BIR Ruling [DA-165-00]

March 21, 2000 BIR RULING [DA-165-00] Mr. Jimmie C. Policarpio Presidential Legislative Adviser and Head Presidential Legislative Liaison Office Rm. 364, Mabini Hall Malacaang Palace Manila S i r : This refers to your letter dated January 19, 2000 requesting for our comments and recommendations on House Bill No. 2735, entitled: "AN ACT PROVIDING FOR THE RE-ALLOCATION OF THE INTERNAL REVENUE ALLOTMENT OF LOCAL GOVERNMENT UNITS, AMENDING FOR THE PURPOSE SECTION 285 OF REPUBLIC ACT NO. 7160, OTHERWISE KNOWN AS THE LOCAL GOVERNMENT CODE OF 1991." with the proposed amendments to read as follows: "SEC. 285. Allotment to Local Government Units . The shares of local government units in the internal revenue allotment shall, STARTING IN 1999, be allocated AFTER DEDUCTING THEREFROM THE COST OF THE DEVOLVED FUNCTIONS AND PERSONNEL, INCLUDING PERSONNEL HIRED BY LOCAL GOVERNMENT UNITS BEFORE DECEMBER 1997 TO PERFORM THE DEVOLVED FUNCTIONS, AND THE COST OF THE CITY FUNDED HOSPITALS AND LEGISLATED BENEFITS, EXCLUDING CAPITAL OUTLAYS. THE TOTAL COST SO DEDUCTED SHALL BE DISTRIBUTED AND REMITTED DIRECTLY TO THE LOCAL GOVERNMENT UNITS CONCERNED AND THE NET BALANCE OF THE INTERNAL REVENUE ALLOTMENT SHALL BE ALLOCATED in the following manner: (a) Provinces Twenty-three percent (23%) (b) Cities Twenty-three percent (23%) (c) Municipalities Twenty-four percent (24%) (d) Barangays Twenty percent (20%) Provided, however, That the share of each province, city and municipality shall be determined on the basis of the following formula: (a) Population [Fifty percent (50%) FIFTY-FIVE PERCENT (55%)] (b) Land Area [Twenty-five percent (25%) TWENTY PERCENT (20%)] (c) Equal Sharing Twenty-five percent (25%) xxx xxx xxx" Our Comments and Recommendations : Considering that HB 2735 does not increase the present IRA of the local government units (LGU's), which is fixed at forty percent (40%) of the collections from national internal revenue taxes actually realized and certified by the Bureau of Internal Revenue (BIR), this Office interposes no objection to the above proposal. It is therefore, understood that the total cost of the above items, i.e., the cost of the devolved functions and personnel, including the personnel hired by said local government units (LGU's) before December 1997 to perform the devolved functions, the cost of the city-funded hospital and cost of the legislated benefits shall be deducted from the forty percent (40%) allotted share of the LGU'S. The remaining balance of the IRA shall be the basis of the LGU's allocation as proposed in the said HB 2735. cdll As a whole, the allocation of the above-mentioned costs, although taken from the IRA of the LGU's shall not enhance their IRA shares. The net effect of HB 2735 however, is achieved in the micro level since the concerned LGU which maintains so much cost-infusing responsibilities and allocating greater portion of its IRA shares on said responsibilities, is being eased out of the financial burden which may now be distributed among the other LGU's, as proposed under this bill. It seems though that a ten percent (10%) in the net balance of the IRA is missing considering that the aggregate percentile share of the local governments would reach only 90%. Does this mean that the twenty four percent (24%) share of the municipalities as appearing in the proposed bill remains at thirty-four percent (34%) as stated in RA 7160? This Office presumes that there was a mere typographical error. Finally, this Office agrees to the change in the distribution formula, giving an additional percentile distribution weight to population of five percent (5%) by reducing the land area percentile weight by 5%. cdlex Very truly yours, (SGD.) DAKILA B. FONACIER Undersecretary of Finance Commissioner of Internal Revenue