13” CONGRESS OF THE REPUBLIC 
) 
OF THE PHILIPPINES 
) 
First Regular Session 
) 
Introduced by Senator h & h  G. Recto 
Explanatory Note 
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For the period 2000-2003, the national government’s disbursement progmm always 
exceeded its revenue targets resulting in budget deficits of P 134.21 B, P147.02 B, P210.74B 
and P199.9 B, respectively. 
These were largely an offshoot of the shortfall in tax 
collections, which accounts for 80-90% of government revenues. In fact for the year 2002, 
the Bureau of Internal Revenue (BIR) collected only P394.549 billion, which is almost 12% 
short of its-target of P447.556 billion. 
Indeed, government’s capacity to finance its cash disbursement program and achieve 
its annual budget deficit targets rests on the revenue agencies’ efficiency and effectiveness to 
collect and meet their respective collection goals. 
Historically, our fiscal managers never followed the borrowing mix embodied in the 
national budget. Every year, they propose to Congress a formula on how they would hnance 
the projected budget deficit for the incoining year. But, the numbers.in the proposed 
borrowing mix are almost always surpassed. The Finance and Budget officials have the 
uncanny ability to overshoot borrowing targets. The only way for the.gover&ent to stick to 
the deficit target this year is for it to mount a severe austerity program, involving cuts in 
spending which would really hurt, coupled with an aggressive tax collection program. 
It is in this light that this measure is earnestly proposed. T&s bill offers special 
incentives and reward system to motivate collection officials/officers/employees to render 
exemplary service while upholding the lughest ehcal stanhards wlde a system of lateral 
attrition be accorded to those who fail to deliver the revenue or collection goals of theit 
respective revenue-generating units; 
Lateral attrition” refers to the transfer in post or assignment and/or separation 
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from government service, in accordance with civil service laws, rules and regulations. 
Covered under the proposed measure are the BIR; Bureau of Customs (BOC), Land 
Transportation Office &TO) and other revenue-generating agencies/bureaus under the 
different departments of the Executive Branch with income of at least One hundred million 
pesos (IJ100,000,000.00) per annum, except the Bangko Sentral ng Pikpinas and the Bureau of 
the Treasury. 
This bill has already been passed on third reading at the House of Representatives 
and by both chambers even way back during the Ilth Congress. 
Thus, approval of this bill is earne 
TO 
MRC/SB 2194 LareralArrrjtjon.doc 


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13“’ CONGRESS OF THE REPUBLIC 
) 
OF THE PHILIPPINES 
) 
First Regular Session 
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Introduced b_y Senator M p h  G. Recto 
AN ACT 
PROVIDING FOR THE OPTIMUM PERFORMANCE IN REVENUE 
COLLECTION THROUGH THE GRANT OF SPECIAL INCENTIVES AND 
REWARDS FOR EXEMPLARY SERVICE AND THROUGH LATERAL 
AND FOR OTHER PURPOSES 
ATTRITION IN REVENUE-GENEMTING AGENCIES OF GOVERNMENT 
Be it enacted b~ the Senate and the House $Representatives ofh 
Phil&bines in Congress assembled 
SECTION 1. Declaration ql’ohy. - It is the policy of the State to give highest priority 
to measures that will’ promote morale, efficiency, integrity, credibilty, responsiveness, 
progressiveness and optimization of all potentials in revenue-generation of the government. 
Towards this end, optimum performance of the government’s revenue-generating agencies, 
at all levels, shall be assured through the institution of a special reward system for exemplary 
service and a system of lateral attrition in these specific agencies. 
