MONEY MATTERS

THE GOLDEN RULE:

The Philippines (2007; in Million Pesos)

China (2004 ; 100M Yuan)

Central* Local** Central Local

REVENUE 1,096,875.01 234,760.08 14,503.10 11,893.37

% to Total 82.37% 17.63% 54.90% 45.10%

Expenditure 1,023,071.18 194,736.81 7,894.08 20,592.81

% to Total 84.01% 15.99% 27.70% 72.30%

Net of IRA of P146,591.95 million**Inclusive of IRA of P146,591.95 millionSources: Philippine Commission on Audit 2007 Financial Reports; National Bureau of Statistics of China

Comparative Philippine and China Central and Local Government Share in Revenue and Expenditure

United States(2007; in $Billion)

Central Local

Revenue 2.568 2.165

% to Total 54.26% 45.74%

Expenditure 2.568 2.196

% to Total 55.41% 44.59%

United States Central and Local Government Share in Revenue and Expenditure

Source: usgovernmentexpenditure.com

The federal government plays a small overall role in raising revenues and expenditures compared to the average OECD country. Not including social security funds, the bulk of spending on programmes and policies occurs in the Länder and municipalities.

The Philippines China Regions (17)* Provinces (80)

/Cities(120) Districts (219)* Towns (1,514) Villages (Barangays)

(46,000) 1,956 people per village

Regions (Provinces) (33) Provinces(Prefecture)/

City Level (333) Districts (County Level)

(2,872) Township Level (40,544) Village level (704,386)

1,846 people per village

Sources: Wikipedia; National Statistical Coordination Board; Country Reports-United Nations Economic and Social Commission for Asia and the Pacific*Under the National Government

Administrative Divisions

Sources: Country Report-United Nations Economic and Social Commission for Asia and the Pacific; Philippine Local Government Code

General Functions of Local Governments

The Philippines Efficient Service Delivery Provide Agricultural and Fishery Support Promote Health and Social Welfare Local Business Development Small Infrastructure Construction and

Development Tourism Development

Source: Country Report-United Nations Economic and Social Commission for Asia and the Pacific-China

General Functions of Local Governments

China Carry out laws and resolutions of higher-level governments Govern the economy, education, science, culture, health, sport, environment,

natural resource protection, finance, civil administration, public security, minority nationality, judicature, supervision and family planning

Exercise personnel appointment and dismissal, training, performance evaluation, reward and punishment in administrative organizations

Maintain social stability Protect citizens’ civil rights Protect public and legal private property Protect the lawful rights and interests of economic organizations Protect the rights of minor nationalities, respect their customs, help them exercise

autonomy and to develop their economy Ensure equal pay for equal work

Source: Country Report-United Nations Economic and Social Commission for Asia and the Pacific-China

Organizations Maintained/Run at the Regional Level

ChinaAgriculture and Forestry DepartmentAudit DepartmentCivil Affairs DepartmentConstruction DepartmentCommunications DepartmentCulture DepartmentCommerce Department Provincial General OfficeCulture Heritage BureauDevelopment Planning CommissionDrug AdministrationEconomic and Trade CommissionEnvironmental Protection DepartmentEducation DepartmentFinance DepartmentForeign Trade and Economic Cooperation DepartmentForeign Affairs OfficeGrain BureauHealth DepartmentInformation Industry DepartmentIntellectual Property BureauIndustry and Commerce Administration

Justice DepartmentLand and Resources DepartmentLabour and Social Security DepartmentLegislative Affairs OfficeLocal Taxation BureauOceanic and Fishery BureauOverseas Chinese Affairs OfficePublic Security DepartmentPersonnel DepartmentPopulation and family planning CommissionPress and Publication BureauPrices BureauPrison Affairs BureauPeople’s Air Defense OfficeQuality Supervision BureauRadio and Television BureauScience and Technology DepartmentSport BureauStatistics BureauTraditional Chinese Medicine BureauTourism BureauWater Resources Department

