On Direct Remittance of the 40% Share from the Utilization and Development of National Wealth (NW) to the Host Local Government Units (LGUs) by Any Person, Natural or Juridical Engaged in the Utilization and Development of the NW

I. HISTORY

  1. Prior to the enactment of Local Government Code (LGC) of 1991, local government units (LGUs) did not receive any special share on the proceeds derived from the utilization and development of natural resources in their jurisdictions. The proceeds from national taxes (e.g. mining taxes, royalties, etc.) imposed on the exploitation of natural resources accrued primarily to the national government. Thus, it did not contribute to the enhancement of the fiscal capability of the LGUs, but saddled them with more responsibilities in terms of additional services resulting from said activities.[1]
  2. It was the 1987 Constitution which provided for the equitable share of LGUs in the proceeds from the utilization and development of the national wealth (NW).

II. LEGAL BASIS

  1. Section 7, Article X of the 1987 Constitution states that “LGUs shall be entitled to an equitable share in the proceeds of the utilization and development of the National Wealth within their respective areas, in the manner provided by law, including sharing the same with the inhabitants by way of direct benefits”.
  2. This is restated in Section 289[2] of the LGC. The LGC specifies that the LGUs’ share is 40% of the gross collections derived by the National government (NG) in the preceding fiscal year in the utilization and development of NW.[3]
  3. Section 287[4], NIRC, as amended
  4. DBM-DOF-DENR-DOE Joint Circular No. 2006-1, “Revised Guidelines and Procedures on the Release of the Share of Local Government Units in the Proceeds from the Development and Utilization of National Wealth (Feb. 13, 2006)
  5. DOF-DBM-DILG-DENR-Joint Circular No. 2009-1 “Updated Guidelines and Procedure on the Release of the Share of Local Government Units from the Collection Derived by the National Government from Mining Taxes (Mar. 31, 2009)
  6. DOF-DBM-DENR-DOE JC No. 2010-1 (June 25, 2010)

Table 1. Taxes, Fees and Charges on the Utilization of NW Collected by Different Government Agencies

Taxes, Fees and Charges on the Utilization of NW Collecting Agency Legal Basis
Forest Charges Department of Environment and Natural Resources (DENR) LGC: Sec. 289-294

IRR of LGC: Art 390

 

Department of Budget and Management – Department of Finance – Department of Environment and Resources – Department of Energy (DBM-DOF-DENR-DOE) Joint Circular (JC) No. 2006-1

Royalty Income from Mineral Reservation Mines and Geo-Sciences Bureau (MGB) LGC: Sec. 289-294

IRR of LGC: Art 390

 

DOF-DBM-DENR-DOE JC No. 2010-1 (June 25, 2010)

Energy Resources Department of Energy (DOE) LGC: Sec. 289-294

IRR of LGC: Art 390

 

DOF-DBM-DENR-DOE JC No. 2006-1 (Feb. 13, 2006)

Mining Taxes Bureau of Internal Revenue (BIR) LGC: Sec. 289-294

IRR of LGC: Art 390

 

DOF-DBM-DENR-DOE JC No. 2009-1 (Feb. 13, 2006)


III. SHARING SCHEME

  1. The LGUs are entitled to a 40% share of the gross collection derived by the national government from the preceding fiscal year from excise taxes on mineral products, royalties, and such other taxes, fees or charges including related surcharges, interest or fines, and from its share in any co-production, joint venture or production sharing agreement in the utilization and development of the NW within their territorial jurisdiction.
  2. LGUs’ share is based on the preceding fiscal year, from the proceeds derived by any government agency or government-owned or controlled corporation (GOCC) engaged in the utilization and development of the NW, based on the following formula, whichever will produce a higher share for the LGU:

1% of the gross sales or receipts of the preceding calendar year; or 40% of the excise taxes on mineral products, royalties, and such other taxes, fees or charges, including related surcharges, interests or fines GOCC would have paid if it were not otherwise exempt.