SEC. 2. D$nihoz qfTems. - As used in this Act, the following terms shall mean: 
(a) 
“Lateral attrition” refers to the transfer in post or assignment and/or separation 
from government sevice, in accorgance with civil service laws, rules and 
regulations, of internal revenue or customs officials/officers/employees and 
collection officials/officers/employees of other revenue-generating units, who 
do no meet their respective revenue or collection goals for the year with all due 
considerations being taken; 
“Revenue-generating agencies” refer to the Bureau of Internal Revenue (BIR); 
Bureau of Customs (BOC), Land Transportation Office &TO) and other 
revenue-generating agencies/bureaus under the different departments of the 
Executive Branch with income of at least One hundred million pesos 
(PlOO,OOO,OOO.OO) per annum, except the Bangko Sentral ng Pllipinas and the 
Bureau of the Treasury; 
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(c) 
“Revenue or collection goals” refer to the original revenue target of the agency 
concerned during a given budget year as reflected in the Budget of 
Expenditures and Sources of Financing (BESF) submitted by the President to 
Congress; 
“Attritable officials/officers/employees” refer to those employed in revenue- 
generating agencies who are involved in the assessment, licensing, examination, 
and collection of revenues (such as national internal revenue taxes like income 
tax, value-added tax, estate and donor’s tax, documentary stamp tax, excise tax 
and percentage tax), tariffs, charges, duties, fees, penalties and other legal 
payments to the government. 
(d) 
SEC. 3. Coverage. - The system of special rewards and incentives and the system of 
lateral attrition shall cover the revenue and customs officials/officers/employees from the 
district level up to the Commissioner of the BIR/BOC and their parallel set-up in other 
revenue-generating agencies. 
Income generating government-owned and/or controlled 
corporations are encouraged to adhere with the principles of this Act subject to the 
provisions of their respective charters and oversight review by the concerned committees of 
Congress. 
SEC. 4. $stem of SpeciaL Incentives and Rewards. - A system of special incentives and 
rewards 
in 
revenue 
collection 
shall 
be 
established 
to 
motivate 
collection 
officials/officers/employees to render exemplaxy service while upholding the highest ethical 
standards. This shall be awarded to all those who have accomplished the revenue collection 
goal in their respective units/areas of responsibility. 
The special incentives system shall automatically allocate ten percent (10%) of the 
excess of the collection over the target as validated. by the Development Budget 
Coordinating Committee created under Executive Order No. 232 series of 1970, as 
amended, for the period under consideration to be shared as follows: 
(1) 
Fifty percent 
(50%) of ten percent (10%) shall be given to the 
officials/officers/employees of the local agency label which exceeded their 
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target; and 
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SEC. 5. Incentives and Rewards Fund. - An incentives and rewards fund shall be 
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created from the amount equivalent to ten percent (10%) of the excess of the revenue 
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collection over the target revenue of the year under consideration. The fund which shall be 
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treated as a Special Account in the General Fund shall be automatically appropriated. AU 
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amounts accruing to the Special Account shall be utilized for the payment of special 
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incentives and rewards pursuant to Section 4 of this Act 
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(2) ' The remaining fifty percent (50%) shall be centralized to the national agency 
level to be distributed to the officials/officers/employees of the whole agency. 
Likewise, the rewards to revenue collection officials/officers/employees may take the 
form of bonuses, citations, local and foreign scholarship grants, and the like, depending on 
the extent of involvement in the attainment of the revenue targets. 
SEC. 6. System ojLateral Attrition and Pmcedwres. - There shall be a system of lateral 
attrition which shall be an instrument to improve or maintain the revenue-collection 
performance of the BIR, the BOC and other revenue-generating agencies. 
Lateral attrition shall be in the form of transfer of post or assignment to a lower- 
ranking district or area or to a lower post or to a post of less responsible duties and 
functions or in extreme cases, separation from government service in accordance with civil 
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service laws and rules. 
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The system of lateral attrition shall be applied only after careful and proper review by 
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SEC. 7. Separation Benej5ts 
O ~ ~ a ~ s / O ~ c e r s / E m p l e e s  
Affected by Laterd Attdion. - 
the Revenue Performance Evaluation Board (RPEB) as provided for in Section 8 hereof and 
after compliance with the substantive and procedural due processes as required by the civil 
service laws and d e s :  Pmvided, That an official/officer/employee affected by lateral attrition 
shall be given the right to appeal with the Civil Service Commission in accordance with civil 
service laws and rules, and finally to the Supreme Court without prejudice to implementation 
of the decision of the RPEB during the pendency of the case. 