The Philippines ChinaLocal Taxes such as:Business TaxReal Property TaxTransfer TaxFranchise TaxPrinting and Publication TaxAmusement TaxCommunity TaxShare in National TaxesInternal revenue Allotment (IRA) representing 40% of internal revenue collections based on the third preceding year (Regional distribution is as follows: Provinces 23%; Cities 23%; Municipalities 34%; and Barangays 20%Non-Tax RevenueShare in national wealth exploitation in their areaShare in the earnings of government agencies or government-owned or controlled corporations engaged in the utilization and development of national wealth in their area based on the following: 1% of the gross sales or receipts of the preceding calendar year or 40% of mining taxes, royalties, forestry or fishery charges and such other taxes, fees or charges including related surcharges, interests, or fines, whichever is higher

Local Taxes such as:Business TaxIncome Tax of enterprises subordinate to the local governmentPersonal income taxTax on the use of urban landTax on the adjustment of the investment in fixed assetsTax on town maintenance and constructionTax on real estatesTax on the use of vehicle and ships, stamp tax, slaughter taxTax on agriculture and animal husbandryTax on special agriculture productsTax on the occupancy of cultivated land, contract taxShared Taxes25% of the value added tax50% of the tax on stock dealing (stamp tax)Tax on resources other than the ocean petroleum resourcesNon-Tax RevenueState-owned assets profitPlanning subsidies to loss-suffering state-owned enterprisesIncome from administrative feesPenalty and confiscatory incomeIncome from use of sea area, field and diggingsExpert project incomeOther income

Sources: Country Reports China and the Philippines-United Nations Economic and Social Commission for Asia and the Pacific

Comparative Local Government Revenue –Share (in Percent)Tax China Philippines

Central Taxes Domestic Excises Customs Duties VAT and Excises on ImportsLocal Taxes City and Township Land Use Tax Farmland Occupation Tax Fixed Assets Investment Orientation Tax Land Appreciation Tax House Property Tax Urban Real Estate Tax Vehicle and Vessel Use tax Vehicle and Vessel License Plate Tax Deed Tax, Slaughter Tax, Banquet TaxShared Taxes Domestic VAT Business Tax – if paid by railroads, head ofcs of banks Business Tax, otherwise Personal Income Tax Corporate/Enterprise Income Tax Income Tax on Foreign Banks Income Tax on Foreign Non-Banks Resource Tax – if paid by off-shore oil companies Resource Tax –Otherwise City Maintenance – if paid by railroads City Maintenance – Otherwise Securities Tax – if collected on stock transaction Securities Tax - Otherwise

000

100100100100100100100100100

250

1004040

0100

0100

0100

12100

000

100n.a.n.a.100100n.a

00

100

40100100

(IRA) 40(IRA) 40(IRA) 40

(IRA) 404040

0000

Sources: Intergovernmental Fiscal Relations in China, Analisa Fedelino and Teresa Ter-Minnassian; Ahmad et.al (2002); Phil. Local Government Code

United States : Sources of State Revenue

Source Percentage (US Average)

General Sales Tax 23.5%

Selective Sales Tax 10.9%

Property Taxes 30.1%

License and Other Fees 8.2%

Corporate Income Taxes 4.7%

Individual Income Taxes 22.6%

Source: Tax Foundation Report : stateline.org

Bureau of Internal Revenue Organizational Structure Per EO No. 306

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Expenditure Allocation

The Philippines ChinaThe general expenditure which local governments incur is consist of:Personal Services (45-55% of the total budget)Infrastructure development and maintenanceThe cost of delivering basic services out of local government existencePayments of debts and other mandatory obligations

The local financial expenditure covers many areas shown in the next slide: China Local Financial Expenditure

Sources: Country Reports China and the Philippines-United Nations Economic and Social Commission for Asia and the Pacific

