When discussing governance, public finance, and local development in the Philippines, one term inevitably surfaces: the Internal Revenue Allotment (IRA). Far from being just a bureaucratic term, the IRA is the lifeblood of local government units (LGUs), shaping how municipalities, cities, and provinces fund essential services, infrastructure, and development initiatives. For citizens, understanding the IRA is akin to peering behind the curtain of local governance—a key that unlocks why some towns flourish while others struggle.
In this exploration, we’ll dive into the historical roots of the IRA, how it’s calculated, its impact on local governance, the debates surrounding it, and its critical role in shaping the Philippines’ development trajectory.
What Is the Internal Revenue Allotment?
The Internal Revenue Allotment is a share of national internal revenue taxes automatically allocated to local government units. This system ensures that municipalities, cities, and provinces receive funding without the need for annual appropriation debates in Congress. The concept is grounded in the idea of decentralization—empowering local governments to manage their own affairs, respond to local needs, and drive development initiatives.
In simpler terms: the IRA is the money that the central government sends to LGUs, sourced from national taxes, which local leaders can use to provide public services, fund local infrastructure, pay employees, and invest in development projects.
Historical Background: From Centralization to Decentralization
Understanding the IRA requires a brief journey into Philippine fiscal history. During the early 20th century, local governments relied heavily on their limited revenue sources, primarily local taxes and fees. Centralized governance meant that provinces and municipalities often lacked the resources to meet basic public needs.
The turning point came with the Local Government Code of 1991 (Republic Act No. 7160). This landmark legislation fundamentally reshaped Philippine local governance, codifying the IRA system. It institutionalized fiscal decentralization by guaranteeing LGUs a portion of national taxes. Essentially, the law recognized that local governments are best positioned to know and respond to the needs of their communities—and to do so, they need predictable funding.
How the IRA Is Computed
The Internal Revenue Allotment isn’t arbitrary; it follows a formulaic approach defined by law. The general principle is that LGUs receive a share based on three factors:
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Population (50%) – The larger the population, the bigger the share. This ensures that densely populated areas receive more resources to serve their constituents.
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Land Area (25%) – LGUs with larger territories receive a slightly higher allotment to account for the logistical challenges and costs of servicing wider areas.
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Equal Sharing (25%) – Every LGU gets a fixed portion to maintain basic operational capacity, regardless of size or population.
The total IRA allocation is set as a percentage of national internal revenue collections, specifically 20% of the total national internal revenue taxes collected three years prior. For example, the IRA for 2026 is based on national taxes collected in 2023. This time-lag method ensures predictability and allows LGUs to plan budgets accordingly.
Example: Calculating an LGU’s IRA
Suppose a province has 500,000 residents, occupies 1,000 square kilometers, and is one of 80 provinces in the country. Using the formula:
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50% population share – calculated proportionally based on total population of all provinces.
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25% land area share – based on proportion of total land area of all provinces.
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25% equal share – divided equally among all provinces.
The sum of these three components determines the IRA allocation for that province.
This calculation ensures fairness while balancing the needs of both urban and rural communities.
The Importance of the IRA for Local Governments
The IRA is more than just numbers on a budget sheet—it is often the main source of funding for LGUs. For many municipalities, the IRA accounts for up to 90% of their total income, especially in rural areas with limited local revenue-generating capacity.
Here’s why it’s crucial:
1. Funding Public Services
Local governments rely on the IRA to provide basic services such as:
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Health care facilities and programs
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Education support for public schools
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Water and sanitation projects
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Waste management and environmental protection
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Emergency services like fire and disaster response
Without the IRA, many local governments would struggle to maintain these essential services.
2. Infrastructure Development
From local roads and bridges to community centers and health clinics, the IRA enables municipalities to invest in physical infrastructure. In provinces where private investment is scarce, IRA-funded projects are often the backbone of development.
3. Administrative Operations
Staff salaries, administrative expenses, and operational costs of local government offices are largely covered by IRA funds. This ensures continuity in governance and service delivery, even in financially constrained areas.
4. Disaster Preparedness and Response
The Philippines is prone to natural disasters such as typhoons, floods, and earthquakes. The IRA provides LGUs with the necessary resources to establish disaster preparedness programs, evacuation centers, and rapid response initiatives.
Challenges and Criticisms of the IRA System
While the IRA has enabled fiscal decentralization and local empowerment, it is not without challenges:
1. Overreliance on National Funds
Because the IRA is a major source of LGU income, some local governments may become complacent in generating local revenue. This dependency can stifle fiscal innovation and local entrepreneurship.
2. Inequitable Distribution
The formula favors population and land area, but some argue it doesn’t adequately address poverty levels or local needs. A small municipality with extreme poverty might receive a smaller IRA than a more affluent but slightly larger neighbor.
3. Political Misuse
There are instances where IRA funds are mismanaged or diverted for political patronage rather than development. Transparency and accountability remain ongoing challenges.