  1. The share shall be distributed as follows:

 

a. Where the natural resources are located in the province:

  • 20% – Provinces
  • 45% – Component city/municipality
  • 35% – Barangay

b. Where the natural resources are located in a highly urbanized or independent component city”

  • 65% – City
  • 35% – Barangay

c. Where the natural resources are located in 2 or more provinces, or in 2 or more component cities or municipalities or in 2 or more barangays, their respective shares shall be computed on the basis of:

  • 70% – Population
  • 30% – Land Area

 

IV. RELEASE OF THE SHARE

  1. The share of each LGU from the proceeds of the utilization and development of NW is released in two ways:

a. National Government Agency (NGA) or GOCC – the shares of LGUs are directly released or remitted to them by the concerned NGA or GOCC who are required to furnish the BTr with a copy of the remittance advise.[5]

b. Private individual or corporation – the share of LGUs is released to them by the DBM in accordance with Section 286 of the LGC. Such private individual or corporation pays the mining taxes, royalties, forestry and fishery charges to the revenue collecting agencies of the government i.e., Bureau of Internal Revenue (BIR), Mine and Geosciences Bureau (MGB), Department of Energy (DOE) and Department of Environment and Natural Resources (DENR).  The said collecting agencies compute the 40% share of LGUs and the corresponding share of each province, city, municipality and barangay where the NW is being developed and/or utilized.  The computation is required to be submitted to the DBM not later than March 15 of each ensuing year.[6] The IRR of LGC already stipulates that the share of each LGU shall be released without need of any further action, directly to the provincial, city, municipal, or barangay treasurers, as the case may be, on a quarterly basis within five (5) days after the end of each quarter, and which shall not be subject to any lien or holdback that may be imposed by the National Government.[7]

  1. It is worth mentioning that the guidelines and procedures on the release of the share of LGUs in the proceeds derived from the utilization and development of the NW is provided under Department of Budget and Management – Department of Finance – Department of Environment and Resources – Department of Energy (DBM-DOF-DENR-DOE) Joint Circular No. 2006-1[8]. This circular was issued to implement significant provisions under the LGC covering the claims of LGUs arising from the proceeds in the utilization and development of all types of NW.  The guidelines and procedures are as follows:

a. The projected share of the LGUs out of the 40% of the proceeds of the NW from the preceding year shall be submitted to the DBM by the concerned revenue collecting agencies of the NG not later than the fifteenth (15th) of March of the ensuing year. While the first quarter will be based on actual collections, the remaining three quarters shall be based on projected historical collection.  This shall serve as basis for the appropriation in the national budget.

b. The DBM shall release the allotment upon submission by the collecting agency to the DBM of the following:

  • Certification showing the corresponding share of each province, city, municipality and barangay where the NW is being developed and/or utilized; and
  • Certificate of Actual Remittance for the preceding year from the BTr.

c. Requests for the release of the shares of LGUs as certified by the collecting agencies, namely, BIR, DENR and MGB shall be forwarded to the DBM Central office which in turn shall refer the same to its Regional Offices together with the supporting documents for authentication and verification.

d. The request pertaining to release of shares of LGUs in the proceeds of collection from energy resources production submitted by the DOE shall be submitted directly to the DBM Central office for evaluation.

e. The Circular does not cover shares of LGUs from the proceeds derived by the national government agencies or GOCCs engaged in the utilization and development of NW. Pursuant to Article 390 (c) of the Implementing Rules and Regulations of the LGC, the same are directly remitted by such agency or corporation direct to the provincial, city, municipal or barangay treasurer concerned within five (5) days after the end of each quarter.

f. LGUs which are entitled to receive their shares from the proceeds in the utilization and development of NW are enjoined to assist the collecting agencies to ensure that the March 15 deadline set forth under the law is met.

