What is Internal Revenue Allotment (IRA)?
The Internal Revenue Allotment, commonly referred to as IRA, is the portion of the national internal revenue taxes automatically allocated to local government units (LGUs) in the Philippines. It serves as the financial backbone for LGUs to carry out their functions and responsibilities, ensuring decentralization and local autonomy as mandated by the 1991 Local Government Code.
In simple terms, it’s how the national government shares the country’s income with provinces, cities, municipalities, and barangays (villages) to help them run their affairs independently.
Legal Basis of the IRA
IRA is grounded in the 1991 Local Government Code (Republic Act No. 7160), which clearly states the fiscal autonomy of LGUs. It provides that 40% of national internal revenue collections (from three years prior) must be distributed to LGUs. This provision promotes a more equitable and autonomous local governance system by giving LGUs financial capability to serve their constituents.
Why is IRA Important?
Imagine a barangay trying to build roads or provide health services with zero funding. Impossible, right? That’s where the IRA comes in. It empowers LGUs by:
- Supporting essential public services like education, health, infrastructure, and peacekeeping
- Financing local development projects
- Helping disaster response and recovery efforts
- Ensuring grassroots participation in governance
For many LGUs, especially smaller municipalities and barangays, the IRA makes up more than 90% of their total income.
How is IRA Calculated?
The formula for IRA distribution among LGUs is based on three main factors:
- Population – 50%
- Land Area – 25%
- Equal Sharing – 25%
This means LGUs with larger populations and wider land areas get a bigger slice of the pie. However, the “equal sharing” part ensures even the smallest barangay gets something.
IRA Distribution Breakdown
The 40% internal revenue allotment is divided as follows:
- Provinces – 23%
- Cities – 23%
- Municipalities – 34%
- Barangays – 20%
This hierarchical split aims to balance urban and rural needs while prioritizing barangay-level governance.
Mandanas-Garcia Ruling: A Game-Changer
In 2018, the Philippine Supreme Court issued the Mandanas-Garcia ruling, redefining the scope of the IRA. The court ruled that LGUs should receive a share not only from internal revenue taxes but from all national taxes, including customs duties and VAT.
This landmark decision increased the fund allocation by hundreds of billions starting in 2022, strengthening LGUs’ capacity but also giving them greater responsibilities.
Impact of the Mandanas Ruling
Let’s break it down:
- Bigger Budget: LGUs received P959 billion in 2022, a significant jump from previous years.
- Decentralized Services: LGUs must now take over functions previously handled by national agencies, such as health, agriculture, and social welfare.
- Stronger Autonomy: Local governments now wield more control and accountability in managing their jurisdictions.
Challenges in IRA Implementation
While IRA empowers local governance, it’s not without hurdles:
1. Overdependence on IRA
Some LGUs have become too reliant on IRA, making little effort to generate local income (like business permits, local taxes, etc.). This dependency can lead to inefficiency and complacency.
2. Unequal Development
Richer cities benefit more due to larger populations, while poorer LGUs lag behind. This widens the development gap instead of narrowing it.
3. Misuse of Funds
Without strict monitoring, IRA funds are vulnerable to misallocation, ghost projects, or corruption.
4. Limited Absorptive Capacity
Some LGUs lack technical capability or trained personnel to properly utilize increased funds from the Mandanas ruling.
Conclusion
The Internal Revenue Allotment plays a vital role in the Philippines’ local governance system. It fuels barangays, municipalities, and cities, ensuring they can provide essential services and promote development. With recent changes under the Mandanas ruling, the potential of IRA has never been greater. But with great power comes great responsibility—and that responsibility now lies with both LGU officials and their constituents to ensure that this financial tool is used effectively for the benefit of all.
FAQs
1. What is the Internal Revenue Allotment used for?
The IRA funds essential services such as education, health, infrastructure, and peace and order at the local level.
2. What is the Mandanas-Garcia ruling about?
It expanded the IRA to include all national taxes, not just internal revenue taxes, thereby increasing LGU budgets.
3. How can LGUs become less dependent on IRA?
By strengthening local revenue sources like business permits, property taxes, and user fees.
4. Do all LGUs receive the same IRA amount?
No. IRA is distributed based on population, land area, and equal sharing. Bigger and more populated LGUs receive more.
5. Can citizens help monitor IRA usage?
Absolutely! Through transparency tools and participatory budgeting, citizens can help ensure funds are properly allocated and spent.
