EIGHTEENTH CONGRESS OF THE REPUBLIC 
OF THE PHILIPPINES 
First Regular Session
SENATE
Senate Bill No. 
251
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JUL-8 P2--04
RECEIVLj BV
Introduced by SENATOR LACSON
AN ACT
INSTITUTIONALIZING THE INCOME CLASSIFICATION OF 
PROVINCES, CITIES AND MUNICIPALITIES, AND FOR
OTHER PURPOSES
EXPLANATORY NOTE
From the time local governments were established in the 
Philippines, they have always been classified based on their income in 
order to determine their financial capability to fund development projects 
and priority needs, to establish the salary scales of local government 
officials and personnel, and to determine the number of Sanggunian or 
council members in each locality.
The most recent legislation providing for the income classification 
of local government units (LGUs) is Executive Order No. 249 issued on 
25 July 1987 by then President Corazon Aquino exercising legislative 
powers 
after the 
EDSA 
revolution. 
Subsequent 
LGU 
income 
reclassifications have been carried out through the promulgation of 
Department of Finance (DOF) Orders, the most recent of which is DOF 
Order No. 23-08 (issued on July 29, 2008).
Through time, however, the income reclassifications of local 
governments have evolved in such a way that an LGU’s income class is 
not truly reflective of its financial capability particularly in generating 
locally-sourced revenue. One identifiable reason is due to the impact of 
the Internal Revenue Allotment (IRA) in setting the income ranges for the 
different classes. With the phased doubling of the IRA under the Local 
Government Code, it has become the biggest component of the annual 
regular income, which is basically the basis for classifying the income 
class of LGUs. This resulted in more LGUs classified under higher 
classes while very few are classified in the lower classes. In addition, 
there exists a wide disparity in the taxing capacities of LGUs. Given that


this factor has a limited effect on the LGUs’ current classification, the 
present system does not truly reflect the LGUs’ financial capabilities as 
well as their relationship to each other within the same level.
In order to address these issues, it is imperative that the Secretary 
of DOF be given a clear and unambiguous authority and mandate, and the 
flexibility to undertake regular income reclassification of provinces, cities 
and municipalities.
Through this, LGUs can also better position themselves in line with 
the National Government’s financial and fiscal policies.
For the reasons cited above, passage of this bill is earnestly 
requested.
PANFlliO
. LACSON
ator


EIGHTEENTH CONGRESS OF THE REPUBLIC 
OF THE PHILIPPINES 
First Regular Session
SENATE
Senate Bill No. 251
o( 111.' 
r ;’ ,llir  
*19 JUL-8 P2:04
REUlVhDGi.
Introduced by SENATOR LACSON
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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 in Congress 
assembled:
SEC. I. Short Title. -  This Act shall be known as the "THE LOCAL 
GOVERNMENT UNITS’ INCOME CLASSIFICATION ACT OF 
2019”
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SEC. 2. Declaration of Policy. -  It is the policy of the State to 
provide an equitable and rational system of regular income classification of 
provinces, cities and municipalities that will reflect realistically their 
respective financial positions.
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SEC. 3. Definition of Terms. -  As used in this Act, the following
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terms shall mean:
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(a) Annual Regular Income refers to revenues, including fees and 
receipts actually realized which are reported yearly on cash basis 
by provinces, cities and municipalities from regular sources, 
including the Internal Revenue Allotment (IRA) and other shares 
provided for in Sections 284, 290, and 291 of Republic Act No. 
7160, but exclusive of non-recurring receipts, such as national aids, 
grants, financial assistance, loan proceeds, sales of assets,
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miscellaneous income/receipts and similar others. For the purpose 
of this Act, shares from 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 R. A. 
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 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.
SEC. 4. Income Classification of Provinces and Cities. -  All 
provinces and cities shall be classified into six (6) income classes according 
to income ranges and based on the average annual regular income for three 
(3) fiscal years preceding the general income reclassification, 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);


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(c) Third Class provinces and cities -  the provinces and cities that 
have obtained an average annual income of Five Hundred Million 
Pesos (P500,000,000.00) 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 (P500,000,000.00);
(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 Hundred Fifty 
Million Pesos (P350,000,000.00); and
(f) 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).
SEC. 5. Income Classification of Municipalities. -  All municipalities 
shall be classified into six (6) income classes according to income ranges 
and based on the average annual regular income for three (3) fiscal years 
preceding the general income reclassification, as follows:
(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 average annual income of Sixty Million Pesos (P60,000,000.00) 
or more but less than Eighty Million Pesos (P80,000,000.00);


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(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).
SEC. 6. Administrative Authority of the Secretary of Finance. -  The 
Secretary of Finance shall have the authority to set the income ranges and 
undertake the regular income reclassification of all provinces, cities and 
municipalities once every three (3) fiscal years, in order that the income 
classification of local government units conforms with the prevailing 
economic conditions and the overall financial status of the local 
governments.
SEC. 7. Period of Income Reclassification. -  a) The Secretary of 
Finance shall undertake the first general income reclassification of all 
provinces, cities and municipalities within 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 regular 
income during such lesser number of fiscal years.


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c) If a 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 municipalities 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.
SEC. 8. Uses of Income Classification. -  The income classification 
of provinces, cities and municipalities shall, among other purposes, serve as 
basis for:
a) The 
determination of administrative and statutory aids,
financial grants, and other fonns of assistance to local 
governments;
b) The 
determination of the financial capability of local
government units to undertake developmental programs and 
priority projects; and
c) Such other purposes as provided under existing laws and 
regulations.
SEC. 9. Guidelines in Cases Where a Fourth or Lower Income 
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 municipality 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


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reclassification, pursuant to civil service rules and regulations; Provided, 
further, 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, 
finally, 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 a First, Second or Third income class designation 
as provided herein, this shall not be considered in violation of Section 325 of 
the LGC.
SEC. 10. Effectivity of the Income Reclassification. -  All income 
reclassification of provinces, cities, and municipalities pursuant to this Act 
shall be effective on January 1st of the immediate succeeding year.
SEC. 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.
SEC. 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.
SEC. 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.
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SEC. 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.
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SEC. 15. Separability Clause. — Any portion or provision of this Act 
that may be declared unconstitutional or invalid shall not have the effect of 
nullifying other portions or provisions hereof, as long as such remaining 
portions or provisions can still subsist and be given effect in their entirety.
SEC. 16. Effectivity. -  This Act shall take effect fifteen (15) days 
after its complete publication in the Official Gazette or in at least two (2) 
newspapers of general circulation.
Approved,