V. DIRECT REMITTANCE BILLS IN THE 17th CONGRESS

 1. SENATE BILLS (SBs)

  • SB No.1085 entitled “An Act Providing for the Direct Remittance to the Host Local Government Unit of its Forty Percent (40%) Share of the Gross Collection Derived by the National Government from National Wealth Taxes, Amending for the Purpose Section 293 of Republic Act No. 7160, Otherwise Known as the Local Government Code of 1991” filed by Joseph Victor G. Ejercito.
  • SB No. 827 entitled “An Act Providing for the Direct Remittance to the Host Local Government Unit of its Forty Percent (40%) Share of the Gross Collection Derived by the National Government from National Wealth Taxes, Amending for the Purpose Section 293 of Republic Act No. 7160, Otherwise Known as the Local Government Code of 1991” filed by Ralph G. Recto.
  • SB No. 427 entitled “An Act Providing for the Direct Remittance to the Host Local Government Unit of its Forty Percent (40%) Share of the Gross Collection Derived by the National Government from National Wealth Taxes, Amending for the Purpose Section 293 of Republic Act No. 7160, Otherwise Known as the Local Government Code of 1991” filed by Loren B. Legarda.
  • SB No. 241 entitled “An Act Providing for the Direct Remittance to the Host Local Government Unit of its Forty Percent (40%) Share of the Gross Collection Derived by the National Government from National Wealth Taxes, Amending for the Purpose Section 293 of Republic Act No. 7160, Otherwise Known as the Local Government Code of 1991” filed on July 4, 2016 by Gregorio B. Honasan II.

 

2. HOUSE BILLS (HBs)

  • HB No. 1533 entitled “An Act Providing for the Direct Remittance to the Host Local Government of its Forty Percent Share (40%) of the Proceeds Derived from the Utilization and Development of National Wealth, Amending for the Purpose Section 293 of Republic Act No. 7160 as Amended Otherwise Known as the Local Government Code of 1991” filed by Alexandria P. Gonzales.
  • HB No. 2581 entitled “An Act Providing for the Direct Remittance to the Host Local Government Unit of its Forty Percent (40%) Share of the Proceeds Derived from the Utilization and Development of National Wealth, Amending for the Purpose Section 293 of Republic Act No. 7160, as Amended, Otherwise Known as the “Local Government Code of 1991” filed by Maximo B. Rodriguez,
  • HB No. 2995 entitled “An Act Providing for the Direct Remittance to the Host Local Government of its Forty Percent (40%) Share of the Proceeds Derived from the Utilization and Development of National Wealth, Amending for the Purpose Section 293 of Republic Act No. 7160, as Amended, Otherwise Known as the “Local Government Code of 1991” filed by Francisco Jose T. Matugas, II; Prospero A. Pichay, Jr.; Johnny T. Pimentel.

VI. FEATURES OF THE SBs AND HBs

  1. SB Nos. 241, 427, 827 and 1085 and HB No. 1533, 2581 and 2995 seek to amend Section 293 by allowing direct remittance of the 40% share from the utilization of NW to the host LGUs by any person, natural or juridical, including government agency or government owned- and/or –controlled corporation engaged in the utilization and development of the NW to directly remit to the host LGU its forty percent (40%) share from national wealth taxes.

