Republic of the Philippines 
HOUSE OF REPRESENTATIVES 
Quezon City, Metro Manila 
TWENTIETH (20th) CONGRESS 
FIRST REGULAR SESSION 
House Bill No. 2736 
Introduced by 
Rep. ROBERT NAZAL 
AN ACT​
ALLOCATING ONE PERCENT (1%) OF THE TOTAL VALUE-ADDED TAX 
COLLECTIONS TO A LOCAL GOVERNMENT DEVELOPMENT FUND,  
PROVIDING FOR ITS RELEASE TO QUALIFIED LOCAL GOVERNMENT 
UNITS, AND FOR OTHER PURPOSES 
EXPLANATORY NOTE 
This constitutional mandate, reinforced by the Local Government Code of 1991 and the 
Supreme Court’s landmark Mandanas-Garcia ruling, was intended to empower local 
government units (LGUs) by granting them a greater share of national revenues. 
Despite these measures, however, many LGUs remain overly reliant on centrally 
allocated funds and lack meaningful incentives to improve their own revenue-generating 
capacities or enhance service delivery based on measurable performance. 
This bill seeks to institutionalize a Local Government Development Fund (LGDF), 
equivalent to one percent (1%) of the total annual collections from the value-added tax 
(VAT), and to allocate said amount to qualified LGUs that demonstrate significant 
improvement in local fiscal performance. To qualify, an LGU must achieve at least a ten 
percent (10%) increase in VAT collection performance compared to the preceding fiscal 
year, as certified by the Bureau of Local Government Finance (BLGF) and validated by 
the Department of Finance (DOF). 
The LGDF shall be used exclusively for developmental purposes, and may only fund 
programs, projects, and activities (PPAs) identified in the LGU’s duly approved 
Comprehensive Development Plan (CDP). To ensure transparency, a real-time, 
web-based monitoring and reporting system shall be established for public access, 
tracking fund releases, utilization, and project outcomes. The bill also mandates the 
Department of the Interior and Local Government (DILG) to provide technical assistance 
and capacity-building support to participating LGUs, in partnership with civil society and 
the private sector, where feasible. 
July 30, 2025
6:27 pm


This proposed measure complements Senate Bill No. 405, filed by Senator Panfilo 
“Ping” Lacson. Together, both versions aim to institutionalize a performance-based, 
transparent, and equitable mechanism for national-to-local fund transfers, shifting from 
political discretion to fiscal merit, from dependency to initiative, and from compliance to 
results. 
As Senator Lacson aptly stated, this initiative intends to wean LGUs from dependency 
on national largesse and promote a new culture of local initiative and accountability. 
With the passage of this Act, we take a step closer to a truly empowered local 
government system - one that rewards effort, supports development from the ground 
up, and affirms that good governance must begin at the local level. 
In view of the foregoing, the immediate passage of this measure is earnestly sought. 
  Rep. ROBERT NAZAL 
Bagong Henerasyon Party-List 


Republic of the Philippines 
HOUSE OF REPRESENTATIVES 
Quezon City, Metro Manila 
TWENTIETH (20th) CONGRESS 
FIRST REGULAR SESSION 
House Bill No. 2736 
Introduced by 
Rep. ROBERT NAZAL 
AN ACT​
ALLOCATING ONE PERCENT (1%) OF THE TOTAL VALUE-ADDED TAX 
COLLECTIONS TO A LOCAL GOVERNMENT DEVELOPMENT FUND,  
PROVIDING FOR ITS RELEASE TO QUALIFIED LOCAL GOVERNMENT 
UNITS, AND FOR OTHER PURPOSES 
Be it enacted by the Senate and House of Representatives of the Philippines in 
Congress assembled: 
SECTION 1. SHORT TITLE.  
This Act shall be known as the “Local Government Development Fund Act of 2025.” 
SECTION. 2. DECLARATION OF POLICY. 
It is the declared policy of the State to promote genuine local autonomy and fiscal 
independence by incentivizing the improved tax administration and revenue 
performance of local government units (LGUs). In pursuit of this objective, the State 
shall allocate a portion of national Value-Added Tax (VAT) collections to high-performing 
LGUs to finance development projects, programs, and activities identified in their duly 
approved development plans. This mechanism is intended to reduce the culture of 
dependency on central disbursements and foster a results-based, performance-oriented 
approach to local governance and public service delivery. 


SECTION. 3. CREATION OF THE LOCAL GOVERNMENT DEVELOPMENT FUND. 
 
There is hereby created a special fund to be known as the Local Government 
Development Fund (LGDF), which shall be used exclusively to support qualified LGUs 
in the implementation of priority development programs and projects, in accordance with 
their Comprehensive Development Plans (CDPs) and investment programs, and subject 
to the conditions set forth under this Act. 
 
 
SECTION. 4. SOURCE AND AMOUNT OF THE FUND.  
 