Expenditure Allocation

ChinaExpenditure for armed police troopsExpenditure for capital constructionExpenditure for comprehensive development of agricultureExpenditure for circulating fundsExpenditure for city maintenanceExpenditure for developing land and sea areaExpenditure for foreign affairsExpenditure for geological prospectingExpenditure for government administrationExpenditure for innovation enterprisesExpenditure for national defenseExpenditure for operating expenses of agriculture, forestry, water conservation and meteorologyExpenditure for operating expenses of department of industry & transportationExpenditure for operating expenses of department of commerceExpenditure for operating expenses of department of culture, sport & broadcasting

Expenditure for operating expenses of educationExpenditure for operating expense s of department of sciencesExpenditure for operating expenses of department of tax, etc.Expenditure for price subsidiesExpenditure for public security agency, procuratorial agency and court of justice.Expenditure for public healthExpenditure for pensions and relief funds for social welfareExpenditure for retired persons in administrative departmentsExpenditure for supporting agriculture productionExpenditure for science and technology promotionExpenditure on subsidies to social security programsExpenditure for supporting underdeveloped areasExpenditure for special items and other expenditure

Source: Country Report China-United Nations Economic and Social Commission for Asia and the Pacific

Revenue Item Central Local Government Governments

Total Taxes 58.62% 41.38%Consumption Tax

100.00% 0.00%Value Added Tax 73.34% 26.66%Business Tax 3.10% 96.90%Consumption Tax and Value Added Tax on Imports

100.00% 0.00%Resource Tax 0.00% 100.00%Urban Maintenance and Development Tax

0.64% 99.36%Company Income Tax 59.67% 40.33%Personal Income Tax 60.00% 40.00%Urban Land Using Tax 0.00% 100.00%Other Tax 0.00% 100.00%Tariffs

100.00% 0.00%Cargo Tax

100.00% 0.00%Agriculture and Related Taxes

0.00% 100.00%Tax on Contracts 0.00% 100.00%Tax on the Use of Arable Land

0.00% 100.00%

China Central and Local Government Main Items Revenue Breakdown (in percent)

Source: National Bureau of Statistics of China

Revenue Item Central Local Government Governments

Tax Rebate to Foreign Trade Company84.28% 15.72%

Stamp Tax on Security Exchange97.00% 3.00%

Vehicle Purchase Tax100.00% 0.00%

Subsidies for the Losses of the State-owned Enterprises

16.50% 83.50%Industry Enterprises 51.87% 48.13%Commercial Enterprises 0.00% 100.00%Grain Enterprises 0.00% 100.00%Foreign Trade Enterprises 71.24% 28.76%Agriculture, Forest, Aquaculture

84.65% 15.35%Other Enterprises 3.94% 96.06%Fee on Sewage Treatment and Fee on

0.00% 100.00%Other Revenues 18.17% 81.83%Extra-charges for Education 0.81% 99.19%

China Central and Local Government Main Items Revenue Breakdown (in percent) cont.

Source: National Bureau of Statistics of China

REVENUE EFFORT (% of GDP) 2008

United States 28.20%United Kingdom 39.00%Australia 30.50%Malaysia 15.50%Japan 27.40%

Philippines 15.40%

Comparative Revenue Effort as % of GDP

Source: Wikipedia; Department of Finance

CHINA: Yes

USA: Yes

Philippines: None for ave. LGU

Philippine National Government Main Expenditure Items (2007)

Expenditure Item Amount % to TotalP000

Total Expenditure 1,023,071,178.80 100.00%

Regions 1-13, CAR and ARMM 198,319,770.23 19.38%

Central Head Offices and NCR 282,262,104.37 27.59%

Foreign Posts 4,093,209.87 0.40%

Financial Expenses 277,858,924.13 27.16%

Subsidy to National Government Agencies (Net) 18,305,360.20 1.79%

Subsidy to Local Government Units 193,954,182.01 18.96%Breakdown:

Internal Revenue Allotment (Provinces, Cities 146,591,948.40 14.33% and Municipalities)

