CHALLENGES AND OPPORTUNITIES FOR FISCAL AUTONOMY in MUSLIM
MINDANAO:
CHALLENGES AND OPPORTUNITIES FOR FISCAL AUTONOMY in MUSLIM
MINDANAO:A Report on the Workshop conducted by the Philippine
Center for Islam and Democracy (PCID) and the Foundation for
Economic Freedom (FEF) sponsored by the Australian
GovernmentPresented by Amroussi Rasul during the third series of
Muslim Mindanao Autonomy Roundtable Discussions held at the
Committee Room 1 of the Senate of the Philippines (July 13, 2015).
The series is organized by the Institute for Autonomy and
Governance (IAG), Local Government Development Foundation
(LOGODEF), Senate Economic Planning Office (SEPO), and Senate
Muslim Advocates for Peace and Progress (Senate-MAPP)Achieving
fiscal autonomy will be critical for overall autonomy to be
effective. But this will not be enough. Institutions and capacity
need to be in place to ensure that fiscal resources are:
mobilized efficiently and with transparency and accountability;
and
spent wiselyalso with transparency and accountabilityand reflect
the needs for sustainable and inclusive growth in the region.
Weak fiscal management has been a principal underlying factor in
the failure of Autonomous Region of Muslim Mindanao (ARMM) to
effectively perform as an autonomous region . This is attributed
to:
little control over fiscal resources from the National
Government and how they are spent weak governance and
accountability in ARMM.
While the Organic Act provided ARMM-Regional Government (RG)
with certain taxing powers, the use of such power has not been
evident. But even if these powers were exercised to the full extent
possible, it is questionable whether the revenues generated would
be of any significant magnitude because of:
the constraints imposed on collecting taxes in a conflict and
war-torn and weary economythe inherent difficulty of taxing a local
economy that has a high poverty incidence and is dependent on a
largely underground and informal undocumented economy; anda
bureaucratic structure that has not been equippedtechnically and
organizationallyto undertake revenue mobilization as a serious
reform agenda.
The politics of local tax collection is a handicap. local
politicians are often seen as givers of funds, and that imposing of
taxes is unbecoming for many of these leaders and could lead to a
negative back-lash on their standing. personal and family
relationships also get in the way. And many areas are controlled by
war-lords with their own agendas and income base, making it
difficult for a legitimate and concerted tax collection effort.the
lack of information and documentation to collect local taxes is
likewise a handicap.
Budget processes in the ARMM are fragmented and complicated.
According to the DFAT Australia-World Bank Report 2014, there is no
single budget document or process [that] comes close to including
the bulk of resources to be used in ARMMmaking it difficult to
integrate the ARMM-RG budget processes with the national budget
processes and making it difficult to promote a coherent set of
policy goals through budget allocationsthese weaknesses apply to
budgetary execution arrangements, as well as to planning.The
fragmentation also makes it difficult to integrate the budgets with
the overall development plan for the ARMM region.Budget processes
in the ARMM are fragmented and complicated. Aside from the mismatch
in the ARMM-RG linkage to the NG budget process, there is a lack
of:a regional budget law or a department responsible for budget
preparation and management;sound budgeting processes among the ARMM
institutions; andskills and institutional capacity for effective
program and project design, and budget preparation and
execution.and as also apparent at the national level, procurement
processes are often long and tedious, and the budget release
processes complicated.
ARMM has a history of poor governance and accountability.
this is shown in the misuse of funds and the lack of effective
expenditure control systems and reporting. In addition, public
accountability is sorely lacking.the lack of qualified staff for
budget management in ARMM-RG is also apparent.appropriate capacity
building to enable the ARMM-RG and its agencies to meet national
fiduciary and budget accountability requirements has not taken
place.
ARMM has a history of poor governance and accountability.
however, as pointed out in the DFAT Australia-World Bank Report,
the failure of fiscal autonomy in ARMM is not simply the result of
insufficient autonomy and poor governanceit is also the result of
incomplete implementation of the Expanded Organic Act, such as the
establishment of an effective regional budget and management
institution.thus the willingness and capacity to implement what is
provided for in the law is crucial.
