Saturday, January 14, 2017

Advantages and Disadvantages of Local Autonomy

ADVANTAGES AND DISADVANTAGES

OF LOCAL AUTONOMY

 

Advantages of Local Autonomy

 

Local government autonomy or self-rule empowers the local community to be self-reliant.[i] It enables them to take advantage of their strengths and address their weaknesses. Since the decision makers are locals, there is a greater probability that the locally formulated government programs will cater for the actual needs of the local community. Moreover, since the decision makers are based locally, there is also a greater opportunity for accountability vis-a-vis the local community.

 

To ensure that local governments have the capacity to be autonomous, each local government unit is empowered “to create its own sources of revenues and to levy taxes, fees and charges.”[ii] They are mandated to have “a just share ... in the national taxes.”[iii] They are also “entitled to an equitable hare in the proceeds of the utilization and development of the national wealth.”[iv]

 

More particularly, local government units have an internal revenue allotment of 40% in the collection of national internal revenue taxes.[v] They have a 40% share in the gross collection derived by the national government from mining taxes, royalties, forestry and fishery charges, and from the latter's share in any co-production, joint venture or production sharing agreement in the utilization and development of the national wealth within the former's territorial jurisdiction.[vi] In special economic zones, cities and municipalities have a 40% share in the 5% gross income tax imposed on business establishments operating within the zones located within their territorial jurisdiction.[vii]

 

To undertake local development, local government units may enter into contracts with private project proponents for the financing, construction, operation and maintenance of any financially viable infrastructure or development facility under a public-private partnership.[viii]

 

The local government units that enjoy autonomy are the provinces, cities, municipalities and barangays.[ix] The provinces comprise of cities and municipalities, while the latter comprise of barangays.

 

Disadvantages of Local Autonomy

 

In the context of a nation state comprised of both a national government and several local government units, local government autonomy may give rise to certain disadvantages, such as conflicting regulation, overlapping regulation, excessive regulation and excessive taxation.

 

(1) Conflicting regulation

 

The Local Government Code declares “the policy of the State that the territorial and political subdivisions of the State shall enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities and make them more effective partners in the attainment of national goals.”[x] The Code then provides as an operative principle the “effective allocation among the different local government units of their respective powers, functions, responsibilities, and resources.”[xi]

Notably however, the Code does NOT provide for any operative principle regarding the delineation of the respective power, functions, and responsibilities between the local and national governments. The Code simplistically assumes that “genuine and meaningful local autonomy” will necessarily make the local government units effective partners of the national government. The Code does NOT in any way address the reality of conflict of powers, functions and responsibilities between the national and local governments.

 

For example, in the management of traffic along the roads of Metro Manila, it is of common knowledge that certain local government units here insist on having their own set of traffic rules and regulations (i.e. number coding scheme) enforced on national roads, even though the traffic problem cuts through their political boundaries. The end result is of course further chaos. Is this what is meant by “genuine and meaningful local autonomy” that makes local governent units effective partners of the national government?

 

Another example, in the establishment of infrastructure facitilies subject to the environmental clearance requirements[xii], certain local government units unreasonably withhold the issuance of local permits, even though the project proponent has already secured the Environmental Clearance Certficate (ECC) from the Department of Environment and Natural Resources (DENR). This effectively prevents the project proponent from establishing the infrastructure facilities. Does the Local Government Code vest upon local government units such powers superior to that of national government agencies?

 

The answers to these questions are obviously in the negative. In order that the system of national and local governments actually work to complement rather than conflict with each other, there has to be a clear delineation of their powers, functions and responsibilities.