Others LGUs 47,362,233.61 4.63%

Subsidy to Government Controlled Corps 47,973,529.38 4.69%

Subsidy to NGOs/POs 304,098.61 0.03%

Source: Philippine Commission on Audit 2007 Financial Reports

Local Government Units IRA % to Total Local Taxes % to Total

IRA and Income Local Taxes &

Income

TOTAL 146,591,948.40

82,349,413.05

Provinces 43,011,998.49 29.34%

8,963,717.84 10.88%

Cities 43,043,605.14 29.36%

55,972,204.00 67.97%

Municipalities 60,536,344.81 41.30%

17,453,490.92 21.19%

Local Government Units Subsidies From % to Total TOTAL % to Total

NGAs, LGUs etc Subsidies From INCOME Total Income

NGAs, LGUs etc

TOTAL 5,701,210.13 234,642,571.58

Provinces 1,899,841.47 33.32%

53,875,557.80 22.96%

Cities 2,672,173.43 46.87% 101,687,982.57 43.34%

Municipalities 1,129,195.26 19.81%

79,119,030.99 33.72%

LGU Income Breakdown Per LGU Component

Source: Figures are from the Philippine Commission on Audit 2007 Financial Reports and BIR website

Local Government Total* Central Central

P000 Income Government Government

Expenditure Expenditure

% to LG Total Income

Grand Total 234,642,572.58 762,534,007.59 324.98%

Region 1 11,410,059.53 14,371,248.27 125.95%

CAR 6,223,710.33 7,499,513.73 120.50%

Region 2 9,160,569.36 10,132,758.94 110.61%

Region 3 20,888,920.59 21,590,013.29 103.36%

Region 4 35,866,590.31 27,646,932.60 77.08%

Region 5 10,993,973.34 15,101,341.54 137.36%

Region 6 16,679,840.96 18,419,954.59 110.43%

Region 7 15,555,455.12 14,027,680.75 90.18%

Region 8 8,687,321.73 12,732, 961.79 146.57%

Region 9 7,781,531.08 9,821,773.23 126.22%

Region 10 11,300,406.23 11,512,490.21 101.88%

Region 11 10,170,596.06 10,980,183.03 107.96%

Region 12 8,285,249.49 8,623,777.18 104.09%

Region 13 7,545,245.07 7,146,537.05 94.72%

ARMM 7,354,701.68 8,753,883.18 119.02%

National Capital Region 46,778,401.48 560,070,716.35 1197.28%

Philippine LGU Total Income vs Central Govt. Expenditure per Region

*Inclusive of IRASource: Figures are from the Philippine Commission on Audit 2007 Financial Reports

The official function/mandate of the RDCsis mainly coordination on PLAN and POLICY formulation, implementation, monitoring and evaluation.

Its membership is 75% from government sector which includes, elected officials like Governor, Mayor, etc. and regional line agencies like the DPWH, DOH, etc.

    25% is private sector which includes NGOs, POs, and other private sectors.

1. Directly Supervise BIR Agencies in area 2. Directly Retain Rev. Collections w/in IRA 3. Strictly Enforce People’s Participation and “bottom-up” Planning of LGC 4. Enforce E-Comm Law having all LGUs display in LGU websites: budgets / expens 5. Directly Supervise all PNP units 6. Ensure Prep of Land Use, Sus Dev. Plans 7. Directly Supervise Reg. Line Agencies

The realization of local autonomy shall be facilitated through improved coordination of national government policies and programs and extension of adequate technical and material assistance to less developed and deserving local government units;

Regions IRA BIR Collection

Per Region

Grand Total 146,591.95 717,233.58

National Capital Region 9,514.07 622,234.21

Region 1 8,147.59 4,207.02

CAR 4,677.67 2,974.01

Region 2 7,712.78 2,153.96

Region 3 13,974.67 13,109.79

Region 4 21,374.66 32,037.99

Region 5 9,161.62 3,769.91

Region 6 12,445.46 6,961.44

Region 7 10,349.86 8,752.20

Region 8 7,563.73 3,262.21

Region 9 6,206.10 2,018.91

Region 10 8,405.34 3,930.22

Region 11 7,494.37 6,508.66

Region 12 6,712.30 2,713.43

Region 13 5,967.38 2,086.89

ARMM 6,884.33 512.73

IRA per Region vs BIR Regional Collection (in P000,000)

