Philippine towns won 38% more tax money. One clause can take a quarter back.
A 1991 escape clause, left standing by the court that widened the share, lets a president cut the local allotment to 30 per cent of national taxes.
The Philippines handed its provinces, cities, towns and villages about Php 959 billion in 2022. That was roughly 38 per cent more than the year before, and it happened because a court had deleted two words from a law.
The two words were "internal revenue". The 1991 Local Government Code promised local governments a 40 per cent share of national internal revenue taxes, which in practice meant the taxes the revenue bureau collects, leaving out the duties collected at the ports.
In July 2018 the Supreme Court held that the phrase was unconstitutional and struck it from the Code. It ordered the finance and budget secretaries, the internal revenue and customs commissioners and the national treasurer to put all collections of national taxes into the base.
The court left one 1991 escape hatch in place
The ruling went further than striking two words. It wrote out the whole provision as it would now read, and the closing part of that restatement is a condition carried over from the original Code.
If the national government incurs what the law calls an unmanageable public sector deficit, the President is authorised to make adjustments in the allotment, on the recommendation of the secretaries of finance, interior and budget, so long as it never falls below 30 per cent.
Forty per cent down to 30 is a quarter of the money, and reaching it needs no amendment to the Code. The law asks for consultation with the presiding officers of both houses of Congress and the presidents of the local government leagues, and asks for nothing further.
For an average barangay (our arithmetic): the village and neighbourhood councils that sit below every town hall shared about Php 192 billion in 2022, which is close to Php 4.6 million each. At the 30 per cent floor that average falls by about Php 1.1 million.
| From the 2021 memorandum | Amount (Php) |
|---|---|
| Allotment to local governments, 2022 | 959,041,250,000 |
| Increase over 2021 | 263,548,501,000 |
| Of which, to the 41,933 barangays | 191,808,250,000 |
The year the money comes from is settled too
The same provision fixes which year's taxes are being divided. A local budget rests on 40 per cent of what the national government collected three fiscal years earlier, so the 2022 allotment was built on 2019 collections, counted before the pandemic arrived.
The budget department's memorandum of 14 June 2021 gives that allotment by collecting agency and not the collections behind it. Divide by 40 per cent and the base comes to about Php 2.4 trillion. The Treasury's report of government cash operations lists total revenue and non-tax revenue for 2019 separately, and subtracting one from the other leaves tax revenue of about Php 2.83 trillion.
The difference is lawful. The court ordered all national tax collections into the base "except those accruing to special purpose funds and special allotments for the utilization and development of the national wealth", then listed the shares that do count, among them 85 per cent of the excise on locally made tobacco.
Every exception there is a decision somebody made. Earmark a tax to a special purpose fund and the local share of it goes, while the 40 per cent sits where it is.
The ruling also declined to pay for the past. Local governments had asked the national government to settle the arrears built up across the years the narrower base was used. The court dismissed that claim and gave its decision prospective application, which means it ran forwards only.
The conditions have been enforced before
An administrative order of December 1997 withheld a tenth of the allotment, and in December 1998 President Joseph Estrada cut the withholding to a twentieth. In July 2000 the Supreme Court struck down the withholding and permanently prohibited the government from implementing the two orders as they touched local governments.
The court set out three requirements for using the escape hatch: the deficit, the consultations, and the recommendation of the three secretaries. It found that they had not been satisfied.
There is a case for the condition surviving. The same judgment said that striking down the withholding did not rule out any reduction in the allotment, since a President may make adjustments when the deficit is unmanageable, and a government that cannot service its own debts is in no position to protect anyone's share.
The floor also sits at 30 per cent of a wider base now than the one the court inherited, so the worst case is better than it was in 1991.
What this means in India
India settles the same question every five years rather than in court. The Sixteenth Finance Commission recommended keeping the states' share at 41 per cent of the divisible pool, the slice of Union tax income the states are allowed into, and the Union accepted that in February 2026.
The Commission also recommended that the Union disclose what the pool comes to each year, as certified by the national auditor. A body that had just fixed the percentage had to ask for the base to be published.
What to watch
The budget department has to issue each year's indicative allotment by 15 June, and it has done so every June since the ruling took effect, most recently on 10 June 2026. An allotment set below 40 per cent would show up there before it showed up anywhere else.
Philippine towns and villages are owed 40 per cent of all national taxes, and a President can cut that to 30 without asking them.
What we could not confirm
- Has any President invoked the deficit clause since the 2018 ruling? Nothing in the memoranda read here refers to it.
- What was left out of the 2019 base? The three certifications the figure rests on are not published.
- Does the current allotment still divide a quarter of the money by the land area list certified in 2001, as the 2021 memorandum did?
The document
- Supreme Court of the Philippines, Mandanas v. Ochoa and Garcia v. Ochoa, G.R. Nos. 199802 and 208488, decided 3 July 2018, final on 10 April 2019: https://lawphil.net/judjuris/juri2018/jul2018/gr_199802_2018.html
- Department of Budget and Management, Local Budget Memorandum No. 82, 14 June 2021, indicative FY 2022 National Tax Allotment shares: https://www.dbm.gov.ph/wp-content/uploads/Issuances/2021/Local-Budget-Memorandum/LOCAL-BUDGET-MEMORANDUM-NO-82.pdf
- Supreme Court of the Philippines, Pimentel Jr. v. Aguirre, G.R. No. 132988, decided 19 July 2000: https://lawphil.net/judjuris/juri2000/jul2000/gr_132988_2000.html
- Department of Budget and Management, Frequently Asked Questions on the Mandanas-Garcia Supreme Court ruling, as of 9 November 2021: https://www.dbm.gov.ph/wp-content/uploads/Mandanas-Garcia-Case/IEC-Materials/FAQs-Mandanas-Garcia-Ruling.pdf
- Bureau of the Treasury, National Government Cash Operations Report, monthly summary 1986 to 2025: https://www.treasury.gov.ph/wp-content/uploads/2026/03/COR-Summary_Monthly_1986-2025-1.pdf
- Ministry of Finance, Budget Division, Explanatory Memorandum as to the Action Taken on the Recommendations Made by the Sixteenth Finance Commission, February 2026: https://www.indiabudget.gov.in/doc/16fc.pdf
- Department of Budget and Management, Local Budget Memorandum index, listing every June issuance from 2021 to 2026: https://www.dbm.gov.ph/index.php/local-budget-memorandum
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