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The economic literature on fiscal federalism suggests that a federal system of government is likely to

yield potential benefits in the form of (i) increased efficiency and, consequently increased societal
welfare, (ii) enhanced local accountability, and (iii) stronger national unity in the face of regional
diversity. First, under a federal system, optimal provision of public services is likely to be achieved if
the jurisdiction of the level of government responsible for the financing and delivery of a given
public service coincides with the geographic area where benefits of said public service are confined
(Olson 1969, Oates 1972). Otherwise, government will tend to under-provide services which have
positive benefit spillovers to other jurisdictions while over-provision may result if lower level
governments are able to secure funding for projects that only benefit the local jurisdiction from
higher level governments; i.e., they will tend to ask for more projects relative to situation when they
have to finance said projects themselves. Also, greater decentralization under a federal form of
government will tend to lead to increased efficiency and welfare to the extent that it brings
government closer to the people, thereby allowing lower level governments to respond to the local
needs and preferences of their constituents (Oates 1972). This tendency is further reinforced
through interjurisdictional competition when the population has the ability to “vote with their feet”
to get the “public services-tax package” that they prefer (Tiebout 1956), thereby, dampening the
rent-seeking tendency of local politicians (Brennan and Buchanan 1977). Second, the federal system
enhances local accountability to the extent that lower level governments have some degree of
revenue autonomy (i.e., if they raise a significant amount of revenues from local taxes and user
charges). Increased local accountability also results from greater citizen participation in local
governance under a more decentralized setting (Ostrom, Schroeder and Wynne, 1993). Third, the
federal system is also seen to have the advantage in addressing ethnocultural conflict as it
accommodates regional diversity – religious, linguistic, ethnic, or cultural.

THE nation’s father of federalism, Aquilino ‘Nene’ Pimentel Jr. proposes “to share the
resources of all revenues, not only taxes collected by the Bureau of Internal Revenue” as
follows: Federal Government 20%, 12 states 80%.

As sharing of the 80% between states on the one hand and the provinces, cities,
municipalities and barangays on the other hand he proposes: 30% for the states and 70% for
the smaller entities. The LGU-parts would be higher than today’s Internal Revenue
Allocation (IRA).

PDP-Laban Federal Institute provides: 40% of all taxes collected shall go to the federal
government and 60% to the regional government.
https://www.sunstar.com.ph/article/420009
under the federal system the states will collect the revenues and each state will, according to
its capacity and performance, send a share to the capital to fund the federation.
In the responsibility of the federation will be the frame legislation, constitutional court,
defense, peace and order, foreign policy, federation-wide infrastructure, media, monetary
system, repayment of foreign debt, customs, federal commissions, ombudsman, higher
education, vehicle and driving licensing, traffic rules, science and research.

In the responsibility of the states will be: state legislation within the frame legislation, the
state police, elementary education, culture, jurisdiction, economy and tax collection,
infrastructure and development, Comelec, environmental issues, health, land classification,
disaster response and prevention.
Under Article XIII of the con-com’s proposed federal constitution, the Federal Government
“shall have the power to levy and collect all taxes, duties, fees, charges, and other
impositions except the power to tax granted to the Federated Regions.”
Read more at https://www.philstar.com/headlines/2018/07/11/1832596/draft-
constitution-promises-bigger-revenue-share-regions#cLpRibo6Td1U0kuU.99
In the fiscal federalism literature, the assignment of taxing/ revenue powers to different of
government is guided by the following considerations: (i) economic efficiency, (ii) equity, (iii)
administrative feasibility, and (iv) revenue autonomy (Shah 2007). The economic efficiency criterion
ordains that the tax assignment should be such that subnational governments should not be
assigned taxes are exported to residents of other jurisdictions or those that distort the location
decisions of firms and households (McLure 1999). The benefit principle of taxation (which suggests
that those who benefit from a given government expenditure should pay more of the tax that is
used to finance said expenditure program) is likewise consistent with the economic efficiency
considerations. From this perspective, the assignment of taxes on immobile factors (e.g., real
property tax) and user charges to subnational governments and the assignment of taxes on
international and inter-jurisdictional trade and those on mobile factors to the federal government
are appropriate.

The Federated Regions shall also be given a share of not less than 50 percent of all national
taxes, which will be “equally divided among them and automatically released.”

The 1991 Local Government Code (LGC) assigns eleven (11) taxes to cities, nine (9) taxes to provinces,
two (2) to municipalities which are assigned a share in the collections of 3 taxes levied by provinces
and one (1) to barangays which are assigned a share in the collections of 3 taxes levied by other
levels of local governments (Table 5). The LGC also specifies the taxes that LGUs are not allowed to
levy and which, by implication, are exclusively assigned to the central government, including (i) the
income tax, except when levied on banks and other financial institutions, (ii) VAT, (iii) excise tax on
alcoholic, tobacco, petroleum, mineral and non-essential9 products and automobiles, (iv) customs
duties, (v) estate and gift/ donation taxes, (vi) documentary stamp tax, and (vii) taxes, fees and
charges on registration of motor vehicles.

Meanwhile, an “equalization fund,” which will be not less than 3 percent of the annual
national budget, will be formed and “distributed based on the needs of each region.”

Federated Regions that require support to achieve “financial viability and economic
sustainability” will have a bigger bite of the equalization fund, as determined by the Federal
Intergovernmental Commission.