 VII. COMMENTS

  • At the outset, proposal to directly remit the share of LGUs distorts the concept of sharing with the LGUs the proceeds of national taxes, fees, or charges on the utilization and development of NW pursuant to Section 7, Article X of the 1987 Philippine Constitution. Under the proposal, concerned LGUs will not share from the proceeds of the utilization and development of NW but, in effect, the LGUs rather collect 40% of the taxes, fees, or charges due to the entities engaged in the utilization and development of NW.
  • As pointed above, the shares of LGUs from the proceeds of the utilization and development of NW are released in two (2) ways depending upon the character or personality of the developer or utilizer of NW.
  • a. If the developer or utilizer is a national government agency (NGA) or GOCC, the shares of LGUs are   directly released or remitted to them by the concerned NGA or GOCC who are required to furnish the treasurer of the Philippines with a copy of the remittance advice.
  • If the developer or utilizer is a private individual or corporation, the share of LGUs is released to them by the DBM in accordance with Section 286 of the LGC. Such private individual or corporation pays the mining taxes, royalties, forestry and fishery charges, etc. to the revenue collecting agencies such as the BIR, MGB, DENR. The said collecting agencies compute the 40% share of LGUs and the corresponding share of each province, city, municipality, and barangay where the NW is being developed and/or utilized. The computation is required to be submitted to the DBM not later than March 15 of each ensuing year.
  • In the case of mining taxes collected by the BIR, the LGUs are the ones responsible for gathering documents that will be used as bases in determining how much will be their shares from the collection of mining taxes. The LGU, municipality/city where the mining /quarry site is located in particular, has to secure from the mining companies documents such as Certification of Mining Tax Payments, photocopies of Revenue Official Receipts (RORs), Payment Orders (POs), Confirmation Receipts (CRs), or Authority to Accept Payment (ATAP). These documents have to be submitted by LGUs to the BIR for verification and computation of their shares. The said computation is then transmitted to the Department of Budget and Management which will release the LGU’s share.
  • Based on the above procedure, it can be concluded that if the LGU concerned is not diligent enough to gather the documents required of it under BIR Revenue Memorandum Order No. 25-93, it will not get any share even if a mining company operates in its area. Moreover, LGUs also do not know how much their shares will be unless they complete the documents required of them to submit under the said memorandum order. The present scheme dispels some of the claims of LGUs that the release of LGUs takes considerable amount of time. This delay depends primarily on how fast an LGU completes the required documents.
  • The proposal of the bills in the 17th congress unifies the manner of release of LGU shares whether it comes from a private individual or corporation or from an NGA or a GOCC. Such uniformity in releasing the share of LGUs might be disadvantageous to the national government since the money representing the share of LGUs which is supposed to be collected by the national government from the taxpayers (private individuals or corporations engaged in the utilization of NW) will no longer be available to it. The taxpayers, on the other hand, will have extra money which they can use until the deadline for its remittance to the LGU comes. This is because the share of the LGU is based on the proceeds during the preceding year while the tax (e.g., mining tax) paid by the taxpayers is based on actual market value of the gross output at the time of removal of minerals, mineral products and quarry resources.
  • The proposed release and remittance of LGUs share by the person, natural or juridical, engaged in the utilization and development of NW may not be advisable. If the taxpayer is the one responsible for the computation of the LGU’s shares, the proposal is inconvenient to them and does not inspire compliance since data on land area and population need to be furnished to them. In terms of payment of mining taxes, royalties, forestry and fishery charges, and other taxes, fees, or charges on the utilization and development of NW, the taxpayers have to go to the concerned collecting agency and later, to the LGU just to complete their payments. This arrangement makes the monitoring of taxpayers’ compliance difficult.
  • The proposal also offers an opportunity for graft and corruption among local officials since connivance between them and the taxpayers on the reduction of the amount of LGU’s share is not farfetched. Without effective audit, it is difficult to establish if the LGUs are being shortchanged by the taxpayers or connivance between the parties exist.
  • The merits of the bills are recognized by ensuring direct, prompt and full receipt of the LGUs just share in the proceeds of the utilization and development of the NW thereby making the funds due to the LGUs readily available to them, however, such direct remittance will disregard duly established integral measures already in place that safeguard accountability and efficiency on the release and utilization of the said share.
  • The DOF-DBM-DILG-DENR JC No. 2009-1 was issued to streamline and update the guidelines and procedures for the release of LGUs’ shares particularly from mining taxes. The circular aims, among others, to expedite the processing and release of the LGUs’ allocable shares from the mining taxes, to enhance the correctness and accuracy of mining tax collections and to clarify and endeavor to establish and share on a timely basis among the national government agencies involved the information and an updated database to facilitate the exchange of information needed for the smooth and reliable processing and release of the shares of LGUs from mining taxes
  • The BIR will submit to the DBM the estimated or projected mining tax to be collected for the current year and the corresponding 40% share of the LGUs on or before March 15 of every year. A Joint Certification shall be transmitted to the Bureau of Treasury (BTr) for validation and approval purposes within 75 days immediately after the end of the calendar quarter.
  • In the preparation of the said schedule of shares wherein the mining sites/operations are located in two or more LGU jurisdictions, the updated masterlist of land area officially issued by the the Land Management Bureau (LMB) and the updated census of population officially issued by the National Statistic Office (NSO) shall be adopted as basis in computing the allocable share of the affected LGUs.
  • Upon validation and approval of the BTr Regional Offices and authorized agent/government depository banks, the certification shall be transmitted to the DBM within 45 days immediately after actual receipt. The BIR shall be furnished a copy of the validated and approved joint certification.
  • In order to assist in the enhancement of the mining tax collections, the Mining and Geosciences Bureau (MGB) shall furnish the BIR not later than the end of March the actual volumes and values of metallic minerals produced during the immediately preceding year; for non-metallic minerals the actual volumes and values of production not later than the end of October of the ensuing year; and for the list of new metallic permittees, volume and value of their respective production and extraction sites within 60 days after the end of each quarter.
  • The Land Management Bureau (LMB) shall also furnish the BIR an updated copy of the consolidated masterlist of land area not later than December 15 of every third year after CY 2001, after coordination with the DBM. The DBM, BIR and BTr shall be furnished with the updated list of LGUs during the quarter of each year.
  • The Bureau of Local Government Supervision (BLGS) shall prepare and submit to the BIR not later than the 15th day of May the validated list of actual extraction sites of all non-metallic mineral products with a summary of LGUs where such production/extraction originated.
  • After budget preparation purposes, the DBM – Regional Operations and Coordination Service (ROCS) and Regional Offices shall issue the allotment and corresponding cash allocation based on the joint certification. The funding checks shall be deposited to the Government Servicing Banks (GSBs) for direct credit to the account of beneficiary LGUs.
  • Table 2 summarizes the timelines of the tasks, which presumes that the roles are effectively played by the agreeing parties. Not included in the table are the prerequisite inputs from the LGU-DILG, the LMB/MGB-DENR, and the NSO, which are periodic in nature.[9]