Beginning Fiscal Year 2026, and every fiscal year thereafter, an amount equivalent to 
one percent (1%) of the total actual Value-Added Tax collections shall be allocated to 
the LGDF. The VAT collections shall be determined based on the actual and certified 
collections by the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) 
for the third fiscal year immediately preceding the current fiscal year. 
 
The corresponding amount shall be appropriated annually under the General 
Appropriations Act (GAA) and shall constitute a distinct and identifiable budget item 
under the Special Purpose Funds. Appropriated LGDF amounts shall not lapse and 
shall remain available until fully obligated and released to qualified LGUs. 
 
 
SECTION. 5. ELIGIBLE LOCAL GOVERNMENT UNITS.  
 
Only those provinces, cities, municipalities, and barangays that have attained a 
minimum ten percent (10%) increase in their respective VAT-related revenue collections 
for the fiscal year immediately preceding the release of the Fund shall be eligible to 
receive a share of the Local Government Development Fund (LGDF). 
 
Such increase shall be certified by the Bureau of Local Government Finance (BLGF) 
based on its official records and validated by the Department of Finance (DOF). The 
determination of eligibility shall be conducted annually and shall be final unless 
otherwise overturned by competent authority for manifest error or fraud. 
 
 
SECTION. 6. RELEASE OF THE FUND.  
 
Upon receipt of certification and validation from the BLGF and DOF, the Department of 
Budget and Management (DBM) shall automatically release the corresponding LGDF 
allocation to each qualified local government unit without need of further documentary 
submissions, subject only to standard budgeting and accounting rules under existing 
laws and regulations. 
 
The LGDF shall be released directly to the LGU’s trust fund account, segregated from 
its general fund, and recorded accordingly in the LGU’s books of accounts. 


SECTION. 7. AUTHORIZED USES.  
 
The LGDF shall be utilized exclusively for development purposes, strictly aligned with 
the LGU’s duly approved Comprehensive Development Plan (CDP) and Annual 
Investment Plan (AIP). Eligible projects, programs, and activities shall include, but not 
be limited to: 
 
A.​
Construction, improvement, or rehabilitation of infrastructure and capital outlay 
projects, including roads, markets, water supply, and sanitation facilities; 
 
B.​
Support for local economic enterprises, livelihood generation, and micro, small, 
and medium enterprise (MSME) development; 
 
C.​
Digital transformation, including investments in e-governance systems, ICT 
infrastructure, and public digital services; 
 
D.​
Projects that enhance climate resilience, environmental sustainability, and disaster 
risk reduction and management (DRRM); and 
 
E.​
Initiatives that improve access to and quality of basic social services such as 
health, education, nutrition, and housing. 
 
 
SECTION. 8. PROHIBITED USES. 
 
The Local Government Development Fund (LGDF) shall be utilized strictly and 
exclusively for the purposes defined in this Act and the LGU’s duly approved 
Comprehensive Development Plan (CDP) and Annual Investment Plan (AIP). Under no 
circumstance shall the LGDF be used, whether directly or indirectly, for the following: 
 
A.​
Personal Services Expenditures 
 
​
The LGDF shall not be used to cover salaries, wages, allowances, honoraria, 
bonuses, or any form of compensation or remuneration for elected or appointed 
officials, employees, consultants, or contract-of-service personnel of the LGU, its 
instrumentalities, or its partner organizations, regardless of funding source or 
justification. 
 
B.​
Maintenance and Other Operating Expenses (MOOE) Not Directly Attributable to 
Development Projects  
 
​
Routine operational expenses such as utilities, supplies, fuel, communication 
services, office rentals, or any other MOOE items not directly and exclusively 
linked to a duly approved LGDF-funded project or activity shall be strictly 
disallowed. 
 


 
 
C.​
Travel, Representation, and Entertainment Expenses 
 
​
The Fund shall not be used to finance official or personal travel, both domestic and 
foreign, nor shall it cover representation, meals, accommodation, gifts, tokens, 
sponsorships, or entertainment-related expenses, whether or not related to project 
promotion or coordination. 
 
D.​
Debt Servicing and Non-LGDF Obligations 
 
​
The LGDF shall not be used to pay for any form of loan amortization, interest 
payments, arrears, penalties, or any financial liability of the LGU not directly and 
lawfully incurred in connection with an approved LGDF-funded project. 
 
E.​
Unprogrammed or Unapproved Expenditures 
 
​
No part of the Fund shall be disbursed for activities or procurements that are not 
explicitly stated, itemized, or rationalized in the LGU’s approved CDP or AIP. 
Supplemental or ad hoc projects shall require prior amendment of the AIP and 
revalidation from the appropriate agency. 
 
 
SECTION. 9. CAPACITY-BUILDING MECHANISM. 
 
