Local Government Units in the Philippines: Are you Ready for Federalism?

Abstract

This paper analyses the existing fiscal architecture of the Republic of the Philippines in relation to its Local Government Units. It assesses the present defects in order to guide developers of the new federal framework. This analysis begins with the Local Government Code (LGC) of 1991 or Republic Act No. 7160 of the Philippines. One of its components in Section 284 and 285 is the formula for Allotment of Internal Revenue Taxes and the Allocation to Local Government Units respectively. This formula is currently under criticism due to the perceived unequal distribution of wealth to various provinces, cities, and municipalities in the Philippines. This has resulted in winning and losing local government units. This paper will focus on the current fiscal architecture together with its failures and defects. Emphasis will be made on the Internal Revenue Allotment for Local Government Units with its imbalances. An analysis on the existing gaps, vertical, and horizontal imbalances will be undertaken to serve as consideration before any shift or transition towards a federal system of government. Policy recommendations will be presented to serve as guidelines to consider before allocating revenues and responsibilities to each local government unit. The Local Government Units in the Philippines are ready for Federalism, however critical foundations have to be established before any shift in form is to be made.