TWENTIETH CONGRESS OF THE 
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REPUBLIC OF THE PHILIPPINES 
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First Regular Session 
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2b JULIO P4:19
SENATE
S. No. 5
KL£.tiV'.,u
Introduced by Sen. Panfllo M. Lacson
AN ACT
ESTABLISHING THE LOCAL GOVERNMENT DEVELOPMENT FUND, 
MANDATING THE ALLOCATION OF ONE PERCENT (1%) OF TOTAL VALUE- 
ADDED TAX (VAT) COLLECTIONS TO FINANCE LOCAL DEVELOPMENT 
PROJECTS, PROGRAMS, AND ACTIVITIES
EXPLANATORY NOTE
The State underscores the policy of fiscal decentralization, enabling local 
governments to effectively address local needs, foster good governance, and 
encourage community participation as stated in Section 2(a), Chapter I, Title I of the 
Local Government Code, to wit:
"It is hereby declared the policy of the State that the territorial 
and political subdivisions of the State shall enjoy genuine and 
meaningful local autonomy to enable them to attain their fullest 
development as self-reliant communities and make them more effective 
partners in the attainment of national goals." xxx
In line with this policy, the government shall provide avenues to allow the 
development and self-reliance of local governments. This entails managing resources 
such as proceeds from taxes, developing systems that cultivate efficient tax collection, 
and ensuring that funds are allocated to the right priorities.


This bill intends to incentivize local government units (LGUs) that consistently 
achieve their revenue collection targets and substantially contribute to the national 
coffers. Such incentives are designed to serve as motivation for LGUs to facilitate 
business operations and reduce barriers for small entrepreneurs, hence, further 
enhancing tax collection efficiencies.
To achieve this goal, a special fund known as the "Local Government 
Development Fund (LGDF)" will be allocated to LGUs that have proven tax collection 
efficiency, contributing to the growth of the economy. In particular, the LGDF shall be 
made available exclusively to LGUs that attained an increase of at least ten percent 
(10%) in their respective VAT collection performance in the immediately preceding 
fiscal year of the release of the LGDF, as certified by the Bureau of Local Government 
Finance (BLGF) and validated by the Department of Finance (DOF).
To ensure meaningful alignment of funds that is reflective of the needs of the 
communities, the LGDF shall be used solely for developmental projects, activities, and 
programs (PAPs) based on the LGUs' approved Comprehensive Development Plans 
(CDPs).
The LGDF shall be sourced from and equivalent to one percent (1%) of the 
total actual Value Added Tax (VAT) collections, as determined by the Bureau of 
Internal Revenue (BIR) and the Bureau of Customs (BOC) based on the third fiscal 
year preceding the current fiscal year.
The amount corresponding to the LGDF shall be included in the General 
Appropriations Act (GAA) and shall be released directly to the LGUs by the Department 
of Budget and Management (DBM).
It is also recognized that LGUs must have adequate capacity to carry out their 
mandate for the proper implementation of the LGDFs. The capacity-building 
mechanism under this bill will enhance local governance, improve the delivery of 
public services, and strengthen accountability among local governments. These are


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important in effectively carrying out devolved functions and ultimately, attaining local 
autonomy.
Fundamentally, it is the intention of this proposed measure to institutionalize 
rational and equitable management of resources for LGU development while allowing 
for a fiscal environment that fosters self-sufficiency and independence.
Giving the LGUs the necessary wherewithal to be active participants in the 
development of our country will contribute to dismantling the culture of mendicancy 
and political patronage that viciously thrive in our system. Ultimately, this will help in 
the realization of the elusive inclusive growth that the Filipinos all aspire for as a 
nation.
It is for this purpose that the approval of this bill is earnestly sought.
panf;
LACSON


TWENTIETH CONGRESS OF THE 
)
REPUBLIC OF THE PHILIPPINES 
)
First Regular Session 
)
SENATE 
S. No. '^05
25 JULIO P4:19
Introduced by Sen. Panfilo M. Lacson
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AN ACT
ESTABLISHING THE LOCAL GOVERNMENT DEVELOPMENT FUND, 
MANDATING THE ALLOCATION OF ONE PERCENT (1%) OF TOTAL 
VALUE-ADDED TAX (VAT) COLLECTIONS TO FINANCE LOCAL 
DEVELOPMENT PROJECTS, PROGRAMS, AND ACTIVITIES
Be it enacted by the Senate and House of Representatives of the 
Philippines in Congress assembled:
Section 1. Short Tide. - This Act shall be known as the " The Local 
Government Development Fund Act of2025f
Sec. 2. Declaration of Policy. -
(a) 
It is a declared policy of the State that territorial and political 
subdivisions shall enjoy genuine and meaningful local autonomy 
to enable them to attain their fullest development as self-reliant 
communities and make them more effective partners in the 
attainment of national goals;
(b) 
It is also the policy of the State that meaningful local autonomy 
can only be realized through the implementation of locally crafted 
development plans that accurately acknowledge and address 
perceived local needs;
(c) The State acknowledges that there exists a fiscal gap between the
expenditure responsibilities of the Local Government Units (LGUs) 
and their fiscal capacity;