The Department of the Interior and Local Government (DILG), in coordination with the 
DOF, DBM, and BLGF, shall design and implement a continuing capacity-building and 
technical assistance program for LGUs aimed at: 
 
A.​
Strengthening local fiscal and revenue administration; 
B.​
Improving project development and implementation capabilities; 
C.​
Enhancing transparency, participatory governance, and accountability systems; 
and 
D.​
Ensuring proper monitoring and reporting of LGDF utilization. 
These programs may include training, certification, peer learning exchanges, digital 
toolkits, and technical audits. 
 
 
SECTION. 10. MONITORING AND TRANSPARENCY. 
 
The DBM, in collaboration with the DILG and DOF, shall develop, deploy, and maintain 
a real-time, publicly accessible, web-based LGDF Monitoring System to track: 
 
A.​
The allocation and release of LGDF per LGU; 
B.​
The status of fund utilization and project implementation; and 
C.​
The overall impact and performance outcomes of LGDF-supported initiatives. 


 
To ensure timely implementation of this requirement, an amount of One Hundred Million 
Pesos (PhP 100,000,000.00) is hereby appropriated from the LGDF to cover the 
establishment, maintenance, and continuous upgrading of said system, including 
hardware, software, and personnel requirements. 
 
 
SECTION. 11. ACCOUNTABILITY AND SANCTIONS. 
 
Any public official or employee of a local government unit (LGU) or national government 
agency who commits any of the following acts in connection with the implementation of 
this Act shall be held accountable in accordance with applicable laws, rules, and 
regulations: 
 
A.​
Falsification or Manipulation of Revenue Data – Knowingly submitting, causing the 
submission of, or conspiring to submit falsified, inaccurate, misleading, or 
manipulated data on VAT-related revenues for the purpose of gaining or 
maintaining eligibility for the Local Government Development Fund (LGDF); 
 
B.​
Misuse or Misappropriation of Funds – Directly or indirectly diverting, misusing, 
misappropriating, or expending LGDF allocations for purposes other than those 
expressly authorized in this Act or in the LGU’s approved Comprehensive 
Development Plan (CDP) and Annual Investment Plan (AIP); 
 
C.​
Obstruction of Oversight Functions – Knowingly obstructing, altering, suppressing, 
or falsifying monitoring and evaluation reports, or refusing to provide relevant 
records or information required for transparency, audit, or performance validation 
under this Act; 
 
D.​
Violation of Other Provisions – Committing any act or omission that contravenes 
any provision of this Act or its implementing rules and regulations. 
 
Any misapplication, diversion, or unauthorized use of the LGDF, whether by commission 
or omission, shall constitute a violation of this Act and shall render the responsible 
official or employee administratively, civilly, and criminally liable under existing laws, 
including but not limited to, Republic Act No. 3019 (Anti-Graft and Corrupt Practices 
Act), Republic Act No. 7160 (Local Government Code of 1991), Republic Act No. 9184 
(Government Procurement Reform Act), and Republic Act No. 10963 (TRAIN Law), 
where applicable. 
 
The Department of the Interior and Local Government (DILG), in coordination with the 
Commission on Audit (COA) and the Office of the Ombudsman, shall ensure that 
mechanisms for reporting, investigation, and enforcement are in place to address any 
violations of this provision. 
 
 


 
 
SECTION. 12. LEAD IMPLEMENTING AGENCIES. 
 
The Department of Budget and Management (DBM) shall serve as the principal 
implementing agency of this Act, and shall have authority over fund administration and 
release. 
 
The DILG, DOF, and BLGF shall provide technical assistance, conduct eligibility 
certifications and validations, support monitoring and evaluation, and ensure LGU 
compliance with the provisions herein. 
 
 
SECTION. 13. APPROPRIATIONS. 
 
The amount necessary for the initial implementation of this Act shall be charged against 
current and available appropriations of the DBM, DILG, DOF, and BLGF. Thereafter, 
such sums as may be necessary for the continued implementation of this Act shall be 
automatically included in the annual General Appropriations Act (GAA). 
 
 
SECTION. 14. IMPLEMENTING RULES AND REGULATIONS. 
 
Within thirty (30) calendar days from the effectivity of this Act, the DBM, in consultation 
with the DILG, DOF, BLGF, and relevant stakeholders, shall promulgate the necessary 
implementing rules and regulations (IRR) for the effective and efficient implementation 
of this Act. 
 
 
SECTION. 15. REPEALING CLAUSE. 
 
All laws, executive orders, proclamations, rules, regulations, and other issuances or 
parts inconsistent with the provisions of this Act are hereby repealed or amended 
accordingly. 
 
 
SECTION. 16. SEPARABILITY CLAUSE.  
 
If any provision of this Act is declared invalid or unconstitutional, the provisions not 
affected thereby shall remain in full force and effect. 
 
 
SECTION. 17. EFFECTIVITY. 
 
This Act shall take effect fifteen (15) days following its complete publication in the 
Official Gazette or a newspaper of general circulation. 


 
 
Approved,