRA, then similar case may have to be filed in court to challenge its actions.