Republic of the Philippines 
HOUSE OF REPRESENTATIVES 
NINETEENTH CONGRESS 
First Regular Session 
HOUSE BILL NO. ____ 
Introduced by Representative Rex Gatchalian 
AN ACT 
INSTITUTIONALIZING THE AUTOMATIC INCOME CLASSIFICATION OF 
PROVINCES, CITIES AND MUNICIPALITIES, AMENDING FOR THIS 
PURPOSE SECTION 8 OF REPUBLIC ACT NO. 7160, OTHERWISE 
KNOWN AS THE LOCAL GOVERNMENT CODE OF 1991, AS AMENDED,  
AND FOR OTHER PURPOSES 
EXPLANATORY NOTE 
Executive Order (EO) No. 249, series of 1987, provides for the income 
classification of cities, provinces, and municipalities. It states that the 
“Secretary of Finance shall have the authority to review the income ranges at 
lease once every four years and recommend such appropriate changes or 
revisions…1” For several cycles, the Secretary of Finance issued Department 
Orders that reclassified local government units (LGUs). 
However, in 2012, the Department of Justice opined and emphasized that the 
Secretary of Finance merely have a recommending authority in making 
changes or revisions in the income classifications of LGUs. This resulted in 
the abeyance of the income reclassifications in 2012 and the succeeding 
cycles. 
1 Section 8, Executive Order No. 249, s. 1987. 
September 29, 2022
4:02 am
5290


More than 10 years after the last income reclassification in 2008, the income 
classifications of LGUs extremely deviate with the prevailing economic 
conditions and the overall financial status of LGUs. 
This bill aims to effectively and systematically determine the LGUs financial 
capability and fiscal position that are reflective of the economy and the state 
of local development by: (1) granting the mandate and clear authority to the 
Secretary of Finance to set income targets for the periodic automatic income 
reclassification of LGUs; (2) having a system of automatic income 
reclassification (upgrade/downgrade) of LGUs every two (2) years based on 
the updated table of income classifications to be released by the Bureau of 
Local Government Finance, and (3) utilization of the Bureau of Local 
Government Finance’s Statement of Receipts and Expenditures for purposes 
of LGUs’ automatic income reclassification. 
In view of the foregoing considerations, approval of this bill is earnestly 
sought. 
HON. REX GATCHALIAN 
Representative 
1st District, Valenzuela City 


 1
Republic of the Philippines 
HOUSE OF REPRESENTATIVES 
NINETEENTH CONGRESS 
First Regular Session 
HOUSE BILL NO. ____ 
Introduced by Representative Rex Gatchalian 
AN ACT 
INSTITUTIONALIZING THE AUTOMATIC INCOME CLASSIFICATION OF 
PROVINCES, CITIES AND MUNICIPALITIES, AMENDING FOR THIS 
PURPOSE SECTION 8 OF REPUBLIC ACT NO. 7160, OTHERWISE 
KNOWN AS THE LOCAL GOVERNMENT CODE OF 1991, AS AMENDED,  
AND FOR OTHER PURPOSES 
Be it enacted by the Senate and the House of Representatives of the Philippines 
in Congress assembled: 
SECTION 1. Short Title. – This Act shall be known as the “Automatic 
1 
Income Classification Act for LGUs”. 
2 
3 
SEC. 2. Section 8 of Republic Act (RA) No. 7160, otherwise known as 
4 
the “Local Government Code of 1991”, as amended, is hereby amended as 
5 
follows: 
6 
7 
“Section. 8. Division and Merger. – Division and merger of 
8 
existing local government units shall comply with the same 
9 
requirements herein prescribed for their creation: Provided 
10 
however, That such division shall not reduce the income, 
11 
population, or land area of the local government unit or units 
12 
concerned to less than the minimum requirements prescribed 
13 
in this Code: Provided, further, That the income classification of 
14 
the original local government unit or units shall not fall below 
15 
its current classification prior to such division. 
16 
17 
[The income classification of local government units shall be 
18 
updated within six (6) months form the effectivity of this Code 
19 
to reflect the changes of their financial position resulting from 
20 
the increased revenues as provided herein.]” 
21 
22 
SEC. 3. A new section designated as Section 8-A of RA No. 7160, 
23 
as amended, is hereby added to read as follows: 
24 
25 
5290


