| Photo by Nikko Balanial on Unsplash
The current National Tax Allotment (formerly IRA) formula, which weights population at 50 percent and land area at 25 percent, structurally favors already-dense, wealthier urban centers and starves poorer, less-populated rural LGUs of development funds. A shift to a formula anchored in local GDP or income levels would allow the national budget to prioritize lagging, low‑productivity communities rather than perpetually rewarding congestion and inequality in big cities.
The present allotment system is a legacy of a post‑war development mindset that equated urbanization with progress and deliberately pulled labor from the countryside into industrializing cities. The 1991 Local Government Code codified this bias by allocating LGUs’ “just share” of national taxes based on three factors—population (50 percent), land area (25 percent), and equal sharing (25 percent)—rather than on any real measure of economic need or productive potential. In effect, the more people you manage to cram into a city, the bigger your slice of the pie; the more built‑up and expansive your jurisdiction, the more you gain, irrespective of poverty incidence or local productivity.
It made a certain political sense in the early decades after the war, when the state wanted to build visible growth centers and absorb a surplus rural workforce. But decades later, it has hardened into structural distortion: the formula is blind to who is poor and who is rich, who is already crowded and who has room—and need—to grow.
The results are visible in every Philippine metropolis. Metro Manila alone is estimated to host around three million people in informal settlements, a figure driven by the concentration of economic opportunity in the capital and the chronic lack of affordable housing and basic services. As people move in, the population factor in the NTA formula swells the city’s share of national taxes, giving it even more fiscal muscle, while rural sending communities lose both people and potential allotment.
“A tax allotment system that follows poverty and low productivity—rather than density and political visibility—is one of the few levers that can, quietly but decisively, bend the arc of development away from blight and towards balanced, inclusive growth.”
At the same time, underinvested provinces and municipalities—especially in the Visayas and Mindanao and in upland or coastal peripheries—struggle with weak infrastructure, thin social services, and limited local markets, which in turn pushes more residents to leave. National agencies and private investors follow the same logic: invest where people already are, rather than where people could thrive if the state deliberately seeded roads, irrigation, schools, and connectivity. The NTA, even after the Mandanas‑Garcia ruling expanded its scope to cover all national taxes and raised its share of GDP, still cascades through the same population‑and‑land‑heavy distribution keys, magnifying existing urban bias rather than correcting it.
Under the current setup, the national tax pool is divided vertically among provinces, cities, municipalities, and barangays, and then horizontally within each level using population, land area, and equal sharing. For provinces, cities, and municipalities, 50 percent of the pool is distributed by population, 25 percent by land area, and only 25 percent is shared equally; for barangays, population is weighted even higher at 60 percent, with the balance going to equal sharing. It makes the NTA a de facto reward for already dense, already attractive jurisdictions, many of which also host higher‑value private economic activity and thus have stronger own‑source revenues.
Poor, low‑density LGUs—an interior Mindanao municipality, a typhoon‑exposed island, a conflict‑affected upland town—are penalized twice over: they lose people to out‑migration, which shrinks their population weight, and they lack the commercial base to generate local taxes. The resulting revenue gap constrains their ability to fund the very investments—farm‑to‑market roads, irrigation, health centers, tourism access, digital links—that would make staying in the countryside a rational choice. What we call “rural backwardness” is often nothing more than a fiscal algorithm working exactly as designed.
If the point of intergovernmental transfers is to reduce territorial inequality, then the formula has to do more than count heads and hectares. International experience, as well as Philippine poverty and regional data, suggest at least three redesign principles: target fiscal gaps, reward effort, and correct historical underinvestment. An NTA formula partly anchored in local GDP—or, more precisely, in an index of local economic output and poverty—would direct money in the opposite direction of current flows.
A reformed scheme could look like this:
- Retain a modest population factor to reflect service demand, but dial it down.
- Replace part of the land‑area weight with a need” factor that combines poverty incidence, vulnerability, and remoteness indicators.
- Introduce a low‑GDP bonus: LGUs with significantly below‑average per‑capita GDP (or household income) receive a higher share per person.
- Add a performance window for LGUs that raise their own‑source revenues or meet transparency and planning benchmarks, so reform is rewarded rather than punished.
It would turn the NTA into a true equalizer. A poor, sparsely populated agricultural municipality would see its per-capita allotment rise because its local economy is weak and its developmental catch‑up needs are high. A wealthy, highly urbanized city would still receive substantial transfers, but no longer be structurally favored simply for attracting more people into congestion.
Re‑basing the NTA on local GDP and need is not a mere technical tweak; it is an explicit political choice to reverse decades of Metro‑centric and corridor‑centric development. Done well, it would allow the national government to anchor its rural development strategy in a predictable, rules‑based flow of funds, rather than in the sporadic grace of national agencies or pork‑barrel projects.
The payoff would be cumulative. As rural LGUs gain fiscal space to invest in connectivity, human capital, and support for local enterprises, they become more than just labor reservoirs for big cities; they become viable places to live, work, and build businesses. Over time, that relieves pressure on overcrowded urban centers, slows the growth of informal settlements, and chips away at the structural inequality that has long defined the Philippine landscape. A tax allotment system that follows poverty and low productivity—rather than density and political visibility—is one of the few levers that can, quietly but decisively, bend the arc of development away from blight and towards balanced, inclusive growth.
———————————–
ABOUT THE AUTHOR: Dr. Crispin Fernandez advocates for overseas Filipinos, public health, transformative political change, and patriotic economics. He is also a community organizer, leader, and freelance writer.
