NINETEENTH CONGRESS OF THE 
)
REPUBLIC OF THE PHILIPPINES 
)
First Regular Session 
)
SENATE
s. No. 1530
of tt)e g:-. ti ftarp
*22 NOV 23 PI‘-22
Rf.CElVED BY.
Introduced by Senator JOSEPH VICTOR G. EJERCITO
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 No. 249 issued on 25 July 1987 by then President Corazon 
Aquino provides for the income classification of local government units (LGUs). The 
same Order only gives authority to the Secretary of Finance to review the income 
ranges of the LGUs at least once every four years and recommend appropriate 
changes. The most recent income reclassification was issued by the Finance Secretary 
on July 29, 2008 through Department of Finance (DOF) Order No. 23-08.
The income classifications of LGUs, aside from determining its financial 
capability to undertake programs and projects, serve as basis for fixing the maximum 
tax ceiling imposable by the LGUs; determine financial grants, aids, and other form of 
assistance to LGUs; establish the entitlement of local officials and employees to salary 
and other emoluments, among others.
Needless to say, the current income classifications of the LGUs do not reflect 
the actual financial status of the local governments. This limits the LGUs in accessing 
programs, aids, and opportunities which could translate to services for their


constituents. This also limits the LGUs' taxing capacities and the establishment of 
certain key positions in the LGU crucial for service delivery.
This proposed legislation aims to institutionalize automatic income 
reclassification every two (2) years based on the updated table of income 
classifications to be released by the Bureau of Local Government Finance (BLGF). 
Further, the Finance Secretary is granted clear mandate and authority to set income 
targets or the periodic automatic income reclassification.
This measure seeks to factually classify the financial capabilities of LGUs 
consistent with the prevailing economic conditions and ultimately address the 
limitations to the development of the local government units.
In view of the foregoing, the approval of this measure is earnestly sought.
JOSEPH VICTOR G. EJERCITO


NINETEENTH CONGRESS OF THE 
)
REPUBLIC OF THE PHILIPPINES 
)
First Regular Session 
)
SENATE
s. No. 1530
cc of £l)C f. rftiUP
*22 NOV 23 PI 22
RECEIVED BY:,
Introduced by Senator JOSEPH VICTOR G. EJERCITO
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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 Income 
Classification Act for LGUs".
SEC. 2. Section 8 of Republic Act No. 7160, otherwise known as the "Local 
Government Code of 1991", as amended, is hereby amended as follows:
"Section 8. Division and Merger. - Division and merger of existing 
local government units shall comply with the same requirements 
herein prescribed for their creation: Provided however. That such 
division shall not reduce the income, population, or land area of 
the local government unit or units concerned to less than the 
minimum requirements prescribed in this Code: Provided further, 
that the income classification of the original local government 
unit or units shall not fall below its current classification prior to 
such division.
pTho income closGificotion of local government units shall bo
updated within six (6) months from tho cffoctivity of this Code


