SCMAP Perspective is our fortnightly column on PortCalls, tackling the latest developments in the supply chain industry, as well as updates from within SCMAP. On this column, Henrik Batallones looks at the Mandanas ruling and its potential impact on our supply chains.
The Mandanas ruling and our supply chains
A supply chain game-changer that tends to be overlooked considering everything else that is going on in recent months is the enforcement of the Mandanas ruling this year.
The ruling stems from a petition filed by Batangas governor Hermilando Mandanas and former Bataan governor Enrique Garcia Jr. to the Supreme Court. In it they called on the national government to compute the internal revenue allotment, or IRA – the share local government units get from taxes collected by the national government – should come from all national taxes, rather than just from national internal revenue taxes collected by the Bureau of Internal Revenue.
The Supreme Court agreed, affirming the petition in 2018, and once again the following year. The tribunal stated that the IRA that local governments get should come from 40% of all national taxes collected by the BIR and the Bureau of Customs. The ruling took effect this year, meaning in the 2022 budget, the IRA increased by roughly 27.6%.
The larger share of national revenues going to local governments means they are empowered to implement basic government functions and services that were previously the responsibility of national agencies, such as health services, social welfare and local infrastructure. The Department of Budget and Management later stated that national government functions that were set to be devolved to local governments should be transferred to them permanently, thus empowering LGUs to better respond to local needs.
While the increased share in national revenue is already in place in this year’s budget, arguably the full effect of the Mandanas ruling will be felt in the coming months and years. The transition process, designed to acquaint government officials and workers to the implications of the ruling, is underway. On June 30, a new set of local officials will be sworn in as well – and they are in a better position to take advantage of the possibilities offered by the larger share of national revenues.
What does it mean for our supply chains? A possible quick win is on infrastructure. Local governments, in theory, will have more breathing room to develop new local roads and repair existing ones. The thinking behind recent convergence programs implemented by the Department of Public Works and Highways – such as the ROLL IT program in partnership with the Department of Trade and Industry – is to identify local infrastructure which is important to priority sectors, therefore allowing the use of national budgets for its development and rehabilitation. Otherwise, the national infrastructure budget cannot be used on local roads, as it is the responsibility of local governments.
The higher guaranteed budgets for local governments should also force them to reconsider the charging of pass-through fees to truckers and other logistics personnel. The Department of the Interior and Local Government has long issued resolutions against the practice, but it persists, even during the height of COVID-19 lockdowns – going against the principle of “unhampered movement of goods”.
One challenge is the lack of absorptive capacity in some local governments. Not all are ready to take charge of an increased number of basic services and responsibilities, leading to the possibility of a service gap between provinces and even towns. For our supply chains, this will mean continued delays and potential impact in our ability to serve our principals and end customers.
Also, local governments may interpret the increase in IRA share as a mandate to introduce additional guidelines that impact speed and ease of doing business. One hopes that the spirit of the Ease of Doing Business Law, which aims to streamline and speed up government processes across all levels, continues to take hold, and the Anti-Red Tape Authority continues to keep watch over LGUs who may impose additional documentary requirements to logistics frontliners.
In the coming years, both the direction set by the new national government and the decisions made by local governments are critical in ensuring our supply chains continue to move as seamlessly as possible, aiding in our bid for economic recovery and better quality of life for all Filipinos.