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(d) It is likewise the policy of the State to ensure that sufficient financial
resources for development are available to LGUs with 
corresponding accountability of improving public services;
(e) 
Therefore, the State recognizes that inclusive and sustainable 
growth can be truly achieved only by providing the LGUs with 
adequate resources including funds and technical capacities that 
will promote meaningful development.
Sec. 3. Allotment for Development - To achieve the policies declared in 
this Act and ensure competitiveness between and among the various LGUs in 
the country, the National Government shall guarantee an annual fund as 
provided for in Section 4 hereof that can be tapped by the top performing local 
government units to implement their Comprehensive Development Plan (CDP).
In the allotment of this fund, fiscal capacity, expenditure responsibilities 
and poverty incidence shall be taken into consideration.
These funds shall be automatically and directly released to every eligible 
LGU at the start of the fiscal year or on a quarterly basis within five (5) days 
from the start of each quarter. No lien, holdback or any other imposition, of 
whatever nature, may be imposed by the National Government against the said 
fund.
Sec. 4. Establishment of the Local Government Development Fund. - 
There is hereby created a fund to be known as the Local Government 
Development Fund (LGDF), which shall be held in a special account under the 
General Fund of the National Government.
The LGDF shall be sourced from and equivalent to one percent (1%) of 
the total actual annual Value-Added Tax (VAT) collections, as determined by 
the Bureau of Internal Revenue and the Bureau of Customs based on the third 
fiscal year preceding the current fiscal year.
The amount corresponding to the LGDF shall be included in the General 
Appropriations Act and shall be released directly to the LGUs by the Department 
of Budget and Management, subject to existing budgeting, accounting, and 
auditing laws, rules, and regulations.


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The LGDF shall be distinct and separate from the National Tax Allotment
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(NTA) received by the LGUs under RA No. 7160, as amended.
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The Department of Finance shall issue the certification of the total VAT
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collections for the applicable fiscal year to serve as the basis for the annual
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allocation.
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Sec. 5. Purpose of Local Government Deve/opment Fund. -The fund
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shall be used solely by the LGUs to finance their respective development
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projects, activities, and programs (PAPs) identified in their approved
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Comprehensive Local Development Plans (CDPs) including but not limited to
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the following:
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a. Local infrastructure projects such as roads, bridges, water supply
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system, public markets, sanitation facilities and related capital
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outlay;
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b. Local economic development and enterprise support, including
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tourism, agri-industrial facilities and livelihood infrastructure;
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c. Environmental management, disaster risk reduction and climate
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adaptation measures;
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d. Digital infrastructure, e-governance systems and institutional
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modernization; and
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e. Local planning, investment programming and performance
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monitoring systems;
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Provided, That no less than ten percent (10%) of the LGDF shall be
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allotted to PAPs geared towards the enhancement and promotion of technical
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skills training of the citizens in the concerned LGU. The use of the said fund
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contrary to the stated purpose shall make the approving authority and all
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persons who allow such diversion liable for technical malversation as defined
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and penalized under Article 220 of Act No. 3815, otherwise known as the
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"Revised Pena! Code
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Sec. 6. Expenditures Not Covered. - No amount shall be paid out of the
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LGDF to items that are not related to or connected with the development PAPs
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such as:


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(a) Administrative expenses such as cash gifts, bonuses, food allowance, 
medical assistance, uniforms, supplies, meetings, communication, water 
and light, petroieum products and the like;
(b) Salaries, wages, emoluments, per diems or overtime pay;
(c) Traveliing expenses, whether domestic or foreign;
(d) Registration or participation fees in trainings, seminars, conferences and 
conventions;
(e) Construction, repair or refinishing of administrative offices;
(f) Purchase of administrative office's furniture, fixtures, equipment or 
appliances;
(g) Purchase, maintenance or repair of motor vehicles or motorcycles. 
Likewise, the LGDF shali not be used to finance PAPs that may duplicate
or overlap with PAPs that are being implemented or funded by the National 
Government Agencies (NGAs) nor shail the LGDF be utilized as a counterpart 
fund to support NGAs' identified PAPs.
Sec. 7. Entitlement to the Local Government Development Plan. — The 
LGDF shall be made available exclusively to LGUs that have attained an increase 
of at least ten percent (10%) in their respective VAT collection performance in 
the immediately preceding fiscal year, as compared to the VAT collections of 
the prior fiscal year, as certified by the Bureau of Locai Government Finance 
(BLGF) and validated by the Department of Finance (DOF).
To ensure equitable, performance-based, and fiscally responsible 
distribution of the LGDF, the following rules shall govern fund entitlement:
(a) No LGU shall receive more than one percent (1%) of the total annual 
appropriation for the LGDF in any given fiscal year.
(b) In the event that the number of qualified LGUs is substantiai and the 
aggregate computed entitlements, based on the criteria set forth in 
this Act, exceed the total annual LGDF appropriation, the Oversight 
Evaluation Committee (OEC) created under Section 10 hereof shall 
apply a pro-rata distribution formula to determine the final allocation 
for each qualified LGU, using the foiiowing weighted criteria:
i. Growth in VAT collection performance - forty percent (40%);


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ii. Population size - twenty-five percent (25%);
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iii. Poverty incidence - twenty percent (20%);
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iv. Expenditure responsibilities - fifteen percent (15%)
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(c) In the event that the application of the aforementioned formula
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results in a computed allocation for any individual LGU exceeding one
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percent (1%) of the total LGDF, such allocation shall be adjusted
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downward to comply with the maximum allowable limit. The resulting
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excess shall be redistributed proportionately among the remaining
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qualified LGUs, using the same weighted distribution criteria:
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Provided, That the total disbursed amount shall not exceed the
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annual appropriation for the LGDF.
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(d) Only LGUs that are fully compliant with the provisions of this Act and
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related implementing rules and regulations, including the submission
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and approval of a Comprehensive Development Plan (CDP),
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utilization and performance reports, and compliance with the web-
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based monitoring system under Section 9 hereof, shall be eligible to
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receive allocations under the LGDF.
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Sec. 8. Comprehensive Local Development Plan. - Consistent with
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Republic Act 7160, otherwise known as the "Local Government Code of 1991",
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every LGU shall formulate a three-year CDP that is reflective of and responsive
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to the developmental needs of their respective localities with corresponding
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periodic timelines.
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The Local Development Councils shall conduct an annual review, and if
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necessary, update and improve their respective CDPs. The CDPs shall be
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formulated and approved in accordance with the provisions of Republic Act
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7160.
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The approved CDPs of each LGU shall be the basis for the allocation of
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the Local Development Fund. In the event that the CDP is updated and funding
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has been re-adjusted, the affected development project should first be
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approved before it may be funded and implemented.
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Consultations with all stakeholders shall be done at all stages of the
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formulation, review, updating, or improvement of the CDP.


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Sec. 9. Web-Based Monitoring System. - In the spirit of transparency 
and accountability, the OEC shall adopt a web-based application to facilitate 
the monitoring and evaluation of all PAPs funded by the LGDF. The system shall 
allow tracking of expenditures and the status of implementation of the PAPs. 
The status of the PAPs shall be updated monthly by the LCDs or as frequently 
as may be necessary. It is the responsibility of the Chief Executive of the LGU 
to make sure that the reportorial requirements are complied with. In case of 
non-reporting or failure to comply with the reportorial requirements, the OEC 
shall advise the Department of Budget and Management (DBM) to suspend the 
release of funding to the delinquent LGU until such time that it complies with 
the requirements. The system shall be accessible to the general public and all 
information, including but not limited to funding/cost, location, contractor, 
progress status, number of beneficiaries, date of completion and responsible 
government official, of the PAPs shall be disclosed.
The amount of One Hundred Million Pesos (P100,000,000.00) is hereby 
appropriated to fund the establishment of a web-based monitoring system.
To enhance the monitoring of PAPs, the Strategic Action and Response 
(STAR) and the Office of Participatory Governance, both under the Office of the 
Cabinet Secretary, shall provide the following support:
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Promote active citizenship, inclusiveness, transparency and 
accountability; and
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Conduct public awareness campaigns on reforms for the 
Government's development PAPs in the localities.
Sec. 10. Oversight Evaluation Committee. -There is hereby created an 
Oversight Evaluation Committee in charge of the monitoring and evaluation of 
the implementation of development PAPs under the LGDF based on the 
indicators provided under the CDPs, composed of the following:
1. The Undersecretary for Local Government of the DILG, as Chairman;
2. An Undersecretary of the Department of Economy, Planning and 
Development (DEPDev);
3. The Undersecretary for Local Government and Regional Operations 
Group of the DBM;