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to reflect the changcG of their financial position resulting from
toe incrcQSGd rcvcnuos oo provided hcrGin.]"
SEC. 3. A new section designated as Section 8-A of RA No. 7160, as amended, 
is hereby added to read as follows:
"SEC. 8-A. INCOME CLASSIFICATION OF PROVINCES,
CITIES AND MUNICIPALITIES. -
(A) 
ALL PROVINCES, CITIES, AND MUNICIPALITIES 
SHALL BE CLASSIFIED INTO SIX (6) INCOME CLASSES 
ACCORDING TO RANGES OF INCOME AND BASED ON 
THE AVERAGE ANNUAL REGULAR INCOME FOR TWO (2) 
FISCAL YEARS PRECEDING THE AUTOMATIC INCOME 
CLASSIFICATION; PROVIDED, THAT THE ANNUAL 
REGULAR INCOME SHALL BE COMPUTED FROM THE 
STATEMENT OF RECEIPTS AND EXPENDITURES (SRE) 
MAINTAINED BY THE BUREAU OF LOCAL GOVERNMENT 
FINANCE (BLGF).
(B) 
THE SECRETARY OF FINANCE, IN CONSULTATION 
WITH THE LGU LEAGUES, SHALL HAVE THE AUTHORITY 
TO SET THE RANGES OF INCOME FOR THE AUTOMATIC 
INCOME CLASSIFICATION OF ALL PROVINCES, CITIES,
AND MUNICIPALITIES.
(C) 
THE TABLE OF INCOME CLASSIFICATION SHALL 
BE AUTOMATICALLY UPDATED BY THE BLGF EVERY TWO 
(2) YEARS. THIS SHALL CONSTITUTE THE INCOME 
RECLASSIFICATION OF ALL PROVINCES, CITIES, AND 
MUNICIPALITIES.
(D) 
THE BLGF SHALL ISSUE A CERTIFICATION OF THE 
INCOME RECLASSIFICATION OF AN LGU WITHIN SIXTY 
(60) DAYS FROM THE RECLASSIFICATION OF LGUS; 
PROVIDED HOWEVER, THAT THE NON-ISSUANCE OF 
SAID CERTIFICATION SHALL NOT SUSPEND THE


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EFFECTS OF THE AUTOMATIC INCOME 
RECLASSIFICATION.
(E) THE FIRST AUTOMATIC INCOME 
RECLASSIFICATION SHALL BE MADE WITHIN SIX (6) 
MONTHS AFTER THE EFFECTIVITITY OF THIS ACT, AND 
EVERY TWO (2) YEARS TEHREAFTER. IN CASES OF 
UNMANAGEABLE PUBLIC SECTOR DEFICIT, 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; 
PROVIDED, THAT A PROVINCE, CITY, OR 
MUNICIPALITY, WHICH HAS BEEN IN EXISTENCE FOR A 
PERIOD OF LESS THAN TWO (2) FISCAL YEARS 
IMMEDIATELY PRECEDING THE AUTOMATIC INCOME 
RECLASSIFICATION OF LOCAL GOVERNMENT UNITS, AS 
HEREIN PROVIDED, SHALL BE CLASSIFIED ON THE 
BASIS OF ITS AVERAGE ANNUAL REGULAR INCOME FOR 
THE FISCAL YEAR OF ITS EXISTENCE; PROVIDED 
FURTHER, THAT IF A PROVINCE OR MUNICIPALITY IS 
CREATED BEFORE THE YEAR OF THE AUTOMATIC 
RECLASSIFICATION OF LOCAL GOVERNMENT UNITS, IT 
SHALL BE CLASSIFIED ON THE BASIS OF THE 
ESTIMATED AGGREGATE NET SHARE OF INCOME FROM 
REGULAR SOURCES FROM ITS COMPONENT CITIES AND 
MUNICIPALITIES IN THE CASE OF A PROVINCE, OR ITS 
COMPONENT BARANGAYS IN THE CASE OF A 
MUNICIPALITY, INCLUDING THE CORRESPONDING 
ESTIMATED NTA OF THE NEWLY CREATED PROVINCE OR 
MUNICIPALITY PURSUANT TO SECTION 285 OF 
REPUBLIC ACT NO. 7160, DURING THE FISCAL YEAR


