Top Down or Bottom Up?

[FedMan]

In our Unitary System the bulk of the taxes (those coming from personal and corporate income and value added taxes) are collected by the Top and then transferred to the local areas. Most through relatively unaccountable and non-transparent avenues. Provinces are dependent to the extent of 80% on these transfers from the National government. The Local Government Code of 1991 mandates a 40% share of the LGUs in the national taxes and spread on the basis of population, area and equalization parameters but another large chunk goes through Regional Line Offices with legislators and pet officials having discretion on Project implementation.

A Federal system may work better if it allows the Regions/States to directly collect these taxes, retain its share based on the income and consumption of its Regional citizens, and remit to the National Government its share for services coming from the National Government that benefit the Region/State.

The former is trickle down or "pinatulo" while the latter is Bottom Up or "pinatubo" 

[kinchay]

If each State will collect their own taxes and bulk will be retained by the State and a portion will be remitted to the federal government commensurate to services provided by the same, which branch of the government sets the year to year target for tax collection under a federal style of government? Do the State and Federal governments separately set their expenditure and tax targets? And how will government budgets be set?  For 2009, our government has set a target expenditure of P1.3 trillion and P900 billion or about 70% of this will come from BIR collections.  Last year, I think the NG budget was P1 trillion, they are now increasing it to P1.3 trillion, a 30% increase when the economy is only projected to grow by 4%. This target does not seem realistic given the present state of our economy and low economic growth forecasts.  So how different will the budget and tax collection target setting be under the federal style?

Thanks

[FedMan]

Under FFP's One Inch Federalism Proposal certain of our current taxes will be exclusively collected by the State/Region such as consumption taxes (VAT now but Sales Tax previously, a tax paid upon consumption), a sharing on personal income taxes between the State and the National, collected by the State and Corporate Income Taxes exclusively for the Federal Government.

Targets are set by the State or National Government for their respective tax categories which of course will be based on previous year's collection and economic parameters projected for the coming period.

States/Regions whose projected collections will result in a lower revenue as compared to the year prior to the shift to Federalism will be the recipient of Block Grants or Revenue Transfers from the Federal Government as is the practice in the USA and even in the European Union.

An important principle in the One Inch Federalism proposal is that no citizen should pay higher taxes because of the shift to federalism. Rather, the principle of fiscal autonomy (see topic on FFP's position on the Sen. Pimentel Resolution) will be applied to make tax collection more efficient, and spending more effective.

[test0024565]

An important principle in the Patek Philippe Watches One Inch Federalism proposal is that no citizen should pay higher taxes because of the shift to federalism