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4. The Executive Director of the Bureau of Locaf Government Finance
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(BLGF) of the Department of Finance (DOF);
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5. A representative from each of the various leagues of the different LGUs
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concerned;
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6. The Chairperson of the National Commission on Indigenous Cultural
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Communities/Indigenous Peoples (NCIP), 
if applicable; and,
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7. Four representatives from accredited civil society groups and/or non-
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government organizations in the locality where the CDP is to be
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implemented.
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The representatives from the accredited civil society groups and/or non-
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government organizations shall be selected based on the criteria and
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mechanisms to be determined for this purpose by the OEC. Civil Society Groups
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and/or non-government organizations with a member that is related within the
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sixth degree of consanguinity or affinity to any elected officials in the locality
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shall not be accredited.
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The various Regional Project Monitoring Committees (RPMC) shall assist
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the OEC in its task of monitoring and evaluation and shall act as the Secretariat
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of the OEC with respect to their region.
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The OEC may create a Technical and Support Unit under its direct control
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and supervision but within the administrative structure of the DILG.
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Sec. 11. Capacity Building. - The Local Government Academy (LGA), in
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consortium and/or partnership with academic institutions of higher learning
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and/or state university/ies with distinguished competencies in public
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governance programs, shall establish a continuing capacity-building program
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for all LGUs. The trainings or programs conducted by such academic institutions
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of higher learning and/or state university/ies may be considered for academic
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credits.
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The LGA is mandated to ensure, within one (1) year after the effectivity
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of this Act, that all territorial and political subdivisions are capacitated to
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effectively plan and implement the development projects in their respective
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GDPs.


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For this purpose, an amount necessary for the capacity building of all
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LG Us is hereby appropriated in an amount not to exceed fifty million pesos
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(P50,000,000.00)
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The LGA shall provide options and/or lists of development PAPs to guide
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the LGUs.
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No LGDF shall be released without a certification from the LGA that the
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LGU is capacitated to plan and implement its CDP.
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Sec. 12. Procurement. — Procurement for the purpose of implementing
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the CPDs must be consistent with the provisions of Republic Act 12009,
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otherwise known as " The New Government Procurement Act."
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Sec. 13. Penal Provision. -
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a) The Local Chief Executive shall be administratively liable, without
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prejudice to any civil or criminal liabilities he may have incurred under existing
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laws, in case of failure to report the status of their development PAPs as
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required under Section 9 of this Act.
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b) Any government official or employee who shall prevent the reporting
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or disclosure of any information or data pertaining to a funded development
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PAP as mandated by Section 9 of this Act, shall be held administratively liable
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without prejudice to any civil or criminal liability they may incur under existing
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laws.
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Sec. 14. Oversight Committee. - There is hereby created a
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Congressional Oversight Committee to monitor and oversee the implementation
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of the provisions of this Act. The Committee shall be composed of five (5)
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members from the Senate and five (5) members from the House of
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Representatives to be chaired by the Chairpersons of the Committee on Local
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Government from both the Senate and House of Representatives.
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Sec. 15. Sunset Review. - Five (5) years following the effectivity of this
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Act, or as the need arises; the Congress shall conduct a sunset review. For
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purposes of this Act, the term "sunset review" shall mean a systematic
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evaluation by Congress of the accomplishments and impact of this Act, as well
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as the performance of LGUs, for purposes of determining necessary remedial
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legislation.


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Sec. 16. Impfementing Rules and Regulations. - The Secretary of the
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DILG, together with the Secretaries of the DOF and the DBM in consultation
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with the various leagues of the different LCDs, shall issue within ninety days
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from the effectivity of this Act, the necessary Implementing Rules and
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Regulations.
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Sec. 17. Suppletory Application of Existing Laws. - The provisions of
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Republic Act No. 7160, otherwise known as the "Locai Government Code of
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1991H, and other laws consistent with this Act shall have suppletory effect.
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Sec. 18. Repealing Ciause. - All laws, presidential decrees, executive
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orders, presidential proclamations, rules and regulations or parts thereof
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contrary to or inconsistent with this Act are hereby repealed, superseded or
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modified accordingly.
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Sec. 19. Separabiiity Clause. - Any portion or provision of this Act that
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may be declared unconstitutional or invalid shall not have the effect of nullifying
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other portions or provisions hereof, as long as such remaining portions or
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provisions can still subsist and be given effect in their entirety.
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Sec. 20. Effectivity. - This Act shall take effect fifteen (15) days after its
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complete publication in the Official Gazette or in at least two (2) newspapers
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of general circulation.
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Approved