PEACETALK: The “unacceptable status quo” and the Annex on Wealth-Sharing

(Johaira Wahab is a member of the Bangsamoro Transition Commission. She was formerly head of the legal team of the government peace panel negotiating with the MILF. This article reflects her personal understanding of the Annex on Revenue Generation and Wealth Sharing)

Nine months after the Framework Agreement on the Bangsamoro (FAB), the signing of the Annex on Wealth Sharing is much welcome. It is the second of four annexes to the FAB, and the third major document that will comprise the “Comprehensive Peace Agreement” to conclude negotiations between the GPH and the Moro Islamic Liberation Front (MILF).
(This is, of course, without prejudice to the “exit document” referred to in the FAB that is supposed to signal the full implementation of negotiated agreements.)

Let’s look briefly at the highlights of the recently signed “Annex on Revenue Generation and Wealth Sharing,” and see how it seeks to affect or improve on the ‘unacceptable status quo.’

Principles and Sources of Revenues

The wealth-sharing annex should be seen in accordance with the following principles that inspired its negotiation:
1) A meaningful and truly empowering autonomy can only be achieved when both political autonomy and fiscal autonomy are ensured.
2) Political autonomy cannot work without being complemented by mechanisms to ensure fiscal autonomy.
3) There is a need to expand the tax base in the Bangsamoro to generate more revenues to finance programs and policies identified by the Bangsamoro Government.
4) Areas covered in the prospective Bangsamoro are among the most underdeveloped in the country, and the need to provide sufficient means for them to “catch up” with the rest of the country is recognized.
5) In the exercise of the Bangsamoro’s fiscal powers, there is a need to consider certain principles in devolution: equalization, equity, accountability, administrative simplicity, harmonization, economic efficiency and fiscal autonomy.

According to the annex on wealth-sharing, to achieve full fiscal autonomy, the Bangsamoro can draw on the following sources of revenues:
1) Taxes, fees and charges
2) Fund transfers from the National Government
3) Share in “government income” from the exploration, development and utilization of natural resources in the region
4) Other sources of revenues

Taxes, Fees and Charges

As for TAXES, the Bangsamoro will have the power to levy taxes in its territorial jurisdiction. These taxes will include those already devolved to the current ARMM under R.A. 9054. (For further information, see Article IX, Section 8, in relation to the list of excepted taxes under Section 7. See also MMA Act no. 49, for taxes currently levied by the ARMM in its regional tax code. Said tax code is pursuant to taxing powers provided in R.A. 9054.)

In addition to taxes already devolved to the ARMM, the Bangsamoro may now also levy the following taxes: capital gains tax, estate tax, documentary stamp tax and donor’s tax. Almost all of these taxes were originally expressly reserved to the National Government in R.A. 9054, but are now devolved to the Bangsamoro.

For all taxes levied by the Bangsamoro, all collections (100%) will accrue to the coffers of the Bangsamoro, subject to the submission of returns and regular auditing standards.

Meanwhile, the National Government maintains its taxing powers in the Bangsamoro as well. It will continue to levy and collect national taxes in the region. However, the Bangsamoro also takes it share from these collections. For national taxes collected from the region, there is a 75-25 sharing in the revenues in favor of the Bangsamoro.

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On this score, the status quo under R.A. 9054 is 70-30 sharing on taxes collected in the ARMM in favor of the Regional Government. The 70% share of the region is shared equally (35-35) between the region and the province or city concerned. The shares of the other LGUs are also provided in R.A. 9054.

Under this setup, cities and provinces are theoretically at a disadvantage compared to their counterparts who are not part of the ARMM. This is because the Local Government Code (R.A. 7160), which is the basis for sharing in revenues with respect to the LGUs not part of the ARMM, provides for a sharing formula of 60-40 in favor of the National Government, where the share of cities and provinces is 40%, or 5% more than what cities and provinces in the ARMM get.

[Note: There are also some who argue that ARMM LGUs do actually benefit under the current setup by receiving double their share in taxes: First, they receive their internal revenue allotments (IRA) computed under R.A. 7160, just like their non-ARMM counterparts, and this IRA is in the nature of a share in national taxes, regardless of origin. Second, they also receive their share in taxes collected from (originating in) the region as provided in R.A. 9054.]

In the new setup however, there is an additional 5% in the share of the Bangsamoro, which addition may be credited to the share of cities and provinces in the Bangsamoro to equalize their situation with other LGUs. The annex is, however, silent on the sharing formula between the Bangsamoro Government and its component LGUs. It may be supposed that this is a decision point passed on to the Basic Law.

As for FEES and CHARGES, the Bangsamoro is given the power to impose taxes, fees and charges in the exercise of its exclusive and concurrent powers, as may be defined in the annex on power sharing. In this case, all such fees and charges shall accrue to the Bangsamoro (100%).

As for fees and charges levied and collected by the National Government, the same sharing formula in taxation of 75-25 in favor of the Bangsamoro applies.

Fund Transfers from the National Government

There are two kinds of fund transfers from the National Government to the Bangsamoro recognized in the annex: 1) block grants and 2) the special development fund.