ROAD MAP FOR AN ACTION AGENDA FOR FISCAL AUTONOMY AND
MANAGEMENT
A three pronged strategy is required:
a more serious effort to ensure fiscal autonomy within the
Bangsamoro through appropriate revenue and other financial resource
mobilization measures;
putting in place a budgetary system which leads to more
efficient, accountable and transparent fiscal management; and
a systematic effort to build institutions and capacities to
underpin the resource mobilization and budgetary system
measures.
Improved Revenue MobilizationImproved Revenue MobilizationReal
and lasting autonomy can only be achieved through establishing a
strong revenue base in the Bangsamoro. The proposed BBL provides
for taxing powers of the Bangsamoro-RG for this to be achieved.
These powers include:
levying taxes and charges as per those already devolved to
ARMM;haring of central government taxes, fees and charges collected
in Bangsamoro (other than tariff and customs duties) 75% (100% for
limited time);sharing of revenues from natural resources (100%
non-metallic, 75% metallic, 50% fossil fuels);
Real and lasting autonomy can only be achieved through
establishing a strong revenue base in the Bangsamoro. The proposed
BBL provides for taxing powers of the Bangsamoro-RG for this to be
achieved. These powers include:the ability to impose flat lump sum
tax on small and medium enterprises (SMEs); andthe receipt of
grants and donations, income from government-owned corporations,
contract loans and Official Development Assistance (ODA), and
Build-Operate-Transfer (BOT)/ Public-Private Partnership (PPP)
arrangements.Zakat (alms giving or charitable contribution) offers
another potential source of revenue.
Improved Revenue MobilizationA serious effort by both the
Bangsamoro-RG and LGUs to generate own-source revenues through
these tax and non-tax measures is warranted. In pursuing this
course, the Bangsamoro-RG should look to partner with the LGUs in a
revenue generation and sharing scheme, and adopt a Local Revenue
code which:recognizes the most appropriate tax structures and
collection methods for the region, reflecting the differing
cultural characteristics of the population and geography of the
region;clearly delineates Bangsamoro-RG and LGs revenue- raising
responsibilities;demystifies tax collection and simplifies tax
collection procedures; andgrants discounts and incentive for prompt
payment.the adoption of flat taxes instead of progressive taxes and
the unification of all taxes in a one-stop agency could be
considered.
Improved Revenue MobilizationThe Bangsamoro-RG should also
explore with LGUs:the most appropriate use of tax and non-tax
incentives (within the scope delegated to the Bangsamoro-RG and
LGUs) to encourage investment and job creation, recognizing the
need to keep this transparent, performance based, and temporary,
given their fiscal implications;means to improve land
administration and updated valuations, providing the basis for
increased revenue through property taxes;ways to simplify business
procedures to encourage currently unregistered businesses to enter
the formal sector, and thus expanding the potential tax base;the
adoption of a more open trade policy and investment policy to
legalize informal trade;Improved Revenue MobilizationThe
Bangsamoro-RG should also explore with LGUs:mechanisms to
institutionalize the implementation ofZakat for those who can
afford it, perhaps making it tax deductible; andmeans to foster a
culture of paying taxes, which could include the conducting of
pulong-pulongs in barangays to help them better understand taxes
and how they are used.A directory of available non-tax funding
sources (including ODA), and the conditions under which these fund
could be accessed, would be helpful. Improved Revenue
MobilizationThe principal focus of the Bangsamoro-RG and LGUs over
the near future should be on spending their Internal Revenue
Allocations (IRA+) from the National Government and other available
fiscal resources wisely -supplemented with policy actionsso as to
enhance investment and stimulate growth, particularly by the
private sector. This focus will ultimately lead to:more jobs and
reduced poverty;a more robust, formal, private sector; and an
expanded tax base.As the tax base expands, so will local revenues,
and so will the potential for fiscal autonomy. Underpinning the
wise spending of fiscal resources will be sound and transparent
budgetary and accounting processes.