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IMMEDIATELY PRECEDING ITS CREATION. THIS RULE 
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.
(F)THE INCOME CLASSIFICATION OF PROVINCES, CITIES, 
AND MUNICIPALITES SHALL, AMONG OTHER PURPOSES, 
SERVE AS BASIS FOR:
I. THE DETERMINATION OF ADMINISTRATIVE AND 
STATUTORY AIDS, FINANCIAL GRANTS, AND 
OTHER FORMS OF ASSISTANCE TO LOCAL 
GOVERNMENTS;
II. THE DETERMINATION OF THE FINANCIAL 
CAPABILITY OF LOCAL GOVERNMENT UNITS TO 
UNDERTAKE DEVELOPMENTAL PROGRAMS AND 
PRIORITY PROJECTS;
III. 
THE TOTAL ANNUAL OR SUPPLEMENTAL 
APPROPRIATION FOR PERSONAL SERVICES OF A 
LOCAL GOVERNMENT UNIT TO ONE (1) FISCAL 
YEAR AS PROVIDED IN SECTION 325 (A) OF LGC 
OF 1991;
IV. 
COMPENSATION ADJUSTMENT FOR LGU 
PERSONNEL AS PROVIDED UNDER SECTION 10 OF 
EXECUTIVE ORDER NO. 201 (SALARY 
STANDARDIZATION LAW OF 2015);
V. 
THE CREATION OF A NEW LOCAL GOVERNMENT 
UNIT WHEREIN SECTION 8 OF THE LGC OF 1991 
PROVIDES THAT THE DIVISION AND MERGER OF 
EXISTING LOCAL GOVERNMENT UNIT SHALL NOT 
DOWNGRADE THE INCOME CLASSIFICATION OF 
THE ORIGINAL UNIT;


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VI. THE NUMBER OF ELECTIVE MEMBERS IN THE 
SANGGUNIANG BAYAN AS PROVIDED UNDER 
SECTION 2 OF RA NO. 6637;
VII. ISSUANCE OF A FREE PATENT TITLE TO 
RESIDENTIAL LANDS AS PROVIDED UNDER RA 
N0.10023;
VIII. THE MINIMUM WAGE OF DOMESTIC WORKERS AS 
PROVIDED UNDER SECTION 24 OF RA NO. 10361;
IX. LGUS TO INSURE ITS PROPERTIES WITH GSIS IN 
COMPLIANCE WITH SECTION 5 OF RA NO. 656 OR 
PROPERTY INSURANC ELAW;
X. PROVIDE LIMITATIONS ON THE PERCENTAGE OF 
AGRICULTURAL LAND THAT CAN BE 
RECLASSIFIED AND PROVIDED FOR THE MANNER 
OF THEIR UTILIZATION OR DISPOSITION AS 
STIPULATED IN SECTION 20 OF THIS CODE; AND 
XI. SUCH OTHER PURPOSES AS PROVIDED UNDER 
EXISTING LAWS AND REGULATIONS.
(G) 
ALL INCOME RECLASSIFICATION OF PROVINCES, 
CITIES, AND MUNICIPALITIES PURSUANT TO THIS 
SECTION SHALL BE EFFECTIVE ON JANUARY 1st OF THE 
IMMEDIATELY SUCCEEDING YEAR.
(H) 
FOR PURPOSES OF IMPLEMENTING THIS 
SECTION, THE SECRETARY OF FINANCE SHALL ISSUE 
SUCH RULES AND REGULATIONS AS MAY BE DEEMED 
NECESSARY AND THE APPROPRIATE DEPARTMENT 
ORDERS PROVIDED FOR THE AUTOMATIC INCOME 
CLASSIFICATION OF PROVINCES, CITIES, AND 
MUNICIPALITIES."
SEC. 4. Transitory Provision. - A fourth or lower income class province, city, or 
municipality which gets either a first, second, or third income class designation from 
the first automatic income reclassification provided herein shall be exempted from


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providing for additional personal services and may maintain existing personal services 
prior to the reclassification, pursuant to civil service rules and regulations; provided 
further, that in case of personnel transfers, resignation or deaths, the local 
government shall not cause the filling up of vacant position nor provide for its funding 
until the succeeding automatic income reclassification; and provided finally, that the 
limitations enunciated under section 325 (a) on the use of LGU funds shall not be 
applicable for LGUs which has received its first, second, or third income class 
designation as provided herein.
SEC. 5. 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 ranges set by the Secretary of Finance and the first 
automatic income reclassification of LGUs pursuant to this Act.
SEC. 6. Repealing Clause. - Executive Order No. 249, dated July 25, 1987 is 
hereby repealed. Further, 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.
SEC. 7. Effectivity. - This Act shall take effect fifteen (15) days after its 
complete publication in the Official Gazette or in ate least two (2) newspapers of 
general circulation.
Approved,