Internal Revenue Allotment Law Loopholes: Gentrification in Disguise?

Every democratically elected government has the legal right to tax their constituent citizenry in order to raise the much needed revenue to maintain it, but what if the said government resorts to rigmarole and bureaucratic legalese to increase revenue collection. Taxation without representation anyone?


By: Vanessa Uy


Before we delve into the essence of what is Internal Revenue Allotment or IRA, lets briefly review the facts surrounding the current fiscal environment of the Philippine Government. Our country is in deep financial woe. The current marching order of the incumbent administration is to look for new revenue sources. This means the Philippine Government has to improve existing tax collection laws, which sadly it has failed to do during the past 30 years or so. Tighten up the government’s budget and maximize to spend what’s left on “concrete infrastructure” i.e. infrastructure projects that blend utility with public relations appeal. The benefits of maximizing spending is a proven idea that allowed the economist John Maynard Keynes to formulate plans that saved America from the Great Depression. In keeping with the subject at hand, just what is Internal Revenue Allotment?

According to the Section 284 of the Local Government Code of the Philippines (RA 7160), Internal Revenue Allotment (IRA) is a local government’s share of revenues from the national government. It (the amount) is largely based on land area and population. LGUs (Local Government Units) also derive revenues from various sources. Typically, the IRA for municipalities accounts for 90% of total revenues. Since cities have more sources of local revenues like taxes collected from large business establishments, their IRA ranges from 50% to 70% of the total.

Recently, there’s a row over a number of municipalities being “fast tracked” by the national government to be declared as cities even though the annual average population and income of these municipalities barely meets the criterion needed for it to be legally declared as cities. The reason the national government did this so that they can save a bundle by reducing their IRAs to these municipalities. Other legal “loopholes” in the IRA law are exploited by the incumbent administration include the short - term financial incentives to a municipality’s bid for becoming a city despite a lack of existing taxable viable commercial infrastructure in the present and in the foreseeable future. Also, what about domicile data? Since the majority of Filipinos now work abroad, the average annual population of these municipalities could vary wildly because an overwhelming majority of these workers can go home only once every 18 months. Some of them even have to wait for 5 years just to go home. This government oversight – i.e. inadvertent omission or error – could result in long – term reductions in Internal Revenue Allotment of those municipalities.

To compensate for lost revenue, these city / municipality hybrids will fall back on the methods that will work expediently under the current political climate is by increasing the rates of real estate tax. Surely this will lead to gentrification since our tropical climate has become a Mecca for Western tourists. It won’t be long that only “expats” (ex patriots / rich foreign nationals) can afford to keep their homes while the long - term native residents (ordinary Filipinos like you and me) will be driven to the “poorhouse” thanks to exorbitant real estate taxes.

If I sound unduly alarmist, it is because the Internal Revenue Allotment existing “legal loophole” has shed light on the fact that our country’s outlying municipalities had inherited – by legislation – the proverbial “Bad Part of a Social Contract”. You know: that bad part of the social contract from the incumbent administration that willingly sidelines social justice issues just to improve the government’s revenue collection. Why should those citizens living in the outlying municipalities owe Feudal Obligations to the Makati Corporate Elite?

As of late, President Gloria Macapagal Arroyo and her Public Relations Campaign Machinery has purchased TV airtime about how the majority of us Filipinos had benefited the previous seven years of economic progress that her incumbent administration had brought. You know that “Sa pitong taong nakalipas, ramdam namin ang asenso” TV adverts. You know, those public on air testimonials of Filipinos who benefited our country’s economic progress during the past seven years. Even though to me that particular advert reeks of jingoism, the truth can’t be denied. The problem is, does the extra money that us Filipinos earned during those previous seven years of economic progress will just be used to pay the coming exorbitant real estate tax increases? Just because the national government wants more revenue while the outlying municipalities be forced to increase real estate taxes just to keep their basic programs running. If our newfound prosperity only allows us a pittance to spend on something just to keep our existing roofs over our heads, then to me this doesn’t qualify as economic progress. And who among us would be genuinely happy to owe Feudal Obligations to people who by far are not exemplars of ethics and social responsibility like our corrupt elected government officials. If this does not qualify as gentrification, then I don’t know what is?