Improved Revenue MobilizationThe exploitation of natural
resources, particularly mining, offers an opportunity to achieve
real and lasting fiscal autonomy in the Bangsamoro.The
Bangsamoro-RG will have to clearly articulate its position on
mining (and oil and gas) exploration and development. This will
require the formulation of an appropriate policy framework, which
should be a joint exercise with the National Government, to set the
basis a legislative and institutional agenda.
The exploitation of natural resources, particularly mining,
offers an opportunity to achieve real and lasting fiscal autonomy
in the Bangsamoro.In formulating the policy framework, the
Bangsamoro-RG should:emphasize its commitment to responsible and
sustainable mining, and articulate clearly the environmental and
other critical guidelines for the sectors development;spell out the
responsibilities of the National Government, Bangsamoro-RG, and
Bangsamoro LGUs in the identification and approval of mining
projects, ensuring the harmonization of policies and procedures
while recognizing the respective legal mandates;clearly
differentiate the approach to exploration and exploitation of
mineral resources;The exploitation of natural resources,
particularly mining, offers an opportunity to achieve real and
lasting fiscal autonomy in the Bangsamoro.In formulating the policy
framework, the Bangsamoro-RG should:indicate its intent to engage
the private sector in both the exploration and exploitation of the
mineral resources, recognizing that different parties may be
involved in each of these stages;specify steps to regulate
small-scale mining;consider creating an agency mandated to
overseeing the development of natural resources, and a separate
agency to take care of environmental protection; andconsider a
Bangsamoro sovereign wealth fund for stabilizing mineral revenues
and sovereign wealth bonds.
The exploitation of natural resources, particularly mining,
offers an opportunity to achieve real and lasting fiscal autonomy
in the Bangsamoro.As also highlighted in the workshop on land and
property rights, the challenge will be to set or negotiate terms
that reflect the true value of the resources, while recognizing:the
costs and risks to potential investors associated with their
extraction in a post-conflict region; the need to ensure
responsible management of environmental and social impacts; and the
necessity to ensure that impacted areas get a fair share of mining
revenue.
The exploitation of natural resources, particularly mining,
offers an opportunity to achieve real and lasting fiscal autonomy
in the Bangsamoro.Sound and Transparent Budgetary and Accounting
ProcessesSound and Transparent Budgetary and Accounting
ProcessesThe Bangsamoro-RG needs to strengthen and realign the
budgetary processes currently in place so that they integrate more
effectively with other plans for the region for the mobilization
and use of financial resources, and ensure transparency and
accountability in the use of funds.
This re-orientation needs to build in a longer-term orientation
to the budget process, so that it is not focussed purely on the
short-term as has been the common practice. It should also clearly
link revenue, expenditure and debt.