Source: Figures are from the Philippine Commission on Audit 2007 Financial Reports and BIR website

Income Surplus/Deficit Analysis Based on Regional GDP

Sources: Philip Medalla Paper and COA 2007 Figures

Regions Regional (9% of RGDP) Central 2007 Local Govt Total Surplus/P000 2006 Projected Govt Spending 2007 Spending Expenditure (Deficit)

GDP Local Revenue Per Region Per Region Per Region

Cordillera Autonomous Region 146,367,337 13,173,060 7,499,514 5,185,528 12,685,042 488,019 Region 1- Ilocos Region 191,964,140 17,276,773 14,371,248 9,672,847 24,044,095 (6,767,322) Region 2- Cagayan Valley 137,183,781 12,346,540 10,132,759 7,451,138 17,583,897 (5,237,357) Region 3- Central Luzon 509,778,428 45,880,059 21,590,013 17,995,140 39,585,154 6,294,905 Region 4- Southern Tagalog 912,813,888 82,153,250 27,646,933 29,918,985 57,565,918 24,587,332 Region 5- Bicol Region 165,509,956 14,895,896 15,101,342 9,218,111 24,319,453 (9,423,557) Region 6- Western Visayas 416,986,439 37,528,780 18,419,955 14,788,679 33,208,634 4,320,146 Region 7- Central Visayas 456,014,441 41,041,300 14,027,681 12,425,986 26,453,667 14,587,633 Region 8- Eastern Visayas 151,809,580 13,662,862 12,732,962 7,357,960 20,090,922 (6,428,060) Region 9- Western Mindanao 148,924,676 13,403,221 9,821,773 6,622,651 16,444,425 (3,041,204) Region 10- Northern Mindanao 239,757,810 21,578,203 11,512,490 10,074,680 21,587,170 (8,967) Region 11- Southern Mindanao 362,446,727 32,620,205 10,980,183 9,073,613 20,053,796 12,566,410 Region 12- Central Mindanao 161,893,250 14,570,392 8,623,777 7,275,475 15,899,252 (1,328,860) Region 13- CARAGA 88,023,886 7,922,150 7,146,537 6,494,503 13,641,040 (5,718,890) Autonomous Region of Muslim Mindanao 51,831,596 4,664,844 8,753,883 6,900,452 15,654,335 (10,989,491) National Capital Region 2,314,647,929 208,318,314 560,070,716 34,275,920 594,346,636 (386,028,323)

LOCAL GOVERNMENT CODE OF 1991

SEC. 108. Representation of Non-Governmental Organizations. - Within a period of sixty (60) days from the start of organization of local development councils, the nongovernmental organizations shall choose from among themselves their representatives to said councils. The local sanggunian concerned shall accredit nongovernmental organizations subject to such criteria as may be provided by law.SEC. 109. Functions of Local Development Councils. - (a) The provincial, city, and municipal development councils shall exercise the following functions: (1) Formulate long-term, medium-term, and annual socioeconomic development plans and policies; (2) Formulate the medium-term and annual public investment programs; (3) Appraise and prioritize socioeconomic development programs and projects; (4) Formulate local investment incentives to promote the inflow and direction of private investment capital; (5) Coordinate, monitor, and evaluate the implementation of development programs and projects; and (6) Perform such other functions as may be provided by law or competent authority. (b) The barangay development council shall exercise the following functions: (1) Mobilize people's participation in local development efforts; (2) Prepare barangay development plans based on local requirements; (3) Monitor and evaluate the implementation of national or local programs and projects; and (4) Perform such other functions as may be provided by law or competent authority.

Citizens directly allocating a portion of their taxes

DEVOLVING REVENUES TO LOCAL UNITS

RIGHT TO CREATE NEW TAXES