Article 12 of the Bangsamoro Basic Law Simplified

Fiscal Autonomy

September 2, 2021

Section 1. Fiscal Autonomy

The Bangsamoro shall enjoy fiscal autonomy with the end in view of attaining the highest form of economic self-sufficiency and genuine development. It shall be entitled to all fund sources enumerated herein, and shall have the power to create its sources of revenues as provided in this law.

It shall prepare its budget and shall allocate funds in accordance with an annual appropriations law passed59 by the Bangsamoro Parliament. The form, content, and manner of preparation of the budget shall be prescribed by law enacted by the Bangsamoro Parliament.

Section 2. Auditing

All public funds of the Bangsamoro are subject to auditing. For this purpose, a Bangsamoro Commission on Audit (BCA) is hereby created. It shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to the public funds utilized by the Bangsamoro. The utilization of the revenue generated by the Bangsamoro Government and block grants or subsidies from foreign or domestic donors shall be subject to the auditing rules and regulations of the Bangsamoro Government and to auditing by the BCA auditors.

The BCA’s power, authority and duty shall be without prejudice to the power, authority and duty of the Commission on Audit (COA) to examine, audit and settle all accounts, pertaining to the revenues and the use of funds and property owned and held in trust by any government instrumentality, including GOCCs.

With due regard to the BCA’s responsibility to ensure the judicious use of funds within the Bangsamoro, disbursement vouchers of the Bangsamoro Government shall be submitted immediately to the BCA.

Section 3. Local Government Finance

The Bangsamoro Government shall create a mechanism for coordinating, assisting, and monitoring the finances of the constituent local government units in pursuance of good governance and local autonomy.

Section 4. Central Government Assistance

The Central Government shall extend assistance to the Bangsamoro Government in the matter of tax administration and fiscal management. This assistance shall include capacity building and training programs, in accordance with a needs assessment and capacity building plan developed by the Bangsamoro Government in consultation with the Central Government.60

Section 5. Assistance to Other Regions

The Bangsamoro Government may also assist the development efforts of other regions once the Bangsamoro has attained financial self-sustainability.

Sources of Revenue

Section 6. Revenue Sources

The Bangsamoro Government shall have the power to create its own sources of revenues and to levy taxes, fees, and charges, subject to the provisions of this law and consistent with the principles of devolution of powers, equalization, equity, accountability, administrative simplicity, harmonization, and economic efficiency, and fiscal autonomy. Such taxes, fees, and charges shall accrue exclusively to the Bangsamoro Government.

The sources of revenue of the Bangsamoro Government shall include, among others, the following:

  • Taxes
  • Fees and charges
  • Annual block grant coming from Central Government
  • Revenues from the exploration, development and utilization of natural resources derived from areas/territories, land or water, covered by and within the jurisdiction of the Bangsamoro
  • Revenues from Bangsamoro government-owned and/or –controlled corporations (GOCCs), financial institutions and other corporations, and shares from the revenues of national GOCCs and its subsidiaries operating in the Bangsamoro, as may be determined by the intergovernmental fiscal policy board
  • Grants from economic agreements entered into by the Bangsamoro Government and conventions to which the Central Government is a party;61
  • Grants and donations
  • Loans and Overseas Development Assistance (ODA).

Section 7. Taxation

The Bangsamoro Government can shall exercise the power to levy taxes, fees or charges that were already given to the ARMM and/or allowed under Republic Act 6734 and Republic Act 9054, and other legislations, as well as those that are provided herein.

In enacting revenue-raising measures, the Bangsamoro shall observe the principles of uniformity and equity in taxation. Revenues shall inure solely to the benefit of, and be subject to the disposition by, the Bangsamoro Government.

Taxes, fees, or charges shall not be unjust, excessive, oppressive, confiscatory or contrary to public policy. The collection of Bangsamoro taxes, fees, charges and other impositions shall not be let to any private person.

The power to impose a tax under this Basic Law shall be exercised by the Bangsamoro Parliament, through an appropriate legislation, which shall not be enacted without any prior public hearing conducted for the purpose. The Bangsamoro Government shall, as far as practicable, evolve a progressive system of taxation.

Section 8. Tax Incentives

To encourage investments and other economic activities, the Bangsamoro Government shall have the power to grant tax exemptions, rebates, tax holidays and other incentives including those granted to the Regional Board of Investment of the ARMM. As part of incentives to investors, the Bangsamoro may opt instead to impose a flat rate lump sum tax on small and medium enterprises.

Section 9. Taxing Powers.