Programs of the sector agencies, as reflected in their
expenditure programs and budget requests, should support the
Bangsamoro regions plans and relevant national requirements, and
reflect a programmatic approach to budget preparation. Sound and
Transparent Budgetary and Accounting ProcessesThe regional and
national budget systems should be integrated as appropriate through
the adoption of a regional performance budgeting framework suitable
to the Bangsamoro region and acceptable to the national
government.This could be a modification of the current national
OPIF framework to ensure a simple and limited results-based program
budgeting framework that integrates the activities budgeted by the
Bangsamoro-RG and its agencies and appropriate national agencies,
and relates them to an agreed set of indicators. Such performance
indicators will also be a requirement of national and international
funding institutions supporting projects in the Bangsamoro. This
framework should be extended to include responsibilities and
reporting requirements of the regional LGUsSound and Transparent
Budgetary and Accounting ProcessesDelineated accounting and
auditing systems should be put in place to promote transparency and
accountability in the receipt and utilization of funds from all
sources. This will require:putting in place transparent and
simplified procedures for procurement and fund
disbursements;developing a framework for a unified accounting
structure, and horizontal and downward monitoring and
accountability in the use of public funds and service quality,
which would include public reporting and citizen scrutiny; and
establishing a Bangsamoro auditing body staffed with competent
officials and adopting transparent procedures, with auditing
responsibility over the utilization of public funds within the
Bangsamoro, ensuring appropriate relationship to the National
Commission on Audit on the use of national funds. In all aspects of
budget preparation and execution, advantage should be taken of the
benefits of information technology in service delivery, process
improvement, and transparency.The implications of the Islamic
business transactions and use of Islamic financial tools will also
have to be considered once these take hold within the Bangsamoro
economy
Sound and Transparent Budgetary and Accounting ProcessesThe role
of GOCCs, PPPs and Economic Zones in the BangsamoroGovernment owned
and controlled corporations (GOCCs), public-private partnerships
(PPPs), and Special Economic Zones (SEZs) will also have a role to
play in the Bangsamoro. There may be scope for a limited number of
Bangsamoro-RG GOCCs in some critical niche areas where they
can:
meet a critical supply chain gap in which the private sector is
hesitant to engage; andprovide a means for Bangsamoro-RG
participation in public-private partnerships (PPPs), particularly
in the transition stage where the perceived risks to the private
sector are still high and these would prevent them investing fully
on their own account.
The role of GOCCs, PPPs and Economic Zones in the
BangsamoroThere will be scope for PPPs in a number of areas, but
these should also be approached with caution.
Some of these could be in critical infrastructure projects, such
as airports and seaports. Innovative approaches will be required in
some sectors, particularly where it involve Islamic financing
and/or interacts with critical private sector projects, such as
those in large commercial plantations and mining. Some may be
quasi-private, in that they are projects that in normal
circumstances would be purely private sector, but require a
transitional period with government involvement until the security
situation stabilizes and throughput enables them to be
self-standing. These could be critical commercial supply chain
projects (such as cold storage and post-harvest facilities) for
certain crops.
Special Economic Zones (SEZs) offer an immediate means of
providing streamlined procedures and incentive to private
enterprises in the Bangsamoro. Further, security can be
more-or-less assured and basic infrastructure can be more readily
put in place in these zones. And these zones can be expanded as
security improves.
The ARRM-RG has already enacted its own law pertaining to SEZs.
Only one SEZ has been designated to date - Polloc Port and it has
had difficulty in attracting investors.
The role of GOCCs, PPPs and Economic Zones in the
BangsamoroEffective Institution and Capacity BuildingEffective
Institution and Capacity BuildingDesigning and implementing all the
above the actions hinges on the ability to have in place the
necessary institutional and manpower capacity. In this respect, it
is critical to have:enlightened and competent leadership;a lean and
mean government;an empowered and competent bureaucracy with clear
responsibilities and accountability;transparent and streamlined
procedures;results based management systems; andgovernance
enhancement of the private sector and general public.
While the focus in the near term should be on maintaining the
momentum of ongoing capacity building support, some very basic
actions relating to the organization and governance structure
should be undertaken:establish the basis of the cabinet structure
and plans for expansion, such as by first assessing the
institutional needs and choosing only those Ministries and other
official entities deemed appropriate to meet these needs;determine
the public service provision roles and responsibilities of the
Bangsamoro-RG (i.e. ask whether to provide alone, through GOCCs,
through PPPs);review existing national government systems and
regulations and revise to suit the local context and ARMM
experiences (especially for accounting audit); determine the role
and responsibilities of organizations/offices that will be set up
in the Bangsamoro vis--vis counterparts in in the national
government and LGUs;establish an ODA/FAP management office to
ensure these are complementary and avoid overlaps, and ensure that
the Bangsamoro-RG remains in the drivers seat; andestablish
regulatory structures for the inflow of private financing.
Effective Institution and Capacity BuildingMaraming Salamat!