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National government officials/officers/employees displaced or separated from the service as 
a result of lateral attrition shall be allowed to retire under existing retirement laws to which 
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they are entitled to or to receive separation pay and other benefits in accordance with 
existing laws, rules and regulations. 
SK. 8. Revenue Pe@mrance Evaluation Boardfor Special Incentives and Rewards and Lateid 
Attdzon. - An administrative body, to be known as the Revenue Performance Evaluation 
Board, hereinafter referred to as Board, is hereby created. For the BIR and the BOC, the 
Board shall include the Secretary of the Department of Finance QIOF), the Chairman of the 
Senate and House Committees on Ways and Means, one (1) representatives from the Office 
of the President, the Deputy Commissioner of Internal Revenue/Deputy Commissioner of 
Customs in charge of Administration, a representative from the recognized employees’ 
organization in the agency concerned, and a representative of a recopzed officers’ 
organization, if any. Said Board, s h d  be chaired by the Secretary of the DOF. For other 
revenue-generating agencies under the Executive Branch, the same level and composition of 
the Board shall be created. 
The Board shall be responsible for issuing the rules and procedures in the conduct of 
the revenue performance evaluation and shall receive additional per diem in line with the 
performance of their added tasks as specified in ths Act. 
The Board is given a maximum period of two (2) months to resolve an attritable 
case. 
In the determination by the RPEB oE whether the form of lateral attrition is transfer 
of post or separation from the service, the degree or level of non-performance or non- 
attainment of revenue targets, with all due considerations taken, shall be the determining 
factor. No lateral attrition in the form of separation from the service shall be applied or 
imposed by the Revenue Performance Evaluation Board on an attritable official, officer, 
employee unless the official’s /officer’s/employee’s revenue collection falls short of the 
target by thirty percent (30%), with all due considerations taken, unless there is evidence of 
graft and corruption. 
SEC. 9. Exemptions. - The system of lateral attrition shall not apply in the following 
mstances: 
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Where the district or area of responsibility covered by revenue, customs, and 
other collection officials/officers/employees has suffered from economic 
difficulties brought about by natural or man-made calamities, industry setback 
in the market, regional financial crisis, and like situations; 
Where the district or area of responsibility is newly-created, not exceedmg two 
(2) years in operation, and has no historical record of collection performance 
that can be used as basis for evaluation; and 
Where the revenue or customs offidal/officer/employee is a recent transferee 
in the middle of the period under consideration unless the transfer was due to 
non-performance of revenue targets or potential non-performance of revenue 
targets. 
IO. A n n d  Reports. - The Office of the Secretary of the Department with 
revenue-generating agencies which are under its jurisdiction and other revenue-generating 
agencies which are named in this Act, shall monitor and render an annual report to the 
President and the Congress and make public the extent of their compliance with the law. 
Likewise, in close coordination with the Civil Service Commission, the department 
concerned shall also conduct a personnel effectiveness audit of the revenue-generating 
agencies to determine the optimum performance of officials/officers/employees and full 
utilization of personnel. 
SEC. 11. Pales and Reguhtions. - In consultation with the Office of the President, all 
revenue-generating agencies named in this Act, together with the Civil Service Commission 
and a representative from the Senate and House Committees on Ways and Means, shall issue 
the necessary ides and regulations for the effective implementation of this Act. 
SEC. 12. SeparabiLig Cluulse. - If any of the provisions of this Act is declared invalid 
by a competent court, the remainder of this Act or any provision not affected by such 
declaration of invalidity shall remain in force and effect. 
SEC. 13. Repealing Clause. - All laws, presidential decrees, executive orders, other 
executive issuances, or parts thereof, which are inconsistent with this Act are hereby 
repealed or modified accordingly. 
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SEC. 14. Effectzvig. - This Act shall talrc effect fifteen (15) days after its publication 
in at least rwo (2) newspapers of general circulation. 
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Approved, 
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