The following taxes in the Bangsamoro shall be levied by the Bangsamoro Government.62

  • a Capital Gains Tax: Tax on the gains presumed to have been realized by the seller from the sale, exchange, or other disposition of capital assets, including pacto de retro sales and other forms of conditional sale;
  • b Documentary Stamp Tax: Tax on documents, instruments, loan agreements and papers evidencing the acceptance, assignment, sale or transfer of an obligation rights or property incident thereto
  • c Donor’s Tax: Tax on a donation or gift, and is imposed on the gratuitous transfer of property between two or more persons who are living at the time of the transfer. It shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect and whether the property is real or personal, tangible or intangible
  • d Estate Tax: Tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition
  • e Income tax on financial institutions
  • f Registration fees of vessels which are registered by their owners with the Bangsamoro Government and wharfage on wharves constructed and maintained by the Bangsamoro Government or the local government unit concerned
  • g Tolls on bridges or roads constructed and maintained by the provinces, cities, municipalities, or barangays concerned or by the Bangsamoro Government
  • h Taxes, fees, or charges on agricultural and aquatic products, except when sold by marginal farmers or fisherfolk
  • i Excise taxes on articles that are not enumerated under the National Internal Revenue Code;63
  • j Taxes, fees, or charges on countryside, barangay enterprises and cooperatives not registered under Republic Act No. 6810, the “Magna Carta for Countryside and Barangay Business Enterprises” and Republic Act No. 6938, the “Cooperatives Code of the Philippines,” respectively
  • k Such other taxes that were allowed to be levied by the Government of the ARMM under RA 6734, RA 9054, and other legislations and executive issuances.

Where all taxable elements are within the Bangsamoro territory, taxes under letters (a) to (d) above shall no longer be imposed by the BIR of the Central Government.

The Intergovernmental Fiscal Policy Board shall promulgate rules on the determination of taxable elements in relation to taxes (a) to (d) above and on the sharing of revenues from the collection of such taxes where the taxable elements are found within and outside of the Bangsamoro territory.

Any dispute between the Bangsamoro Government and the Central Government arising from the imposition of taxes under (a) to (d) above shall be addressed by the Intergovernmental Fiscal Policy Board.

Section 10. Share in Taxes of the Central Government

Central Government taxes, fees, and charges collected in the Bangsamoro, other than tariff and customs duties, shall be shared as follows:

  • 25% to the Central Government
  • 75% to the Bangsamoro, including the shares of the local government units

The aforementioned 25% share of the Central Government shall, for a period of 10 years, be retained by the Bangsamoro Government. The period for retention may be extended upon mutual agreement of the Central Government and the Bangsamoro Government.64

Section 11. Assessment and Collection of Taxes

The Bangsamoro Parliament shall, by law, establish the Bangsamoro Tax Office within the Bangsamoro for the purpose of assessing and collecting Bangsamoro taxes. The Bangsamoro Government and the Central Government may come to an agreement as to modalities for the collection and remittance of national taxes, including costs, in the Bangsamoro.

Until such time that the Bangsamoro Tax Office is established, the collection shall be done by the Bureau of Internal Revenue (BIR). The share of the Bangsamoro Government shall be directly remitted to it.

Corporations, partnerships, or firms directly engaged in business in the Bangsamoro shall pay their corresponding taxes, fees, and charges in the province or city, where the corporation, partnership, or firm is doing business.

Corporations, partnerships, or firms whose central, main, or head offices are located outside the Bangsamoro but which are doing business within its territorial jurisdiction by farming, developing, or utilizing the land, aquatic, or natural resources therein, shall pay the income taxes corresponding to the income realized from their business operations in the Bangsamoro to the city, or municipality where their branch offices or business operations or activities are located. The BIR and the Bangsamoro Tax Office shall agree on modalities for the filing of income tax returns through the Intergovernmental Fiscal Policy Board.

Section 12. Share of the Constituent Local Government Units in Taxes within the Bangsamoro

The Bangsamoro Parliament shall enact a law detailing the shares of constituent local government units in the 75% share of the Bangsamoro Government in the taxes, fees and charges collected in their jurisdiction by the Central Government in the Bangsamoro.

Section 13. Bangsamoro Taxes and Revenue Code. – The Bangsamoro Parliament shall enact a Bangsamoro Tax Code, which shall cover the taxing powers of the Bangsamoro Government.65

Section 14. Fees and Charges. – The Bangsamoro shall exercise the power to levy fees and charges pursuant to the powers and functions that it shall exercise in accordance with this Basic Law, including the powers already granted under Republic Act. No. 6734, RA 9054 and other executive issuances, and memoranda of agreement. Block Grant

Section 15. Annual Block Grant

The Central Government shall provide an annual block grant which shall be the share of the Bangsamoro in the national internal revenue of the Government.