Table 2: Summary of the Timelines of the Tasks in the Release of LGU Share

Period BIR Submission of Joint Certification BTr Validation and Submission of

Joint BIR and BTr Certification to

DBM

Release of Funds by

DBM

1st Qtr. Collection (March 31 of

the current year)

June 15 of current year July 31 of current year Within February of

ensuing year

2nd Qtr. Collection (June 30 of

the current year)

September 15 of current

year

October 31 of current year
3rd Qtr. Collection (September

30 of the current year)

December 15 of current

year

January 31 of ensuing year
4th Qtr. Collection (December

31 of the current year)

March 15 of ensuing year April 30 of ensuing year Within May of ensuing

year

Source: DOF-DBM-DILG-DENR JC No. 2009-1

  • In the case of LGU shares in royalty income, DOF DBM, DILG and DENR JC No. 2010-1 was issued to streamline and enhance the guidelines and procedures for the release of LGUs’ share in royalty income collected by the NG from mineral reservations. Here, the JC clarified the roles and responsibilities of the NGAs involved in the processing and releasing the LGUs’ share in royalty payments from mineral reservations and in ensuring the accuracy of the royalty income collections and LGUs’ shares in them.
  • The DOF and the DBM issued a joint circular to ensure timely release of the funds to the LGUs by releasing JC No. 2016-1[10] and to reiterate the compliance with existing budgeting, accounting and auditing rules and regulations pertinent to the Allocation to LGUs (ALGU) and LGU shares in the Special Purpose Funds (SPFs) and to delineate the roles and responsibilities of the DBM, DOF-BTr and the authorized government servicing banks (AGSBs).
  • As part of the data management institutionalization initiative of DOF in line with Philippine Extractive Industries Transparency Initiative (PH-EITI) and the Philippine Poverty-Environment Initiative (PPEI) DOF DO No. 049-2016 was issued last September 5, 2016 so that data on environment and natural resources revenues and expenditures including the disaggregation of the shares from the NW by sector be institutionalized at the LGU level through the Environment and Natural Resources Data Management (ENRDMT). The Order directs local treasurers to include the environment and natural resources data in the eSRE System (DOF DO No. 8-2011) particularly the payments made by extractive industries and the detailed account of the shares from NW.
  • The proposal to directly remit to LGU the share from NW will hamper transparency and efficiency in the collection as well as in the allocation process. The government would defeat its purpose in determining whether the appropriate shares are actually released or enjoyed by the concerned LGUs.
  • Based on the phone interview with DBM personnel, certain bottlenecks are identified at the verification stage at the BTr regarding the joint certifications summited by BIR and the collecting agencies. The BTr per phone interview, responded that this verification process is to ensure the accuracy of the data submitted for accounting purposes and should not be omitted. The processes in the release of shares from NW are designed for checks and balances purposes in governance.
  • However, aware of the need to make the funds available to LGUS, PPEI recommends[11] to regionalize JC 2009-1 in the process of automatically releasing the LGU share. Since the regional office is considered as a microcosm of the functions of a national agency, it is believed that the regional office is vested with authority akin to their mother unit. Therefore, the JMC 2009-1 route of collection and releasing of LGU share could be done at the regional level with the checks and balances accounted for.
  • The local officials also suggested practical ideas without contravening the measures on checks and balances by identifying a lead coordinator to receive and coordinate answer to communications of the host LGU, industry and other concerned parties and to designate one of the agencies involved to oversee the implementation of the laws, implementing rules and guidelines and JCs particularly those related to the sharing of information.[12]