4. Inflation and Changing Needs
The IRA is based on tax collections from three years prior. Economic fluctuations, inflation, and population growth can render some allocations insufficient, forcing LGUs to cut projects or defer maintenance.
Recent Developments and Reforms
In recent years, policymakers have considered reforms to make IRA allocations more equitable and responsive. Key discussions include:
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Weighted Factors – Adjusting the formula to consider poverty incidence or economic performance.
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Performance-Based Allocations – Incentivizing LGUs to improve governance, local revenue generation, and service delivery.
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Disaster-Responsive Adjustments – Ensuring areas vulnerable to natural hazards receive additional funding for resilience-building projects.
For instance, the Department of Budget and Management (DBM) periodically issues guidelines on IRA releases and ensures compliance with legal mandates, while the Commission on Audit (COA) monitors proper utilization of funds.
Case Studies: How the IRA Impacts Local Development
Case Study 1: Rural Municipality Transformation
Consider a small municipality in Mindanao with a population of 25,000. Before the 1991 Local Government Code, it struggled to maintain basic services due to limited local revenue. Post-IRA implementation, the municipality could construct a health clinic, improve water access, and hire additional teachers. Over time, local economic activity increased, illustrating how the IRA can catalyze development.
Case Study 2: Urban Expansion Challenges
A growing city in Luzon with 800,000 residents uses its IRA allocation to fund urban infrastructure, such as road widening and flood control systems. However, the city still faces budget shortfalls due to rapid urbanization. This highlights the need for cities to complement IRA funds with local revenue generation strategies.
IRA and the Principle of Fiscal Autonomy
The IRA embodies the principle of fiscal autonomy, allowing local governments to decide how to allocate funds based on local priorities. This decentralization promotes:
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Local accountability – Citizens can hold officials responsible for how funds are spent.
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Tailored solutions – LGUs can address unique local challenges rather than relying solely on national programs.
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Community engagement – Local development planning encourages citizen participation.
However, fiscal autonomy is only meaningful if LGUs are equipped with the capacity to plan, manage, and audit projects effectively.
The Role of Citizens in the IRA Ecosystem
While the IRA is a government mechanism, citizens play a crucial role in ensuring its impact is positive. Civic engagement, transparency, and participatory budgeting can help guarantee that IRA funds are used efficiently. Mechanisms like public hearings, social audits, and local development councils enable communities to shape priorities and track expenditures.
Active citizen involvement prevents misuse, promotes equitable distribution, and enhances the accountability of local officials. Simply put, the IRA is most effective when people are invested in local governance.
The Future of the Internal Revenue Allotment
As the Philippines continues to urbanize, develop, and face new economic challenges, the IRA system will evolve. Potential reforms could include:
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Dynamic Allocation Formulas – Integrating economic indicators, poverty rates, and disaster risks.
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Performance Incentives – Rewarding LGUs for efficient use of funds, improved governance, and successful development outcomes.
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Integration with Digital Governance – Utilizing technology for real-time monitoring, reporting, and citizen feedback on IRA-funded projects.
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Sustainability-Oriented Spending – Encouraging LGUs to invest in climate resilience, green infrastructure, and sustainable urban planning.
These innovations could transform the IRA from a static funding mechanism into a strategic instrument for inclusive growth and long-term development.
IRA in Numbers: Scope and Scale
To truly grasp the magnitude of the IRA:
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In 2025, the total IRA pool for LGUs exceeded PHP 700 billion, distributed across over 1,600 municipalities, 146 cities, and 81 provinces.
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On average, municipalities receive smaller allocations than cities and provinces, reflecting differences in population and land area.
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Despite this massive funding pool, the IRA still leaves LGUs with the challenge of balancing operational costs, infrastructure needs, and service delivery.
These figures underscore the IRA’s importance—it is not just funding; it is the engine that powers local governance across the nation.
Concluding Thoughts: IRA as a Pillar of Philippine Development
The Internal Revenue Allotment is more than a fiscal policy—it is a pillar of Philippine governance and development. By decentralizing funds, it empowers LGUs, fosters local innovation, and ensures that communities have the resources to meet their needs. Yet, the system is not without flaws. Overreliance, inequitable distribution, and governance challenges must be addressed through reform, transparency, and active citizen engagement.
Ultimately, the IRA is a tool for shared responsibility. The central government provides resources, local governments strategize and execute, and citizens monitor and participate. When all three elements function in harmony, the IRA becomes a transformative force—turning municipal budgets into tangible improvements in people’s lives.
The journey of the IRA reflects a broader truth about governance: resources alone do not create development—empowered, accountable, and responsive institutions do. By understanding the IRA, citizens and policymakers alike can harness its potential to build stronger, more resilient communities across the Philippines.
The Internal Revenue Allotment is, in every sense, a story of empowerment: a story of how money flows from national coffers to the local heart of governance, shaping the present and future of communities nationwide. It is an essential chapter in the ongoing narrative of decentralization, development, and democracy in the Philippines.