The amount shall be sufficient for the exercise of the powers and functions of the Bangsamoro Government under this Basic Law in no case to be less than the last budget received by the ARMM immediately before the establishment of the BTA.

Section 16. Formula of the Block Grant

For the budget year immediately following the year this Act takes effect, the amount of the block grant shall be equivalent to 4% of the net national internal revenue collection of the Bureau of Internal Revenue less the internal revenue allotment of local government units. For purposes of this section, the net national internal revenue collection of the Bureau of Internal Revenue is understood to be the sum of all internal revenue tax collections during the base year less the amount released during the same year for tax refunds, payments for informer’s reward, and any portion of internal revenue tax collections which are presently set aside, or hereafter earmarked under special laws for payment to third persons.

Provided, that the computation shall be based on collections from the third fiscal year preceding the current fiscal year;

Provided, further, that the above formula shall be adjusted if, after the effectivity of this Act, there occurs a change in the total land area of the Bangsamoro; Provided, finally, that in the event that the Central Government incurs an unmanageable public sector deficit, the President of the Philippines shall call for the activation of the66 intergovernmental relations body where both the President and the Prime Minister of the Bangsamoro will participate in order to look at the possibility of adjusting the annual block grant of the Bangsamoro; Provided furthermore, that this adjustment shall be during the duration of the unmanageable public sector deficit only.

Section 17. Automatic Appropriation

The annual block grant shall be automatically appropriated to the Bangsamoro Government and reflected in the General Appropriations Act.

The Bangsamoro Parliament shall pass an annual appropriations law that allocates the block grant to various agencies and programs, according to the powers and functions of the Bangsamoro Government. The Bangsamoro annual appropriations law may also include performance standards and targets for each sector. Any unspent amount in the current year’s block grant shall revert to the Bangsamoro general fund for re-appropriation.

Section 18. Regular Release

The block grant shall be released, without need of any further action, directly and comprehensively to the Bangsamoro Government, and which shall not be subject to any lien or holdback that may be imposed by the Central Government for whatever purpose.

Section 19. Deductions from the Block Grant; Exceptions

Four years from the operationalization of the regular Bangsamoro Government the following shall be deducted from the block grants:

a. Revenues from the additional taxes beyond those already devolved to the ARMM collected three (3) years before b. Share of the Bangsamoro in the government income derived from the exploration, development and utilization of natural resources, as provided in Section 32 below, collected three (3) years before.

Provided, that the amount allocated for the operation of the Bangsamoro Sustainable Development Board, as provided in Article XIII, Section 4,shall not be included in the amount herein to be deducted from the block grant; Provided, further, that the67 abovementioned deduction shall not include the shares of constituent local government units and of indigenous communities in government income derived from the exploration, development and utilization of natural resources, under Sections 33 and 34, respectively.

Section 20. Review of the Block Grant Formula

The formula for the Block Grant, as provided above, shall be reviewed by the Intergovernmental Fiscal Policy Board 10 years after its effectivity. The review that shall be undertaken shall consider, among others, the fiscal needs of the Bangsamoro and the actual revenues it is able to generate.

Thereafter, the review shall be undertaken every five (5) years as agreed upon in the Intergovernmental Fiscal Policy Board. Should the Central Government no longer have any representative in the said Board, the review shall be undertaken by the Intergovernmental Relations Body, for enactment into law.

Section 21. Development programs and projects

Immediately after the ratification of this Basic Law, and for another five (5) years thereafter, the Central Government shall provide for additional funds that would subsidize expenditure for development projects and infrastructure in the Bangsamoro, including provincial and municipal roads, in accordance with a development plan formulated by the Bangsamoro Government.

The Central Government and the Bangsamoro Government shall agree on the amount through the intergovernmental relations body, as well as the manner of release of said amount to the Bangsamoro Government.

Loans

Section 22. Foreign and Domestic Loans; Bills, Bonds, Notes and Obligations. – (a) Loans, Credits, and Other Forms of Indebtedness. – The contracting of loans, credits, and other forms of indebtedness by the Bangsamoro Government shall be for the development and welfare of the people of the Bangsamoro.

Subject to acceptable credit worthiness, such loans may be secured from domestic and foreign lending institutions, except foreign and domestic loans requiring sovereign guaranty, whether explicit or implicit, which would require the approval of the Central68 Government.