Read more at https://www.philstar.com/headlines/2018/07/11/1832596/draft-constitution-


promises-bigger-revenue-share-regions#cLpRibo6Td1U0kuU.99
Intergovernmental transfers of one form or the other are ubiquitous in all federal and decentralized
unitary states, generally serving as the primary instrument in the attainment of the following
objectives: (i) To close the vertical fiscal gap, (ii) To compensate for the disparities in the fiscal
capacities and expenditure needs of subnational governments, and (iii)To assist the federal
governments influence subnational government spending towards meeting national government
objectives, e.g. ensuring common minimum standards in quality, access and level of service in
certain service areas. Because intergovernmental transfers create incentives that affect the
efficiency and effectiveness of local public service provision and the accountability of subnational
governments, the importance of the design of intergovernmental transfers cannot be
overemphasized.

Under federalism, taxes imposed on production or sale of goods and provision of


services (VAT, excise taxes, percentage taxes) are much more difficult to deal with.
However, Under that scenario, the best solution is a dual-track one. First, convert
these goods/services tax into a system of sales tax. For goods sold or services
provided in the state territory, the state will collect the sales tax on those transactions.
Under this dual-track system, income tax and sales taxes on goods sold and
services provided in the states territory will be collected by the states. The equivalent
sales taxes on other goods and services will be collected by the federal government
and allocated among itself and the states.
Article 13, Fiscal Powers and Financial Administration

 Delineation of taxing powers of federal government and federated regions


 No double taxation to be allowed
 Federated regions to be given a share of not less than 50 percent of all
collected income, excise and value added taxes and customs duties of the
federal government, to be divided among them "equally" for automatic release
 Federal Intergovernmental Commission to administer Equalization Fund and
assist federated regions in need in order to attain economic viability and
sustainability

Article XII - Fiscal Powers and Financial Administration

 Taxes and fees to be collected by Federal Regions:

o Real property tax


o Estate tax
o Donor's tax
o Documentary stamp tax
o Professional tax
o Franchise tax
o Environmental tax, pollution tax, and similar taxes
o Road users' tax
o Vehicle registration fees
o Transport franchise fees
o Local taxes and other taxes which may be granted by federal law

 Federated Regions to be given at least 50% of all the collected taxes on


income, excise, VAT, and customs duties; and 50% of all net revenues
derived from the exploration, development, and utilization of all natural
resources within their territory.

A 16-member Federal Intergovernmental Commission administers an Equalization


Fund which will go to regions that need financial
ARTICLE XIII FISCAL POWERS AND FINANCIAL ADMINISTRATION

SECTION 1. The Federal Government shall have the power to levy and collect all taxes, duties, fees,
charges, and other impositions except the power to tax granted to the Federated Regions.

SECTION 2. The Federated Regions shall have the power to levy and collect the following taxes,
licenses and fees:

(a) Real Property Tax; (b) Estate Tax; (c) Donor’s Tax; (d) Documentary Stamp Tax; (e) Professional
Tax; (f) Franchise Tax; (g) Games and Amusement Tax; (h) Environmental Tax, Pollution Tax, and
similar taxes; (i) Road Users Tax; (j) Vehicle Registration Fees; (k) Transport Franchise Fees; and (l)
Local taxes and other taxes which may be granted by federal law.

SECTION 3. The Federal Government and the Federated Regions shall ensure that taxation shall be
uniform, equitable, and progressive. No double taxation shall be allowed.

SECTION 4. The Federated Regions shall be given a share of not less than ffty percent (50%) of all
the collected income taxes, excise taxes, value-added tax, and customs duties, which shall be equally
divided among them and automatically released.

SECTION 5. There shall be an Equalization Fund which shall not be less than three percent (3%) of
the annual General Appropriations Act. The Fund shall be distributed based on the needs of each
region, with priority to those that require support to achieve fnancial viability and economic
sustainability as determined by the Federal Intergovernmental Commission.

SECTION 6. The Congress, through the annual General Appropriations Act, may provide additional
fnances for the regions to effectively and effciently deliver government services to their constituents.

SECTION 7. The Federated Regions shall be entitled to ffty percent (50%) of all net revenues derived
from the exploration, development, and utilization of all natural resources within their territory.

http://newsinfo.inquirer.net/files/2018/07/INQ_Proposed-
Draft_Constitution_Consultative-Committee_.pdf
Section 2691. EACH REGION SHALL HAVE EXCLUSIVE LEGISLATIVE POWERS APPLICABLE WITHIN THE
TERRITORIAL JURISDICTION OF THE REGION OVER THE FOLLOWING:92 (1) CREATE ITS OWN
SOURCES OF REGIONAL REVENUES AND TO LEVY TAXES, FEES AND CHARGES SUBJECT TO THE LIMITS
OF THIS CONSTITUTION AND CONSISTENT WITH THE BASIC POLICY OF REGIONAL AUTONOMY. SUCH
TAXES, FEES, AND CHARGES SHALL ACCRUE EXCLUSIVELY TO THE REGION, PROVIDED THAT
REGIONAL LEGISLATION SHALL NOT DIMINISH THE FEDERAL REVENUE COLLECTION AND THE
REVENUE MEASURE SHALL BE UNIFORM, EQUITABLE, AND PROGRESSIVE93.;

The regions "shall be given a share of not less than 50% of all the
collected income taxes, excise taxes, value-added tax, and customs
duties, which shall be equally divided among them and automatically
released," states Section 4 of Article 3, one of the game-changing
provisions.