 2
“SEC. 8-A. INCOME CLASSIFICATION OF PROVINCES, 
1 
CITIES AND MUNICIPALITIES. – 
2 
(A) ALL PROVINCES, CITIES AND MUNICIPALITIES SHALL 
3 
BE CLASSIFIED INTO SIX (6) INCOME CLASSES 
4 
ACCORDING TO RANGES OF INCOME AND BASED ON 
5 
THE AVERAGE ANNUAL REGULAR INCOME FOR TWO (2) 
6 
FISCAL YEARS PRECEDING THE AUTOMATIC INCOME 
7 
CLASSIFICATION; 
PROVIDED 
THAT, 
THE 
ANNUAL 
8 
REGULAR INCOME SHALL BE COMPUTED FROM THE 
9 
STATEMENT OF RECEIPTS AND EXPENDITURES (SRE) 
10 
MAINTAINED BY THE BUREAU OF LOCAL GOVERNMENT 
11 
FINANCE (BLGF). 
12 
 
13 
(B) THE SECRETARY OF FINANCE, IN CONSULTATION WITH 
14 
THE LGU LEAGUES, SHALL HAVE THE AUTHORITY TO 
15 
SET THE RANGES OF INCOME FOR THE AUTOMATIC 
16 
INCOME CLASSIFICATION OF ALL PROVINCES, CITIES 
17 
AND MUNICIPALITIES. 
18 
 
19 
(C) THE TABLE OF INCOME CLASSIFICATION SHALL BE 
20 
AUTOMATICALLY UPDATED BY THE BLGF EVERY TWO 
21 
(2) YEARS. THIS SHALL CONSTITUTE THE INCOME 
22 
RECLASSIFICATION OF ALL PROVINCES, CITIES AND 
23 
MUNICIPALITIES. 
24 
 
25 
(D) THE BLGF SHALL ISSUE A CERTIFICATION OF THE 
26 
INCOME RECLASSIFICATION OF AN LGU WITHIN SIXTY 
27 
(60) DAYS FROM THE RECLASSIFICATION OF LGUS; 
28 
PROVIDED HOWEVER THAT, THE NON-ISSUANCE OF 
29 
SAID CERTIFICATION SHALL NOT SUSPEND THE 
30 
EFFECTS 
OF 
THE 
AUTOMATIC 
INCOME 
31 
RECLASSIFICATION. 
32 
 
33 
(E) THE FIRST AUTOMATIC INCOME RECLASSIFICATION 
34 
SHALL BE MADE WITHIN SIX (6) MONTHS AFTER THE 
35 
EFFECTIVITY OF THIS ACT, AND EVERY TWO (2) YEARS 
36 
THEREAFTER. IN CASES OF UNMANAGEABLE PUBLIC 
37 
SECTOR DEFICIT, THE SECRETARY OF FINANCE MAY 
38 
ORDER THE RE-COMPUTATION AND REVISION OF THE 
39 
INCOME CLASSIFICATION OF PROVINCES, CITIES AND 
40 
MUNICIPALITIES TO REFLECT THE ACTUAL FINANCIAL 
41 
SITUATION OF THE LOCAL GOVERNMENT UNITS; 
42 
PROVIDED THAT, A PROVINCE, CITY OR MUNICIPALITY, 
43 
WHICH HAS BEEN IN EXISTENCE FOR A PERIOD OF 
44 
LESS THAN TWO (2) FISCAL YEARS IMMEDIATELY 
45 