The Bangsamoro Parliament may authorize the Chief Minister to contract such domestic or foreign loans. The loans so contracted may take effect upon approval by a majority of all the members of the Bangsamoro Parliament.

The Central Government shall assist the Bangsamoro Government in complying with the requirements for a speedy issuance of the sovereign guaranty, to finance local infrastructure and other socio-economic development projects in accordance with the Bangsamoro Development Plan.

Within 30 days from the submission of the Bangsamoro Government of its application for sovereign guaranty, the Bangsamoro Government shall be informed by the Central Government on the actions taken on the application. The application shall be resolved with dispatch.

b) Bills, Bonds, Notes, Debentures and Obligations

The Bangsamoro Government is also authorized to issue treasury bills, bonds, debentures, securities, collaterals, notes, obligations, and other debt papers or documents, as well as redeem or retire the same, pursuant to law enacted by the Bangsamoro Parliament. Said authority may be exercised in order to finance self-liquidating, income producing development or livelihood projects pursuant to the priorities established in the aforementioned development plan.

(c) Payment of Loans and Indebtedness. – The Bangsamoro Government shall appropriate in its annual budget such amounts as are sufficient to pay their loans and their indebtedness incurred.

Section 23. Overseas Development Assistance

In its efforts to achieve inclusive growth and poverty reduction, through the implementation of priority development projects, the Bangsamoro Government may avail directly of Overseas Development Assistance (ODA). The Bangsamoro Parliament may enact legislation governing ODA.69

Grants and Donations

Section 24. Grants and Donations. – Grants and donations from foreign and domestic donors received by the Bangsamoro Government for the development and welfare of the people in the Bangsamoro shall be used solely for the purpose for which they were received.

Donations and grants that are used exclusively to finance projects for education, health, youth and culture, and economic development, may be deducted in full from the taxable income of the donor or grantor.

Economic Agreements and Conventions

Section 25. Economic Agreements

The Bangsamoro government may enter into economic agreements and receive benefits and grants derived therefrom subject to the reserved powers of the Central Government over foreign affairs.

Section 26. Cultural Exchange, Economic and Technical Cooperation

Consistent with the reserved powers of the Central Government, the Bangsamoro Government may establish linkages for cultural exchange, economic and technical cooperation with countries with diplomatic relations with the Philippines, with assistance of Philippine embassies or consulates, or through some other arrangements with Central Government supporting such undertakings.

Section 27. Benefits from Conventions

The Bangsamoro shall be entitled to benefits resulting from conventions to which the Central Government is a party. Such benefits shall be equitable and shall consider the available human and material resources and comparative advantage of the Bangsamoro, as well as its socio-economic conditions and needs.70

Government Owned and/or Controlled Corporations (GOCCs) and Financial Institutions

Section 28. GOCCs and Financial Institutions

The Bangsamoro shall have the power to create GOCCs and financial institutions through the necessary modalities, and in accordance with a law on GOCCs to be passed by the Parliament. These Bangsamoro Government-created GOCCs shall be duly registered with the Securities and Exchange Commission or established under legislative charter by the Bangsamoro Parliament, and shall be recognized even outside the Bangsamoro. Revenues derived from their operations shall pertain to the Bangsamoro.

Section 29. Existing GOCCs Operating Exclusively in the Bangsamoro

The Bangsamoro Government shall have the authority and control over existing GOCCs and financial institutions operating exclusively in the Bangsamoro, after determination by the intergovernmental fiscal policy board of its feasibility. Such transfer shall be effected through the necessary changes on the GOCCs’ governing boards.

Section 30. Southern Philippine Development Authority and Al-Amanah Islamic Investment Bank

Within 6 months from the establishment of the BTA, the Intergovernmental Fiscal Policy Board shall determine the participation of the Bangsamoro in the ownership and management of Al-Amanah Islamic Investment Bank of the Philippines and the Southern Philippines Development Authority as provided in P.D. 690 as amended by P.D. 1703 and the mode of transfer of ownership to the Bangsamoro Government.

Section 31. Existing GOCCs in the Bangsamoro

The Bangsamoro Government shall be represented in the board of directors or in the policy-making bodies of GOCCs that operate a substantial portion of their businesses directly or through their subsidiaries in the Bangsamoro or where the Bangsamoro has substantial interest.

