Notes from the Field

In the Philippines: Mindanao Local Governments Gearing up to Become Truly Self Reliant

March 11, 2009

On February 25 – 26, 2009, participants from 11 municipalities in Mindanao gathered to share their different initiatives in making local resources work for effective governance.

One of the basic challenges to good governance in the Philippines is the ability of local governments to mobilize and manage local resources effectively to deliver quality services. Local governments can explore alternative and additional sources of income to finance and basic services for citizens.

In 1991, the Philippines initiated a historic process that resulted in the devolution of significant authority, responsibility, and government personnel to the local level. Under the Local Government Code of 1991, vital government services – health, social welfare, and agriculture – were entrusted to local governments. Local governments have become responsible for stimulating local development by restoring economic livelihoods, and supporting local businesses through more coherent land use and development plans.

Unfortunately, even with the power and authority devolved by the Code, the limits to what local government can do are particularly narrow in poorer areas – and much more limited in areas affected by conflict, such as Mindanao.

For more than a decade since devolution took place, local governments have been dependent on the internal revenue allotment (IRA). IRA is a local government’s share from the collection of internal revenue tax collection of the national government. The computation of the share is largely based on land area, population, and equal sharing among local governments. Aside from this, local governments also derive revenues from local sources, for which they were empowered to collect under the Local Government Code. These revenue sources include local business tax, realty tax, fees, and charges and income from economic enterprises.

Typically, a municipal government’s share of national internal revenue account for 90 percent of its total revenues. Even the more urbanized cities that have more sources for revenue – generally, the most economically dynamic areas of the country – still rely on IRA for 50 to 60 percent of their total resources. However, in those localities affected by conflict, the ratio of internal revenue allotment to total revenue of the local government reaches up to 99 percent. Because conflict-affected areas are normally the least developed ones, their citizens pay less taxes and their tax base is therefore lower.

This dependence on the IRA is beginning to affect the delivery of vital services by local governments. Consecutive years of budget deficits and shortfalls in internal revenue collections – coupled with gerrymandering of local government units to accommodate the whims and caprices of local politicians – means that local governments are now faced with either late remittance of their share of the internal revenue allotment, or getting a smaller share of the IRA because of the increasing number of local governments asking for money.

This is a perennial problem for the Philippines: the need to deliver so much with few resources. To address this problem, The Asia Foundation is helping local governments to develop and use their existing resource base more effectively as a potential source of revenues.

The sharing conference on local business permits and licensing, hosted by The Asia Foundation, gave 11 partner local governments a forum to exchange ideas, initiatives, lessons, and innovations to improve how they manage local resources made available to them under the Local Government Code. Topics discussed during the conference included: issues and challenges on business permits and licensing administration, how to use key indicators to measure performance, and local governments’ innovative ways of doing things.

Local business permits and licensing accounts for 40 percent of local revenue collection or nearly 8 percent of total revenues of the local government. However, the potentials for this source have not been fully maximized and are usually beset by challenges such as low tax rates, an absence of a uniform basis for tax assessment, outdated records of business establishments, and inefficient records management are major reasons why business permits and registration processes in most local governments continue to be tedious and burdensome for local businesses. In spite of these challenges, improvements are noticeable in these eleven local governments assisted by The Asia Foundation Philippines. For example, in the municipality of Tungawan (Zamboanga Sibugay Province), collection from local business tax in 2009 had increased by 75 percent from its 2008 collection. This was followed by the municipalities of Baroy in (Lanao del Norte) with a 38 percent increase from 2008, and Labason (Zamboanga del Norte) with a 24 percent increase.

In the municipality of Jolo, province of Sulu, the number of steps to register a business was drastically reduced from 11 in 2008 to four in 2009. The municipality of Alicia in Zamboanga Sibugay followed suit, cutting down the number of steps to register a business from six to four.

With the streamlining of the process, the number of hours to issue a permit was also reduced from an average of one to two days in 2008 for the municipality of Siay in Zamboanga Sibugay to only 25 minutes in 2009. This was followed by Tungawan with three hours in 2008, now reduced to 30 minutes.

Among the innovations launched by local governments with assistance from The Asia Foundation are:
•    Designating an alternate signatory in the absence of the Mayor to speed up the approval and release of business permits.
•    Conducting of coordinated inspection and tax mapping of business establishments to avoid inconsistency and contradictory assessments which provide opportunities for corruption.
•    Use of a “Presumptive Income Level” in the determination of gross sales of business establishments to lessen the discretion of assessment officers.
•    Organizing of a Mobile Renewal Teams to issue permits in the remote areas.
•    Installation of collection performance boards to ensure transparency.
•    Weekly performance evaluation of tax collectors to encourage accountability of collectors.

At the end of the conference, participating local governments felt that they were not only able to articulate and share what they have done in their respective localities; they also learned from each other. As Mayor Hussin Amin of Jolo, Sulu shared, “This is the first time that I attended a conference for two straight days. Normally, when I attend a conference, I just register and leave to attend for some other important official meetings. This time, I felt that if I am late, or miss a session, I would miss a lot. This is a full-packed conference. We did not waste our time and resources because we really learned a lot.”

Maria Belen Bonoan is The Asia Foundation’s Director for Local Governance in the Philippines. She can be reached at bbonoan @asiafound.org.

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