 

In this regard, this paper recommends the issuance of implementing rules and regulations or the amendment of the Local Government Code, to expressly provide for the following operative principles:

 

            (a) That “devolved local autonomy shall not be construed to empower local government units to authorize acts or omissions expressly prohibited by the national government, nor to prohibit acts or omissions expressly authorized by the national government;”[xiii]

 

            (b) That “devolved local autonomy shall not be construed to empower local government units to obstruct or disrupt, or cause the obstruction or disruption, of the formulation or implementation of national government policies, programs or projects, by direct or indirect measures, such as the enactment of ordinances, issuance of executive orders, or withholding of permits, licenses or clearances notwithstanding compliance with the applicable requirements;”[xiv]

 

            (c) That “in case of conflict between national government standards and local government standards, the former shall prevail over the latter, for purposes of the issuance of permits, licenses or clearances by local government units, in connection with the implementation of programs or projects adopted, conducted or authorized by the national government.”[xv]

 

            (d) That “the management of traffic in national roads and bridges shall be the responsibility of the national government acting through its implementing agency, while the management of traffic in city, municipal, provincial, metropolitan and barangay roads and bridges, shall be the responsibility of the city, municipal, provincial, metropolitan and barangay governments respectively. If in any case the traffic in local roads and bridges affect the traffic in national roads and bridges, the national government through its implementing agency shall be empowered to assume on temporary or permanent basis, the management of traffic in the local roads and bridges concerned upon written notice to the local chief executive;”[xvi]

 

            (e) That “the national government through its implementing agency may in the national interest devolve to the local government, subject to acceptance by the local government council concerned, the responsibility to manage traffic in national roads and bridges. No devolution made and accepted shall be irrevocable. the devolution of the responsibility to manage traffic in national roads and bridges may in the national interest be suspended or revoked at any time by the national government through its implementing agency.”[xvii]

 

(2) Overlapping regulation

 

Inasmuch as provinces comprise of cities and municipalities, while cities and municipalities comprise of barangays, there is an obvious overlap of territorial jurisdiction between and among them. In the best situation, there will be at least two (2) local government units with concurrent jurisdiction over the same area, i.e. the City and the Barangay. In the worst situation, there will be three (3) local government units with overlapping territorial jurisdiction, i.e. the Province, the City or Municipality, and the Barangay.

 

With this overlap in territorial jurisdiction in mind, it is important to note that ALL local government units are empowered to promote the general welfare. “Every local government unit ... exercise the powers expressly granted, those necessarily implied therefrom, as well as powers necessary, appropriate, or incidental for its efficient and effective governance, and those which are essential to the promotion of the general welfare. Within their respective territorial jurisdictions, local government units ... ensure and support, among other things, the preservation and enrichment of culture, promote health and safety, enhance the right of the people to a balanced ecology, encourage and support the development of appropriate and self-reliant scientific and technological capabilities, improve public morals, enhance economic prosperity and social justice, promote full employment among their residents, maintain peace and order, and preserve the comfort and convenience of their inhabitants.”[xviii] Thus, “local government units ... exercise such other powers and discharge such other functions and responsibilities as are necessary, appropriate, or incidental to efficient and effective provision of the basic services...[xix]

 

With respect to the regulation of business activities, the Cities and Municipalities issue a business permit. For the same activities, the Barangays (of the City or Municipality) issue a business clearance.

 

In Makati City, the basic documents required by the City and those required by Barangays San Lorenzo and Bel-Air (with jurisdiction over the business district), are substantially the same: (1) SEC or DTI Registration, and (2) Lease Contract or Certificate of Title.[xx] In Pasig City, the basic documents required by the City and those required by Barangay San Antonio (with jurisdiction over the business district), are likewise substantially the same: (1) SEC or DTI Registration, and (2) Lease Contract or Certificate of Title.[xxi] Curiously, Barangay San Antonio imposes its own requirement for a Comprehensive General Liability Insurance, even though the City already imposes the same insurance requirement.[xxii] This is “double insurance” that doubles the cost of the insurance premiums, but nonetheless disallows double recovery, pursuant to the insurance laws.[xxiii]

 

Notably, the imposition of redundant requirements by equally autonomous local government units with overlapping territorial and functional jurisdiction, increase the cost of doing business. These redundant requirements unnecessarily waste the resources of business enterprises and hamper their efforts to generate income, pay taxes and create jobs. Instead of promoting the general welfare and providing basic services, these redundant requirements actually do the opposite.