[1] NTRC, Assessment of the Local Government Code of 1991’s (Republic Act 7160) Provisions Regarding the Shares of Local Government Units in the Proceeds of Utilization and Development of National Wealth in Their Respective Jurisdiction, 11 August 1995, p. 1

[2] Local government units shall have an equitable share in the proceeds derived from the utilization and development of the NW within their respective areas, including sharing the same with the inhabitants by way of direct benefits.

[3] Section 290, LGC

[4] Shares of Local Government Units in the Proceeds from the Development and Utilization of the National Wealth. – Local Government units shall have an equitable share in the proceeds derived from the utilization and development of the national wealth, within their respective areas, including sharing the same with the inhabitants by way of direct benefits.

 

  • Amount of Share of Local Government Units. – Local government units shall, in addition to the internal revenue allotment, have a share of forty percent (40%) of the gross collection derived by the national government from the preceding fiscal year from excise taxes on mineral products, royalties, and such other taxes, fees or charges, including related surcharges, interests or fines, and from its share in any co-production, joint venture or production sharing agreement in the utilization and development of the national wealth within their territorial jurisdiction.
  • Share of the Local Governments from Any Government Agency or Government-owned or – Controlled Corporation. – Local Government Units shall have a share, based on the preceding fiscal year, from the proceeds derived by any government agency or government-owned or controlled corporation engaged in the utilization and development of the national wealth based on the following formula, whichever will produce a higher share for the local government unit:
  • One percent (1%) of the gross sales or receipts of the preceding calendar year, or
  • Forty percent (40%) of the excise taxes on mineral products, royalties, and such other taxes, fees or charges, including related surcharges, interests or fines the government agency or government-owned or – controlled corporations would have paid if it were not otherwise exempt.
  • Allocation of Shares. – The share in the preceding Section shall be distributed in the following manner:
  • Where the natural resources are located in the province:
    • Province – twenty percent (20%)

(b)        Component city/municipality – forty-five percent (45%); and

(c)        Barangay – thirty-five percent (35%)

Provided, however, That where the natural resources are located in two (2) or more cities, the allocation of shares shall be based on the formula on population and land area as specified in subsection (C)(1) hereof.

(2)           Where the natural resources are located in a highly urbanized or independent component city:

(a)        City – sixty – five percent (65%); and

(b)        Barangay – thirty – five percent (35%)

Provided, however, That where the natural resources are located in two (2) or more cities, the allocation of shares shall be based on the formula on population and land area as specified in subsection (c)(1) hereof.

[5]  Article 390 (c) of the Rules and Regulations Implementing (IRR) the LGC.

[6]  Article 390 (a), ibid.

[7] Article 390 (b), ibid.

[8]  Entitled, “Revised Guidelines and Procedures on the Release of the Share of Local Government Units in the Proceeds from the Development and Utilization of National Wealth (Issued 13 February 2006).

[9] Mr. Noel C. Duhaylungsod, Review of Utilization of Revenues from Natural Resources and Application of Best Practices and Media Strategy. UNDP-UNEP-DILG Philippines Poverty Environment Initiative. July 2012, p. 15

[10] Guidelines for the Direct Release of Funds by the Bureau of the Treasury to Local Government Units (LGUs) in FY 2016 and Thereafter issued on 040 January 2016.

[11] Mr. Noel C. Duhaylungsod, Review of Utilization of Revenues from Natural Resources and Application of Best Practices and Media Strategy. UNDP-UNEP-DILG Philippines Poverty Environment Initiative. July 2012, p. 59.

[12] Ibid. p. 60.

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