Finance Dept Reviews Impact Of IRA To LGUs

The Department of Finance (DOF) is reviewing the viability of pursuing a fiscal consolidation plan that will minimize whatever long-term economic scarring may occur as a result of the coronavirus-induced crisis and the budgetary implication of the Supreme Court’s (SC) 2018 ruling that expands the share of local government units (LGUs) on national government taxes, Finance Secretary Carlos Dominguez III said.

Photo Insert: The Department of Finance

This SC ruling, which refers to the expanded National Tax Allotment (NTA), formerly known as the Internal Revenue Allotment (IRA) for LGUs, will take effect next year.

“Tax revenue losses from the pandemic-induced economic slump, the rise in debt to fund our COVID-19 (coronavirus disease 2019) response, the looming revenue impact of our economic recovery measures, and lower spending efficiency as a result of the Supreme Court decision to expand the share of LGUs from the NTA must be adequately addressed by the next administration’s economic team,” Dominguez said in a statement Tuesday.

As a result of the pandemic, the national government (NG) incurred hefty tax revenue losses amounting to PHP785.64 billion or 4.4 percent of gross domestic product (GDP) in 2020, according to initial DOF estimates.

Before COVID-19 struck at the onset of last year, tax revenues were expected to increase by 16.2 percent in 2020.

Foregone revenues are expected to be even larger in the coming years as the impact of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) and Financial Institutions Strategic Transfer (FIST), which are both crucial to a quick economic recovery, take effect.

From 2021 to 2024, revenue losses are projected to reach around PHP1 trillion on average every year because of tax revenue losses from the pandemic and the foregone revenues from CREATE and FIST.

COVID-19 related loans for the pandemic response and budgetary support to finance the deficit have also translated into increased financing costs for the government.

The total financial cost of COVID-19 related loans now amounts to US$28.91 billion or PHP1.47 trillion.

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