Republic of the Philippines 
HOUSE OF REPRESENTATIVES 
Quezon City, Metro Manila 
NINETEENTH CONGRESS 
First Regular Session 
HOUSE BILL NO. _____ 
Introduced by Representative WOWO FORTES 
EXPLANATORY NOTE 
Executive Order No. 249 of former Pres. Corazon Aquino provided for the income 
classification of Local Government Units (LGUs) which is used to determine their financial 
capability to fund development projects and priority needs and to determine the number of 
Sanggunian or council members in each locality. Republic Act No. 7160 or the Local 
Government Code of 1991 also impose limitations and policy on LGUs income classification.  
The LGUs income classification has an impact on reclassification of its lands and 
compensation of its local officials and employees. Further, its regular income limits the amount 
of debt servicing and the use of provincial, city, and municipal funds for personnel services 
and procurement through personal canvass.  
However, due to the Internal Revenue Allotment (IRA), now National Tax Allotment 
(NTA), that affects the income ranges for the different LGU classes, the income class does 
not accurately reflect the financial capability of an LGU specifically in generating locally-
sourced revenue. The IRA has become the biggest component of the annual regular income, 
which is basically the basis for classifying the income class of LGUs. 
With this, more LGUs are classified under higher classes while a number of them are 
classified under lower classes. This also makes a wide difference in the taxing capacities of 
LGUs. It is important that the LGUs have clear and more comprehensive income classification 
specially that Executive Order No. 138, series of 2021 or the full devolution of certain functions 
of the executive branch to local governments of former President Rodrigo Duterte shall be 
implemented. The said devolution definitely has impacts on fiscal sustainability, service 
delivery and as well as fiscal and project implementation of LGUs. 
Through the new income classification, LGUs can better position themselves in 
accordance with the National Government’s financial and fiscal policies. An upgrade in the 
income classification in LGUs will also definitely bring confidence in fulfilling the funding 
requirements of development programs, projects within every locality. 
In view of the foregoing reasons, approval of this bill is earnestly sought. 
  ATTY. WOWO FORTES 
     Representative 
Second District, Province of Sorsogon 
November 14, 2022
3:10 pm
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Nineteenth Congress of the 
Republic of the Philippines 
First Regular Session 
 HOUSE OF REPRESENTATIVES 
H.B. NO. _____ 
Introduced by Representative WOWO FORTES 
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 of the Philippines in the 
Congress assembled: 
SECTION 1. Short Title. - This Act shall be known as The Local Government Units 
Income Classification Act of 2022”. 
SEC. 2. Declaration of Policy. - It is the policy of the State to provide an equitable and 
rational systems of regular income classification of provinces, cities and municipalities 
that will truly reflect their respective financial positions. 
SEC. 3. Definition of Terms. - As used in this Act, the following terms shall mean: 
(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 National Tax Allotment
(NTA) and other shares of local government units as maybe provided by law;
(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 5 hereof; and
(c) “Local Government Units (LGUs)” refer to the territorial and political
subdivisions of the Republic of the Philippines comprising all the provinces,
cities, municipalities, for purposes of this Act.
SEC. 4. Computation of Annual Regular Income. – The annual regular income shall 
be computed from the Statements of Receipts and Expenditures (SRE) maintained by 
the Bureau of Local Government Finance of the Department of Finance. 
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SEC. 5. 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 that have obtained an average annual                      
income of Eight Hundred Million Pesos (P800,000,000.00) or more; 
 
(b) Second Class - 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); 
 
(c) Third Class - 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 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 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 that have obtained an average annual 
income of less than Two Hundred Million Pesos (P200,000,000.00) 
 
SEC. 6. 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 that have obtained an average annual income 
of Ninety Million Pesos (P90,000,000.00) or more; 
 
(b) Second Class - 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 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); 
 
(d) Fourth Class - 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 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 that have obtained an average annual 
income of less than Thirty Million Pesos (P30,000,000.00). 
 
SEC. 7. 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 LGUs conforms with the 
prevailing economic conditions and the overall financial status of the local 
governments.  
 
SEC. 8. 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. Provided 
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 LGUs, as herein provided, shall be classified on the 
basis of its average annual regular income during such lesser number of fiscal 
years.  
 
In cases of diminishing revenues, the Secretary of Finance may order the 
recomputation and revision of the income classification of provinces, cities and 
municipalities to reflect the actual financial situation of the LGUs. Provided that, 
the income classification of the LGUs shall not fall below its current 
classification or provided under Section 8 of the Local Government Code of 
1991, as amended. 
 
(b) A province or municipality created before the year of the general reclassification 
of LGUs 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 National Tax Allotment 
(NTA) of the newly created province or municipality pursuant to Section 285 of 
the Local Government Code of 1991, as amended, during the fiscal year 
immediately preceding its creation.  
 
The rule prescribed under the immediately preceding paragraph shall likewise 
apply to a municipality converted into a city, or a city created out of existing 
municipalities and/or cluster of barangays. 
 
SEC. 9. Uses of Income Classification. - The income classification of provinces, cities 
and municipalities shall, among other purposes, serve as a basis for: 
 
 
(a) The determination of administrative and statutory aids, financial grants, and           
other forms of assistance to local governments; 
 
(b) The determination of the financial capability of LGUs to undertake 
developmental programs and priority projects; and 


 
(c) Such other purposes as provided under existing laws and regulations. 
 
SEC. 10. 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 may maintain its existing personnel 
complement prior to the reclassification, pursuant to civil service rules and regulations: 
Provided 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: Provided further that, in case the 
LGU shall still exceed the limitations provided in Section 325 of the Local Government 
Code of 1991, as amended, despite the maintenance of the status quo after it first 
received a First, Second or Third income class designation as provided herein, shall 
not be considered a violation thereof. 
 
SEC. 11. Effectivity of the Income Reclassification. - All income reclassification of 
provinces, cities, and municipalities pursuant to this Act shall be effective on the 1st 
day of January of the immediate succeeding year. 
 
SEC. 12. Implementing Rules and Regulations (IRR). - The Secretary of Finance, in 
consultation with the Department of the Interior and Local Government, Department 
of Budget and Management, Bureau of Local Government Finance, and the Leagues 
of Provinces, Cities and Municipalities, shall promulgate the necessary rules and 
regulations within ninety (90) days after the effectivity of this Act. 
 
SEC. 13. 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. 14. Suppletory Application of Existing Laws. - The provisions of the Local 
Government Code of 1991, as amended, and other laws consistent with this Act shall 
have suppletory effect. 
 
SEC. 15. 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, amended or modified accordingly. 
 
SEC. 16. Separability Clause. – If, for any reason, any section or provision of this Act 
is held unconstitutional or invalid, the other sections or provisions hereof shall remain 
in full force and effect. 
 
SEC. 17. Effectivity. - This Act shall take effect fifteen (15) days after its publication in 
the Official Gazette or in a newspaper of general circulation. 
 
Approved,