IRA to gobble up tax takes

If we could play on words to best describe our topic in this week’s Kapihan sa Manila Bay, we talked about priority bills on “endo” and “pondo” during Wednesday’s breakfast news forum we regularly hold at Café Adriatico in Remedios Circle. “Endo” refers to the controversial vetoed bill on Security of Tenure (SOT). The “pondo,” on the other hand, is a rough translation in Tagalog of the word fund or money or revenue sought to be raised by the proposed new tax measures submitted to the 18th Congress for approval into law.  

In the case of “endo” – the short form of “end of” job order or job contract – this refers to an illegal hiring scheme denounced by many organized workers’ groups as perpetuating anti-labor policy in the country. Although it was among the campaign promises of former Davao City mayor Rodrigo Duterte during the May 2016 presidential elections, the Chief Executive was forced to veto the SOT bill that was submitted by the previous 17th Congress.

We had Department of Labor and Employment (DOLE) Secretary Silvestre “Bebot” Bello who discussed the revised version of the vetoed SOT, while Albay Rep. Joey Salceda, chairman of the House ways and means committee in the 18th Congress, assisted by Department of Finance (DOF) Undersecretary Karl Kendric Chua, sought to explain the revised versions of the proposed pending tax bills being pushed by the Duterte administration in the 18th Congress. 

For his part, Bello explained that the administration-drafted SOT bill seeks to give sole authority to the DOLE Secretary to determine which jobs are directly related to the function of the company and thus cannot be outsourced. In the vetoed SOT, the power to determine the prohibited and allowable labor-only contracting (LOC) activities shall be determined by a tripartite body.

“It will be done in consultation with the tripartite body, but its just consultation and eventually the Secretary will take the position,” Bello disclosed. At present, he rued, the DOLE has no power to prosecute or even suspend companies engaging in illegal forms of contractualization. However, Bello stressed that the DOLE is still in the process of reformulating the new SOT version that will be acceptable to both the workers and the employers.

Also at Kapihan sa Manila Bay, Salceda and Chua reassured there would be no job displacements expected in the new tax reform bill which seeks to bring down corporate income tax rate. Both economic experts clarified the proposed tax reform bill will not force existing companies and foreign investors to move out of the Philippines contrary to fears foisted by its critics but will even encourage new, if not more investments into the country.

If indeed true these locators might close shop here, naturally, it might likely result to job losses, if not displace thousands of workers.

Salceda, the principal author and sponsor of this proposed bill, has renamed it as Corporate Income Tax and Incentive Reform Act, or Citira. It was formerly known as Tax Reform for Attracting Better and High-Quality Opportunities (Trabaho) bill which might project false expectations as producing jobs.

Citira seeks to encourage investments by bringing down the corporate income tax rate from 30 percent to 20 percent over a five-year period and modernize investment tax incentives to enhance fairness, improve competitiveness, plug tax leakages and attain fiscal sustainability. “Although we are reducing the corporate income tax rate gradually by two percent points every two years, this is revenue eroding. In exchange for that, we are going to gradually limit incentives to those who really perform,” Chua cited.

By “perform,” Chua explained, this means creating new jobs, produce more exports for sale abroad, or investing more in the countryside. 

During our Kapihan sa Manila Bay conversations, Salceda raised the alert on the implications of the Supreme Court (SC) decision last April 19 this year that became final and executory already that would effectively start in next year’s national government budget. Specifically, the SC decided to uphold the increase in the internal revenue allotment (IRA) of local government units (LGUs) as expressly mandated under the 1991 Local Government Code of the Philippines.

Section 284 of the Local Government Code under Republic Act (RA) 7160, states that provincial, city and municipal governments should receive 40 percent of total national internal revenue taxes collected by the national government.

The SC granted the petition of Batangas Gov. Hermilan-do Mandanas who questioned the process of allocating IRA funds for the LGUs. The SC affirmed its decision in July last year that expanded the IRA allotment for LGUs to include tax collections of other agencies apart from the Bureau of Internal Revenue (BIR) to include tariff and duties collected by the Bureau of Customs; 50 percent of value-added tax; 30 percent of national taxes collected in the Autonomous Region in Muslim Mindanao; 60 percent of national taxes collected from the exploitation and development of national wealth; 85 percent of excise tax from tobacco products; and, a portion of franchise tax under RA 6631 and 6632 (Horse Racing Laws), among others.

“The Mandanas ruling will cost the National Government P318 billion additional,” Salceda warned. “It will sacrifice national economic growth because national government growth depends on the provision of public goods that are inter-spatial,” he pointed out. Like Mandanas who was once a Congressman, Salceda also once served as Governor of Albay for three consecutive terms.

Because of the serious implications of the SC ruling on IRA, Salceda is pushing his colleagues in the 18th Congress to re-visit the LGU Code. At the outset, Salceda proposed to amend the basis for IRA on poverty rate rather than equal share on population and landmass. He called for a national consensus to address this dilemma.

“And I think the President’s huge political capital will probably be brought to bear on this one,” Salceda urged. If not, he warned, IRA to LGUs will gobble up projected tax takes from these Duterte tax bills.