 3
PRECEDING 
THE 
AUTOMATIC 
INCOME 
1 
RECLASSIFICATION OF LOCAL GOVERNMENT UNITS, AS 
2 
HEREIN PROVIDED, SHALL BE CLASSIFIED ON THE 
3 
BASIS OF ITS AVERAGE ANNUAL REGULAR INCOME FOR 
4 
THE FISCAL YEAR OF ITS EXISTENCE; PROVIDED 
5 
FURTHER THAT, IF A PROVINCE OR MUNICIPALITY IS 
6 
CREATED BEFORE THE YEAR OF THE AUTOMATIC 
7 
RECLASSIFICATION OF LOCAL GOVERNMENT UNITS, IT 
8 
SHALL BE CLASSIFIED ON THE BASIS OF THE 
9 
ESTIMATED AGGREGATE NET SHARE OF INCOME 
10 
FROM REGULAR SOURCES FROM ITS COMPONENT 
11 
CITIES AND MUNICIPALITIES IN THE CASE OF A 
12 
PROVINCE, OR ITS COMPONENT BARANGAYS IN THE 
13 
CASE 
OF 
A 
MUNICIPALITY, 
INCLUDING 
THE 
14 
CORRESPONDING ESTIMATED NTA OF THE NEWLY 
15 
CREATED PROVINCE OR MUNICIPALITY PURSUANT TO 
16 
SECTION 285 OF REPUBLIC ACT NO. 7160, DURING THE 
17 
FISCAL 
YEAR 
IMMEDIATELY 
PRECEDING 
ITS 
18 
CREATION. THIS RULE SHALL LIKEWISE APPLY TO A 
19 
MUNICIPALITY THAT IS CONVERTED INTO A CITY, OR A 
20 
CITY 
THAT 
IS 
CREATED 
OUT 
OF 
EXISTING 
21 
MUNICIPALITIES AND/OR BARANGAYS. 
22 
 
23 
(F) THE INCOME CLASSIFICATION OF PROVINCES, CITIES, 
24 
AND 
MUNICIPALITIES 
SHALL, 
AMONG 
OTHER 
25 
PURPOSES, SERVE AS BASIS FOR: 
26 
I. 
THE DETERMINATION OF ADMINISTRATIVE 
27 
AND STATUTORY AIDS, FINANCIAL GRANTS, 
28 
AND OTHER FORMS OF ASSISTANCE TO 
29 
LOCAL GOVERNMENTS; 
30 
II. 
THE DETERMINATION OF THE FINANCIAL 
31 
CAPABILITY OF LOCAL GOVERNMENT UNITS 
32 
TO 
UNDERTAKE 
DEVELOPMENTAL 
33 
PROGRAMS AND PRIORITY PROJECTS; 
34 
III. 
THE TOTAL ANNUAL OR SUPPLEMENTAL 
35 
APPROPRIATION FOR PERSONAL SERVICES 
36 
OF A LOCAL GOVERNMENT UNIT TO ONE (1) 
37 
FISCAL YEAR AS PROVIDED IN SECTION 325 
38 
(A) OF LGC OF 1991; 
39 
IV. 
COMPENSATION ADJUSTMENT FOR LGU 
40 
PERSONNEL AS PROVIDED UNDER SECTION 
41 
10 OF EXECUTIVE ORDER NO. 201 (SALARY 
42 
STANDARDIZATION LAW OF 2015); 
43 
V. 
THE 
CREATION 
OF 
A 
NEW 
LOCAL 
44 
GOVERNMENT UNIT WHEREIN SECTION 8 
45 
OF THE LGC OF 1991 PROVIDES THAT THE 
46 