BLOCK GRANTS to the Bangsamoro are fund transfers from the National Government to cover the Bangsamoro Government’s expenditures. This is a revenue-generating mechanism introduced in the annex that is quite different from what prevails in the status quo.

At present, the ARMM gets fund transfers from the National Government, but this is in the nature of a “line item appropriation” in the national budget, which the ARMM government needs to justify or defend in Congress annually. Many comment that this subverts the political autonomy of the region, by institutionalizing fiscal control by the National Government over the autonomous region. Note that even under the Constitution, while autonomous regions exist “within the framework of national sovereignty and territorial integrity,” they are under the general supervision of the President, but not under the control of the National Government.

In the wealth-sharing annex, this fund transfer is now in the nature of an automatic appropriation, regularly released to the Bangsamoro on an annual basis.

Although the annex is yet silent on the formula for this appropriation or its sourcing, there is indication that the amount cannot be less than the last budget given to the ARMM before the Bangsamoro took its place. Ultimately, these two points on formula and fund sourcing seem to be matters that will later be determined in the Basic Law. However, the Basic Law must consider that the amounts received by the Bangsamoro Government as its collections from the four newly devolved taxes and in “revenues” from the EDU of natural resources are to be deducted from its block grant.

This annual block grant is subject to internal budget processes, must be allocated in a regional appropriations act, and not exempt from audit.

Aside from block grants, the Bangsamoro shall also receive from the National Government a SPECIAL DEVELOPMENT FUND for “rehabilitation and development purposes.” The amount for the fund will be determined through a joint needs assessment team constituted by the negotiating panels. The team will submit its “recommendation” to the Transition Commission, which shall then include the same as a proposal in the Basic Law.

Share in the Exploration and Development of Natural Resources

The Bangsamoro will also have a share in “government income” from exploration, development and utilization (EDU) of natural resources in the Bangsamoro. The sharing formula varies depending on the kind of resource:

1) For fossil fuels and uranium, the sharing is at 50-50.
2) For others, if the resource is non-metallic, the Bangsamoro receives all of the government income (100%). If the resource is metallic, the sharing is 75-25 in favor of the Bangsamoro.

Here we can also note a comparison with the status quo: In R.A. 9054, the general rule is a sharing of 70-30 in favor of the ARMM for “taxes imposed on natural resources.” They are in fact treated similarly as “national internal revenue taxes, fees and charges” in Article IX of the ARMM Organic act. Thus, under the status quo, the 70% share of the region is divided equally between the regional government and the city or province concerned.

However, R.A. 9054 makes an exception where the resource may be considered a “strategic mineral,” which is characterized in the law (not defined, nor exclusively enumerated as such) as “uranium, petroleum, and other fossil fuels, mineral oils, all sources of potential energy, as well as national reserves and aquatic parks, forest and watershed reservations….” Where the resource is considered a strategic resource, the National Government and the Bangsamoro share equally (50-50).

One common objection to “strategic minerals” is its somewhat arbitrary application in practice. For instance, even minerals which are not commonly associated with those in the enumeration may be unilaterally classified by National Government as “strategic,” (for example, nickel) thereby removing it from the purview of the ARMM’s authority, and affecting as well the sharing of revenues over the same.

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It seems that the wealth-sharing annex has introduced some key changes to this regime:

First, unlike in R.A. 9054 where the Bangsamoro only shares in “taxes imposed on natural resources” or, with respect to strategic minerals “revenues, taxes and fees derived from the use and development of strategic minerals,” the annex now clearly provides that the Bangsamoro also has a share in the “government income,” which may be understood as the government’s share in the income from EDU of resources, net of taxes.

Thus in the new regime, the Bangsamoro will have a share both in taxes, fees and charged on natural resources (as per the relevant formulas under taxation, first discussed), as well as in the government income on EDU of natural resources. Note the marked change in language between R.A. 9054 and the wealth-sharing annex: Article IX of the law uses “taxes imposed on natural resources,” while the annex uses “government income.”

In short, the share of the Bangsamoro on government income from EDU of natural resources may be construed to be without prejudice to its share in taxes, fees and charges on the EDU of natural resources.

Second, the sharing formula now acknowledges a 100% share over some resources (i.e. non-metallic) to accrue to the Bangsamoro, and increases the share of the Bangsamoro in income from metallic resources from 70% to 75%. Again this increase may be appreciated to benefit LGUs in the Bangsamoro, but this still needs to be reflected in the Basic Law.

Third, the present annex has let go of the fuzzy category that is “strategic minerals,” which has allegedly been an excuse for inequitable dealings over natural resources between the National Government and the ARMM. Now the category is clear: only fossil fuels, (particularly petroleum, coal and natural gas) and uranium are excepted from the general rule. It is only with respect to these resources that the sharing is at 50-50 between the National Government and the Bangsamoro.

The sharing of revenues between the Bangsamoro Government and its component LGUs may be provided in the Basic Law, or perhaps even in a regional legislation, to give the LGUs and the Bangsamoro Government room and authority to continually review revenue-sharing regimes without having to seek amendments in Congress.