 

For efficient regulation, this paper recommends that the local government system integrate the Barangay into the permit or registration process of the City or Municipality, rather than segregate the Barangay from the latter where the former becomes a mini-City or mini-Municipality with its own business clearance (as the functional equivalent of the business permit or business registration). To operationalize integration, the City or Municipality may deputize the Barangay to receive, process, transmit and release the business permit or business registration, for the convenience of the local taxpayers. Nonetheless, the City or Municipality retains the power to approve the permit or registration, as well as to collect the fees and charges, unless the collection function is outsourced to authorized agent banks with branches located close to the Barangay office, again for the convenience of the local taxpayers.

 

(3) Excessive regulation

 

The declared policy of the State provides “that the territorial and political subdivisions of the State shall enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities and make them more effective partners in the attainment of national goals. Toward this end, the State shall provide for a more responsive and accountable local government structure instituted through a system of decentralization whereby local government units shall be given more powers, authority, responsibilities, and resources. The process of decentralization shall proceed from the national government to the local government units.”[xxiv]

 

Notably however, the Local Government Code does NOT provide for any operative principle regarding the coverage, extent and limit of the power, functions, and responsibilities of local government units as autonomous entities. The Code merely assumes that “genuine and meaningful local autonomy” will necessarily make the local government units self-reliant, responsive and accountable. The Code does NOT in any way address the reality of excessive regulation by local government units that remain unchecked because of their autonomous nature.

 

For example, in the lease of office space within the business districts of Metro Manila, the developer of an office building ordinarily secures a locational clearance, building permit and occupancy permit for the entire building, before it sells or leases units of office space within the premises. When an owner of an office unit in the building leases the premises to another, both the owner/lessor and the lessee are again required to secure their own locational clearance and occupancy permit, even though their usage is limited to office purposes only, and no structural or material alterations are made to the physical premises. Similar excessive regulations are imposed on owners and lessors of residential units. These redundant requirements increase the cost of doing business, and serve no meaningful public purpose or interest.

 

For the avoidance of excessive regulation, this paper recommends the issuance of implementing rules and regulations or the amendment of the Local Government Code, to expressly provide for the following operative principles in the lease of commercial or residential buildings:

                                                                                                                

            (a) In buildings designed and built in whole or in part for commercial or residential use, the locational clearance shall be required only for the construction phase of the entire building; no separate locational clearance shall be required from owners of units of commercial or residential space in the building, nor from lessors, lessees, sub-lessors and sub-lessees of said commercial or residential space; the building administrator or manager shall, by ordinance or implementing rules and regulations, be required to monitor and ensure that the use of the building or any part of thereof shall be limited to the authorized commercial or residential use;

 

            (b) In buildings designed and built in whole or in part for commercial or residential use, the building permit and occupancy permit shall be required only for the construction phase of the entire building; no separate building permit or occupancy permit shall be required from owners of units of commercial or residential space in the building, nor from lessors, lessees, sub-lessors and sub-lessees of said commercial or residential space, unless the occupant undertakes structural or material alterations in the electrical, mechanical, plumbing or fire safety systems of the building; the building administrator or manager shall, by ordinance or implementing rules and regulations, be required to monitor and ensure that no structural or material alteration in the electrical, mechanical, plumbing or fire safety systems of the building or any part thereof, shall be made by any occupant without securing a building permit and an occupancy permit.

           

For more efficient regulation, this paper submits the following measures for thorough consideration:

 

            (a) Shift from “permit” requirements (i.e. Mayor's permit) to “registration” requirements (i.e. Business registration). The shift will cut the processing time required to legally commence business operations. It will also prevent the City or Municipality from acting in bad faith or in deliberately delaying the process, because “registration” will be a purely ministerial function practically devoid of any discretionary aspect. The shift from the permit process to the registration process need not be for all types of businesses. For example, the permit process can still be the adopted procedure for businesses subject to the environmental clearance requirements.

