Republic of the Philippines
HOUSE OF REPRESENTATIVES,
Quezon City

| Nineteenth Congress
First Regular Session

1817

HOUSE BILL No. ~~

Introduced by Representative ZALDY “JECOY” S. VILLA

INSTIT!

CITIES AND MU:

under
More tl

AN ACT
ING THE INCOME CLASSIFICATION OF PROVINCES,
IPALITIES, AND FOR OTHER PURPOSES

TIONAI

EXPLANATORY NOTE

partment of Finance ("DOF") Department Order No. 23-08 in July 29, 2008.
ten (10) years have lapsed since the last income reclassification of provinces,

The "ee come reclassification of provinces, cities and municipalities was provided for

cities and municipalities.

In terms of legislation, the income classification of provinces, cities and municipalities

was by
Executir
powers

irtue of Executive Order No.249 which was issued on July 25, 1987. Said
e Order was issued by then President Corazon Aquino exercising legislative
‘ollowing the EDSA revolution. Since then, there is no law enacted dealing with

the income reclassification of provinces, cities and municipalities.

From i
promul
govert

income

locally-

It bears
for recl:

In order
given u

of provi

In view

‘ome classification through legislation and income reclassification through
tion of DOF Department Orders, the income reclassifications of local
jents have developed in such a way that these provinces, cities and municipalities
lass are not truly reflective of their financial capability particularly in generating
urced revenue.

smphasis that despite the developments, the DOF is constrained to hait all request
sification due to legal constraints as advised by the Department of Justice.

(0 address these issues, it is imperative for the DOF through its Secretary, to be
mbiguous authority and mandate to undertake regular income reclassification
ces, cities and municipalities.

«
bf the foregoing, the passage of this measure is earnestly sought.

zaLof yY” S. VILLA



Republic of the Philippines
HOUSE OF REPRESENTATIVES,
Quezon City

Nineteenth Congress
First Regular Session

HOUSE BILL No. 1817

Introduced by Representative ZALDY “JECOY” S. VILLA

AN ACT

INSTITUTIONALIZING THE INCOME CLASSIFICATION OF PROVINCES,
CITIES AND MUNICIPALITIES, AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in the congress

assembled;

SECTIO!
GOVER)

and ration

1. Short litle. - This Act shall be known as the “THE LOCAL
MENT UNITS INCOME CLASSIFICATION ACT OF 2022".

I systems of regular income classification of provinces, cities and municipalities

on a 2. Declaration of Policy. ~ It is the policy of the State to provide an equitable

that will 1

flect realistically their respective financial positions.

SECTION 3. Definition of Terms. - As used in this Act, the following terms shall mean:

(a) Annual Regular Income refers to revenues, including fees and receipts
actually realized which are repolted yearly on cash basis by provinces, ¢’
and municipalities from regular sources, including the Internal
Revenue Allotment ("| RA") and other shares provided for in Sections 284,
290, and 291 of Republic Act No. 7160, but exclusive of now-recurring
receipts, such as national aids, grants, financial assistance, loan proceeds,
sales of assets, miscellaneous income /receipts and similar others. For the
purpose of this Act, shares from the national wealth, excise tax on tobacco,
incremental collection from value added tax (VAT) under R.A. No. 7643, and
the gross income tax paid by businesses and enterprises in Special Economic
Zones (ECOZONES) under RA. No. 7916, as amended, and such other shares
as may be granted by law to the province, city, or municipality, shall be
considered as part of the annual regular income. The annual regular income
shall be computed from the Statement of Receipts and Expenditures(" SRE")
maintained by the Bureau of Local Government Finance of the Department
of Finance.

(b) Average Annual Regular income refers to the sum of the "annual regular
income", as herein defined, actually obtained by a province, city or


SECTIO!
shall be cl
theaveragt
reclassifi

municipality during the required number of fiscal years preceding the year
of general income reclassification of Local government units, divided by such
number of fiscal years as provided in Section 4 hereof.

(c) Local Government Units refer to the political subdivisions of the State,
namely province, city or municipality.

4. Income Classification of Provinces and Cities. ~ All provinces and cities
lassified into six (6) income classes according to income ranges and based on

annual regular income for three (3) fiscal years preceding the general income
ation, as follows

(a) First Class provinces and cities - the provinces and cities that have obtained an
average annual income of Eight Hundred Million Pesos (P800,000,000.00) or

more;

(b) Second Class provinces and cities - the provinces and cities that have obtained
an average annual income of Six Hundred Fifty Million Pesos
(P650,000,000.00) or more, but less than Eight Hundred Million Pesos
(P800,000,000.00);

(c) Third Class provinces and cities - the provinces and cities that have obtained
an average annual income of Five Hundred Million Pesos (PS00,000,000.00)
or more but less than Six Hundred Fifty Million Pesos (P650,000,000.00);

(d) Fourth Class provinces and cities -_ the provinces and cities that have obtained
an average annual income of Three Hundred Fifty Million Pesos
(P350,000,000.00) or more, but less than Five Hundred Million Pesos (PS00,000
,000.00):

(e) Fifth Class provinces and cities - the provinces and cities that have obtained an
average annual income of Two Hundred Million Pesos (P200,000,000.00) or
more, but less than Three Hwidred Fifty Million Pesos (P350,000,000.00); and

(£) Sixth Class provinces and cities - the provinces and cities that have obtained an
average annual income of less than Two Hundred Million Pesos
(P200,000,000.00).