The provision for a sustainable development body to be funded from the share of the Bangsamoro in revenues from EDU of natural resources is also laudable.

We now await the sharing regime in jurisdiction over natural resources that should be in the power-sharing annex, although it seems that the revenue-sharing regimes over natural resources in the wealth-sharing annex are independent of the respective authorities of the National Government and the Bangsamoro over natural resources.

Other Sources of Revenues

Aside from these, the Bangsamoro may also tap on the following sources of revenues, with details provided in the annex:

1) government income from GOCC’s, and trade and financial institutions owned by the Bangsamoro
2) Overseas development assistance
3) Loans
4) Economic agreements
5) Grants and donations to the Bangsamoro

Other matters

The annex also provides further allowance to the Bangsamoro for a certain period from its establishment, consistent with the “catch-up principle”:

First, the 25% share of the national government in taxes, fees and charges collected in the region may be remitted to the Bangsamoro for a given period, though not yet determined in the annex.

Second, while the tax collections of the Bangsamoro on the four newly devolved taxes and revenues from EDU of natural resources are going to be deducted from its block grant, the application of this modality is deemed suspended for full four years from the establishment of the Bangsamoro.

The annex also provides for certain authorities that the Bangsamoro may exercise with respect to certain economic or financial institutions. It also provides for the creation of the intergovernmental fiscal policy board, which is a key platform to clarify, resolve or coordinate fiscal policies between the National Government and the Bangsamoro. This was also provided in the FAB.

The annex also reminds us of the authority of the Bangsamoro to have its own auditing body, without prejudice to the mandate of the COA.

Another welcome provision is the earmarking of 5% of “official development funds” received by the Bangsamoro for programs and special measures for women in accordance with GAD plans.

Finally, and on a personal note, I welcome the recognition of the “aspiration of the Bangsamoro to exercise additional fiscal powers” and the need for the parties to cooperate to achieve this through “necessary processes and modalities”. This is consistent with what the MILF has consistently pushed for in the negotiations that there should be a platform for continuous discussions of how the Bangsamoro Government can be made more autonomous, as it builds and develops more capacities in self-governance.

What now?

The wealth-sharing annex brings us two annexes closer to the comprehensive peace agreement. There are now two annexes remaining on the table: the one on power sharing and the other on normalization. We can dare say that among the four, the annexes on wealth sharing and power sharing are most significant because they give the picture on how the establishment of the Bangsamoro is envisioned to change or improve the “unacceptable status quo.”

Meanwhile, the annex on transitional arrangements provides the details on how we can get from the status quo to what is hoped to be the new and improved Bangsamoro. The normalization annex, on the other, reminds us that these negotiations are not just about a mere legislative agenda to change a law, or to craft a new one, but are, after all, for the purpose of ending decades of armed conflict, and addressing the impact of conflict on social, political and economic realities in communities.

The wealth-sharing annex should be read in conjunction with the FAB and the other annexes. For instance, in appreciating the impact on LGUs of new revenue-sharing regimes between the National Government and the Bangsamoro, one must recall the statement in the FAB that, “…privileges already enjoyed by the local government units under existing laws shall not be diminished unless otherwise altered, modified or reformed for good governance pursuant to the provisions of the Bangsamoro local government code.”

The annex should also be considered in light of the unacceptable status quo depicted both in laws, such as R.A. 9054, and in the actual experiences of the ARMM. Meanwhile, the annexes should also be appreciated in view of the mandate of the Transition Commission to draft a Basic Law that is consistent with the framework agreement and its annexes. That is to say, even when signed, the FAB and the annexes do not yet give rise to the Bangsamoro. To establish the Bangsamoro, these agreements must be translated into law, which should fill in details as required by the agreements or may be required for an effective autonomous arrangement, without preempting the prerogatives of the prospective Bangsamoro Government.

With the signing of the annex on wealth-sharing, we now have a clearer picture of how the GPH-MILF negotiations intend to improve on or address the unacceptable status quo. The picture can still get more vivid when the other annexes are signed, yet still will not be complete until the Basic Law is enacted by Congress and ratified by the people.

Thus, at this point, the work with respect to the signed annexes (i.e. wealth sharing and transitional arrangements) moves on from the negotiating panels to the Transition Commission, and eventually Congress. At this point too, the importance of maintaining transparency and inclusivity in all phases of the process cannot be emphasized enough. The people must be kept informed of the status and issues discussed in the negotiations or in the drafting of the Basic Law, and a continuous multi-sectoral engagement must be reinforced to ensure a broad-based constituency for the process. After all, peace negotiations are not just about rules, nor laws, nor words; it is rather, and most importantly, about people.

(MindaViews is the opinion section of MindaNews. PeaceTalk is open to anyone who wishes to share his/her thoughts on peace in Mindanao. Johaira Wahab is a member of the Bangsamoro Transition Commission. She was formerly head of the legal team of the government peace panel negotiating  with the MILF. This article reflects her personal understanding of the Annex on Revenue Generation and Wealth Sharing)

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