           

            (b) Shift from “pre-inspection” (or inspection before approving permit or registration) to “post-inspection” (or inspection after approving permit or registration). The shift will substantially cut the processing time for the permit or registration. Public safety will not be compromised because the City or Municipality will still be required to conduct an inspection immediately after the approval of the permit or registration. The shift in the inspection process likewise need not be for all types of businesses. Again for example, pre-inspection can still be chosen procedure for businesses subject to the environmental clearance requirements.

 

(4) Excessive taxation

 

Inasmuch as each local government unit is empowered “to create its own sources of revenues and to levy taxes, fees and charges”,[xxv] there exists the real possibility that business enterprises will be subject to more than double taxation of the same business actitity. This will not only complicate the tax regime, it will also increase the cost of doing business beyond the budgets of business enterpises.

 

Fortunately, the Local Government Code has foreseen this possibility and sought it prudent to limit the kinds of taxes that may be imposed at the local level. Thus, local government units are prohibited from imposing income taxes[xxvi], value added taxes[xxvii], customs duties[xxviii], export taxes[xxix] and taxes on goods carried into or out of, or passing through, their territorial jurisdiction[xxx], among others.

 

To support their fiscal requirements, local government units are entitled to have “a just share ... in the national taxes.”[xxxi] This comes in the form of an internal revenue allotment equivalent to 40% of the collection of national internal revenue taxes.[xxxii]

 

For simple and reasonable taxation, this paper recommends that the present tax regime for local government units be retained to avoid double, triple or quadruple taxation of the same business activity. In lieu of the imposition of new local taxes, the internal revenue allotment system be improved to ensure that the allotments are properly and timely released to the local government units.

 

 

 

This material was written ex-gratia by Demosthenes B. Donato

for Tanggulang Demokrasya (Tan Dem), Inc.

All intellectual property rights are granted to the public domain.

05 September 2016. Makati City, Philippines.

 

 

 Disclaimer: The views and opinions expressed in this material are those of the author

and do not necessarily reflect the official policy or position of TanDem.



[i]Rep. Act No. 7160, as amended, Local Government Code of 1991, Section 2. See 1973 Constitution, Article II Declaration of Principles and State Policies, Section 10.

[ii]1987 Constitution, Article X Local Government, Section 5.

[iii]Id. Section 6.

[iv]Id. Section 7.

[v]Rep. Act No. 7160, as amended, Local Government Code of 1991, Section 284.

[vi]Id Section 290.

[vii]Rep. Act No. 7916, as amended by Rep. Act No. 8748, Special Economic Zone Act of 1995, Section 24.

[viii]Rep. Act No. 6957, as amended by Rep. Act No. 7718, Sec. 3.

[ix]Supra 1987 Constitution, Sections 1 & 2.

[x]Rep. Act No. 7160, as amended, Local Government Code of 1991, Section 2.

[xi]Id Section 3(a).

[xii]Pres. Dec. No. 1586, Environmental Impact Statement System.

[xiii]D.B.Donato, Proposed Revision of the Local Government Code, Page 1, 23 August 2016.

[xiv]Id.

[xv]Id.

[xvi]Id, Page 2.

[xvii]Id.

[xviii]Rep. Act No. 7160, as amended, Local Government Code of 1991, Section 16.

[xix]Id Section 17.

[xx]Makati City – Business Permit Application Form (2010). Barangay San Lorenzo – Business Clearance Application Form. Barangay Bel-Air – Business Clearance Application Form.

[xxi]Pasig City – Application for Business Permit (May 2015). Barangay San Antonio – Barangay Clearance for Business Permit Requirements for CY 2016.

[xxii]Supra Barangay.

[xxiii] Rep. Act No. 10607, Insurance Code, Sections 95 & 96.

[xxiv] Rep. Act No. 7160, as amended, Local Government Code of 1991, Section 2.

[xxv]1987 Constitution, Article X Local Government, Section 5.

[xxvi]Rep. Act No. 7160, as amended, Local Government Code of 1991, Section 133(a).

[xxvii]Id Section 133(i).

[xxviii]Id Section 133(d).

[xxix]Id Section 133(m).

[xxx]Id Section 133(e).

[xxxi]Supra 1987 Constitution, Section 6.

[xxxii]Supra Local Government Code, Section 284.


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