SECTION 5. Income Classification of Municipalities. - All municipalities shall be classified

into six (1
regular in
follows:

income classes according to income ranges and based on the average annual
‘ome for three (3) fiscal years preceding the general income reclassification, as

(a) First Class municipalities - the municipalities that have obtained an average
annual income of Ninety Million Pesos (P90,000,000.00) or more;

(b) Second Class municipalities - the municipalities that have obtained an
average annual income of Eighty Million Pesos (P80,000,000.00) or more,
but less than Ninety Million Pesos (P90,000,000.00);

(c) Third Class municipalities - the municipalities that have obtained an



SECTIO!
Finance s'

average annual income of Sixty Million Pesos (P60,000,000.00) or more but
less than Eighty Million Pesos (P80,000,000.00);

(d) Fourth Class municipalities - the municipalities that have obtained an average
annual income of Forty Million Pesos (P40,000,000.00) or more but less
than Sixty Million Pesos (P60,000,000.00),

(e) Fifth Class municipalities - the municipalities that have obtained an average
annual income of Thirty Million Pesos (P30,000,000.00) or more but less
than Forty Million Pesos (P40,000,000.00): and

(f) Sixth Class municipalities -the municipalities that have obtained an
average annual income of less than Thirty Million Pesos
(P30,000,000.00).

6. Administrative Authority of the Secretary of Finance. - The Secretary of
li have the authority to set the income ranges and undertake the regularincome

reclassification of all provinces, cities and municipalities once every three (3) fiscal

years, in
with the

order that the income classification of local government units conforms
revailing economic conditions andthe overall _ financial status of the local

governments

SECTION 7. Period of Income Reclassification.

(a) The Secretary of Finance shall undertake the first general income
reclassification of all provinces, cities and municipalities with in six (6)
months after the effectivity of this Act, and every three (3) years thereafter. In
cases of diminishing revenues, the Secretary of Finance may order the re-
computation and revision of the income classification of provinces, cities
and municipalities to reflect the actual financial situation of the local
government units.

(b) However, a province, city or municipality, which has been in existence for
a period of less than three (3) fiscal years immediately preceding the
general income reclassification of local government units, as herein
provided, shall be classified on the basis of its average annual re gular income
during such lesser number of fiscal years.

(c) Ifa province or municipality is created before the year of the general
reclassification of local government units, it shall be classified on the basis
of the aggregate net share of income from regular sources actually realized
from its component cities and mwlicipalities in the case of a province. or
its component barangays in the case of a municipality, plus the corresponding
estimated IRA of the newly created province or municipality pursuant to
Section 285 of Republic Act No. 7160, during the fiscal year immediately
preceding its creation.



(d) The rule prescribed under the immediately preceding paragraph shall
likewise apply to a municipality that is converted into a city, or a city that
is created out of existing municipalities and/or barangays

SECTION 8. Uses of Income Classification. - The income classification of provinces, cities
and muni¢ipalities shall, among other purposes, serve as basis for

(a) The determination of administrative and statutory aids, financial
grants, and other forms ofassistance to local governments;

{b)The determination of the financial capability of local government
units towldel lake developmental programs and priority y projects; and

(c) Such other purposes as provided under existing laws and regulations.

SECTION 9. Guidelines In Cases Where A Fourth Or Lower Become Class Province,
City Or Municipality Receives A Third Or Higher Income Class Designation As A Result
Of The General Income Reclassification. - A Fourth or lower income class province ,
city or rl which gets either a First, Second or Third income class designation

from the general reclassification provided herein shall cease to provide for additional
personal services and maintain its existing personnel complement prior to the reclassification
. pursuant to civil service rules and regulations; Provided, that in case of personnel
transfers, resignations or deaths, the local government shall not cause the filling up of the
vacant position nor provide for its funding until the succeeding general reclassification ;
and Provided, further, that in case the local government shall still exceed the limitations
provided in Section 325 of the LGC despite the maintenance of the status quo after it first
received @ First, Second or Third income class designation as provided herein, this shall
not be considered in violation of Section 325 of the LGC.

SECTION 10. Effectivity of the Income Reclassification. - All income reclassification
of provinces, cities, and municipalities pursuant to th.is Act shall be effective on January
1st of the immediate succeeding year.

SECTION 11. Implementing Rules and Regulations (IRR). - The Secretary of Finance
shall promulgate rules and regulations within three (3) months after the effectivity of this
Act, and may continue to issue guidelines to carry out the provisions of this Act.

SECTION 12. Saving Clause. - All existing income classifications of provinces, cities
and municipalities shall continue to be in force and effect until superseded by the issuance
of a new income classification by the Secretary of Finance pursuant to this Act.

SECTION 13. Suppletory Application of Existing Laws. - The provisions of Republic
Act No. 7160, otherwise known as the Local Government Code of 1991, and other laws
consistent, with this Act shall have suppletory effect.

SECTION 14. Repealing Clause. - Executive Order No. 249, dated July 25, 1987 is
hereby repealed. All laws, presidential decrees, executive orders, presidential
proclamations, rules and regulations or parts thereof contrary to or inconsistent with this
Act are hereby repealed, superseded or modified accordingly.



SECTIO!
Act is hel
affected

15. Separability Clause. - \f, for any reason, any section or provision of this
unconstitutional or invalid, the other sections or provisions hereof shall not be
reby.

SECTION 16, Lffectivity. - This Act shall take effect fifteen (15) days after its complete

publicatio

Approved.

inat least two (2) newspapers of general circulation.