The Intergovernmental Fiscal Policy Board (IGFPB) shall determine the extent of participation. In no case shall the Bangsamoro have less than one seat in the governing board of such entities.71

The share of the Bangsamoro Government from the results of operations of GOCCs and subsidiaries operating in the Bangsamoro shall be based on a formula determined by the Intergovernmental Fiscal Policy Board under Section 36 of this Basic Law. Sharing in the Exploration, Development and Utilization of Natural Resources

Section 32. Sharing in Exploration, Development and Utilization of Natural Resource

Central Government income from taxes derived from the exploration, development and utilization of all natural resources within the Bangsamoro shall be allocated as follows:

  • For non-metallic minerals (sand, gravel, and quarry resources), such revenues shall pertain fully to the Bangsamoro and its local government units
  • For metallic minerals, seventy-five percent (75%) shall pertain to the Bangsamoro
  • For fossil fuels (petroleum, natural gas, and coal) and uranium, the same shall be shared equally between the Central and Bangsamoro Governments.

Such sharing scheme shall be applicable to the natural resources found in the land mass that comprise the Bangsamoro territory as well as the waters that are within the territorial jurisdiction of the Bangsamoro.

Section 33. Share of the Constituent Local Government Units

The share of the Bangsamoro Government in the revenues referred to in the immediately preceding section shall include those for its constituent local government units. The Bangsamoro Parliament shall enact a law detailing the shares of such local government units.

Section 34. Share of Indigenous Communities

Indigenous peoples shall have an equitable share from the revenues generated from the exploration, development and utilization of natural resources that are found within the territories covered by a native72 title in their favor. The share shall be provided for in a law to be passed by the Bangsamoro Parliament.

The Bangsamoro Parliament shall enact a law that shall provide in detail said sharing system, including the percentage of the shares of the indigenous peoples and communities, and the mechanisms therefor.

Intergovernmental Fiscal Policy Board

Section 35. Intergovernmental Fiscal Policy Board

There is hereby created an Intergovernmental Fiscal Policy Board (IGFPB) that shall address revenue imbalances and fluctuations in regional financial needs and revenue-raising capacity of the Bangsamoro.

Section 36. Functions

The IGFPB shall undertake the following functions:

  • Recommend the necessary fiscal policy adjustments by undertaking a periodic review of the taxing powers, tax base and rates of the Bangsamoro Government, wealth sharing arrangements, sources of revenues vis-à-vis the development needs of the Bangsamoro
  • Address disputes between the Central Government and the Bangsamoro Government involving the collection of capital gains tax, documentary stamp tax, donor’s tax and estate tax in the Bangsamoro
  • Determine the extent of participation of the Bangsamoro Government in the board of directors or the policy-making bodies of GOCCs that operate a substantial portion of their businesses directly or through their subsidiaries in the Bangsamoro or where the Bangsamoro has substantial interest;
  • Determine the participation of the Bangsamoro Government in the results of operations of government-owned and/or controlled corporations and its subsidiaries73 operating in the Bangsamoro. The Board shall also determine a formula for the share of the Bangsamoro Government from the results of said operations;
  • Determine the participation of the Bangsamoro in the ownership and management of Al-Amanah Islamic Investment Bank of the Philippines and the Southern Philippines Development Authority (SPDA) to the Bangsamoro; and
  • Recommend the exercise by the Bangsamoro Government of additional fiscal powers in order to attain the highest form of fiscal autonomy.

Section 37. Composition

The Board shall be composed of the heads and/or representatives of the appropriate ministries and offices in the Bangsamoro Government. The Central Government shall likewise be represented in the Board by the Secretary of Finance and such other officials as may be necessary.

Once full fiscal autonomy has been achieved by the Bangsamoro, it may no longer be necessary to have a representative from the Central Government to sit in the Board.

Section 38. Meetings and Annual Report.

The Board shall meet at least once in 6 months and shall adopt its own rules of procedure for the conduct of its meetings. An annual report shall be submitted by the Board to the Central Government and the Bangsamoro Government.

Section 39. Full Disclosure Policy

The Bangsamoro Government hereby adopts a policy of full disclosure of its budget and finances, and bids and public offerings and shall provide protocols for the guidance of local authorities in the implementation of said policy, which shall include, among others the posting of the Summary of Income and Expenditures. The same policy shall apply to its constituent local government units, as may be provided in a law to be enacted by the Bangsamoro Parliament.

Section 40. Additional Fiscal Powers

The IGFPB may recommend the exercise by the Bangsamoro of additional fiscal powers in order to reach full fiscal autonomy. Such74 recommendations shall be proposed to Congress or the appropriate agency of the Central Government that has the power to effect such recommendations.