 4
DIVISION AND MERGER OF EXISTING LOCAL 
1 
GOVERNMENT 
UNIT 
SHALL 
NOT 
2 
DOWNGRADE THE INCOME CLASSIFICATION 
3 
OF THE ORIGINAL UNIT; 
4 
VI. 
THE NUMBER OF ELECTIVE MEMBERS IN 
5 
THE SANGGUNIANG BAYAN AS PROVIDED 
6 
UNDER SECTION 2 OF RA NO. 6637; 
7 
VII. 
ISSUANCE OF A FREE PATENT TITLE TO 
8 
RESIDENTIAL LANDS AS PROVIDED UNDER 
9 
REPUBLIC ACT NO. 10023; 
10 
VIII. THE 
MINIMUM 
WAGE 
OF 
DOMESTIC 
11 
WORKERS AS PROVIDED UNDER SECTION 
12 
24 OF RA NO. 10361; 
13 
IX. 
LGUs TO INSURE ITS PROPERTIES WITH 
14 
GSIS IN COMPLIANCE WITH SECTION 5 OF 
15 
RA NO. 656 OR PROPERTY INSURANCE LAW; 
16 
X. 
PROVIDE 
LIMITATIONS 
ON 
THE 
17 
PERCENTAGE 
OF 
AGRICULTURAL 
LAND 
18 
THAT 
CAN 
BE 
RECLASSIFIED 
AND 
19 
PROVIDED FOR THE MANNER OF THEIR 
20 
UTILIZATION 
OR 
DISPOSITION 
AS 
21 
STIPULATED IN SECTION 20 OF THIS CODE; 
22 
AND 
23 
XI. 
SUCH OTHER PURPOSES AS PROVIDED 
24 
UNDER EXISTING LAWS AND REGULATIONS. 
25 
 
26 
(G) ALL 
INCOME 
RECLASSIFICATION 
OF 
PROVINCES, 
27 
CITIES, AND MUNICIPALITIES PURSUANT TO THIS 
28 
SECTION SHALL BE EFFECTIVE ON JANUARY 1ST OF 
29 
THE IMMEDIATELY SUCCEEDING YEAR. 
30 
 
31 
(H) FOR PURPOSES OF IMPLEMENTING THIS SECTION, THE 
32 
SECRETARY OF FINANCE SHALL ISSUE SUCH RULES 
33 
AND REGULATIONS AS MAY BE DEEMED NECESSARY 
34 
AND 
THE 
APPROPRIATE 
DEPARTMENT 
ORDERS 
35 
PROVIDED 
FOR 
THE 
AUTOMATIC 
INCOME 
36 
CLASSIFICATION 
OF 
PROVINCES, 
CITIES 
AND 
37 
MUNICIPALITIES.” 
38 
 
39 
SEC. 4. Transitory Provision -   A fourth or lower income class 
40 
province, city or municipality which gets either a first, second or third income 
41 
class designation from the first automatic income reclassification provided 
42 
herein shall be exempted from providing for additional personal services and 
43 
may maintain existing personnel prior to the reclassification, pursuant to civil 
44 
service rules and regulations; provided further, that in case of personnel 
45 
transfers, resignations or deaths, the local government shall not cause the 
46 


 5
filling up of vacant position nor provide for its funding until the succeeding 
1 
automatic income reclassification; and provided finally, that the limitations 
2 
enunciated under section 325 (a) on the use of LGU funds shall not be 
3 
applicable for LGUs which has  received its first, second or third income class 
4 
designation as provided herein. 
5 
 
6 
SEC. 5. Saving Clause. – All existing income classifications of 
7 
provinces, cities and municipalities shall continue to be in force and effect 
8 
until superseded by the issuance of a new income ranges set by the Secretary 
9 
of Finance and the first automatic income reclassification of LGUs pursuant 
10 
to this Act.  
11 
 
12 
SEC. 6. Repealing Clause. – Executive Order No. 249, dated July 25, 
13 
1987 is hereby repealed. Further, Section 8 of Republic Act No. 7160, 
14 
otherwise known as the Local Government Code of 1991, as amended, is 
15 
hereby amended. All laws, presidential decrees, executive orders, presidential 
16 
proclamations, rules and regulations or parts thereof contrary to or 
17 
inconsistent with this Act are hereby repealed, superseded or modified 
18 
accordingly.  
19 
 
20 
SEC. 7. Effectivity. – This Act shall take effect fifteen (15) days after 
21 
its complete publication in the Official Gazette or in at least two (2) 
22 
newspapers of general circulation.  
23 
 
24 
Approved,