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THIRTEENTH CONGRESS OF THE REPUBLIC 
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OF THE PHILIPPINES 
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First Regular Session 
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S E N A T  
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s. No. 
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Introduced by Senator S. R. OsmeAa 111 
EXPLANATORY NOTE 
With devolution of powers and resources from the central to the local 
government units (LGUs) as the primary guiding principle, the Local Government 
Code (LGC) of 1991 was enacted. The creation of a more responsive and 
accountable local government structure, as mandated by the Constitution, was 
thus fulfilled. 
Under the LGC, the LGUs share in the national internal revenue increased 
to forty percent. This is a big jump from the measly eleven percent it previously 
enjoyed. 
However, the experiences of local executives dictate that the allotment is 
not sufficient to meet the financial needs of their constituencies. 
This is 
manifested by the widespread practice of requests for funds from Congressmen, 
Senators or from MalacaFiang, for basic projects such as the construction or 
repair of roads and school buildings. 
The devolution of power and authority to local government units have, 
likewise, exacted quite a heavy toll especially on cities, which have to shoulder 
the cost of devolution. The result is that Internal Revenue Alloiments (IRA), are. 
reduced and urgent economic and social development projects and basic 
services deliveries foregone. The total revenue loss to cities all over the country 
is estimated at around P900 million. 
This bill proposes to increase the internal revenue allotments of LGUs 
from the current forty, to sixty percent, at an increase of five percent per annum, 
beginning on fiscal year 1999. It seeks to further empower local executives, who 
are in a better position to determine the exigencies of their constituencies. 
It also provides for a more equitable sharing of the cost of devolution 
among provinces, cities, municipalities and barangays. In order to compensate 
existing cities for the cost of the creation of new cities, they are allowed to 
recover no less than P889 million every year which they stand to lose under the 
new allocation formula. 


Finally, it also provides for the automatic retention of their shares instead 
of turning it over to the national government, only to be remitted back to them. 
This cuts the bureaucratic maze that project financing has to hurdle. Moreover, it 
precludes nay president from delaying the release of a local government’s share 
out of sheer partisanship. 
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In view of the above, the immediate approval of this bill is earnestly 
requested. 
SERGIO R. OSMENA 111 
Senator 


THIRTEENTH CONGRESS OF THE REPUBLI 
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OF THE PHILIPPINES 
First Regular Session 
S E N A T E  
S. No. 
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Introduced by Senator S. 
AN ACT 
INCREASING THE INTERNAL REVENUE ALLOTMENTS (IRA) OF LOCAL 
GOVERNMENT UNITS, (LGU) IN PROVIDING FOR ITS EQUITABLE 
DISTRIBUTION, AUTHORIZING ITS AUTOMATICE RETENTION, AMENDING 
FOR THE PURPOSE SECTION 284, 285 AND 286 OF REPUBLIC ACT NO. 
7160, OTHERWISE KNOWN AS THE LOCAL GOVERNMENT CODE OF 1991 
AND FOR OTHER PURPOSES 
Be it enacted by the Senate and House of Representatives of the 
Philippines in Congress assembled: 
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SECTION 1. - Any provision of law to the contrary notwithstanding, 
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Sections 284, 285 and 286 of Republic Act No. 7160, otherwise known as The 
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local Government Code of 1991 is hereby amended to read as .follows: 
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"Sec. 284. Allotmenf of infernal Revenue Taxes. - Local government 
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units shall have a share in the national internal revenue taxes based on the 
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collection of the third fiscal year preceding the current fiscal year as follows: 
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(a) On the first year of the effectivity of this Code, thirty percent (30%); 
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percent (40%); 
(b) On the second year, thirty-five percent (35%); [and] 
(c) On the third year UNTIL THE SEVENTH YEAR [and thereafter], forty 
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(d) ON THE EIGHTH YEAR, FORTY-FIVE PERCENT (45%); 
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(e) ON THE NINTH YEAR, FIFTY PERCENT (50%); 
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(0 ON THE TENTH YEAR, FIFTY-FIVE PERCENT (55%); 


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(g) ON THE ELEVE TH YEAR AND THEREAFTER (60%). 
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Sec. 285. Allocation to L oca/ Government Units. - The share of local 
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government units in the internal revenue allotment shall be allocated 
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BEGINNING IN 1996, AFTER DEDUCTIM THEREFROM THE FULL COSTS 
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OF DEVOLVED FUNCTIONS AS WELL AS THE CITY FUNDED HOSPITALS, 
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in the following manner: 
a) Provinces 
- twenty-three percent (23%) 
b) Cities 
- twenty-three percent (23%) 
c) Municipalities 
- thirty-four percent (34%) 
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d) Barangays 
PROVIDED, HOWEVER, THAT IN THE EVENT THAT NEW CITIES ARE 
CREATED, THE EXISTING NUMBER OF CITIES PRIOR TO THE CREATION 
SHALL BE ALLOWED TO RECOVER THE AMOUNT OF NOT LESS THAN 
P889 MILLION EVERY YEAR WHICH THEY WOULD LOSE UNDER THE NEW 
ALLOCATION FORMULA AS.PROVIDED IN THIS SECTION. 
- twenty percent (20%) 
Provided, [however] FURTHER, That the share of each province, city and 
municipality shall be determined on the basis of the following formula: 
a) Population 
b) Land Area 
c) Equal Sharing 
Provided, furfher, That the share of each barangay with a population of not 
less than one hundred (I000 inhabitants shall not be less than Eighty Thousand 
Pesos (P80,OOO.OO) per annum chargeable against the twenty percent (20%) 
- Fifty percent (50%); 
- Twenty five percent (25%); 
- Twenty five percent (25%) 
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I )  Population 
- Forty percent (40%); and 
share of the barangay from the internal revenue allotment, and the balance to be 
allocated on the basis of the following formula: 
a) On the first year of the effectivity of this Code: 
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2) Equal Sharing 
b) On the second year: 
- Sixty percent (60%) 
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Population 
- Fifty percent (50%); and 
2) Equal Sharing 
- Forty percent (40%). 
Provided, finally, That the financial requirements of barangays created by 
local government units after the effectivity of this Code shall be the responsibility 
of the local government unit concerned. 
Sec. 286. Automatic [Release] RETENTION of Shares - (a) The share 
of each local government unit shall be [released] AUTOMATICALLY 
RETAINED, without need of nay further action, [directly to] BY the provincial, 
city, municipal or barangay treasurer, as the case may be, on a quarterly basis 
within five (5) days after the end of each quarter, and which shall not be subject 
to any lien or holdback that may be imposed by the national government for 
whatever purpose. 
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b) Nothing in this Chapter shall be understood to diminish the share of 
local government units under existing laws”. 
SEC. 2. All laws, executive orders, resolutions, ordinances, and rules 
and regulations inconsistent with the provisions of this Act are hereby deemed 
repealed, amended or modified accordingly. 
SEC. 3. This Act shall take effect fifteen (15) days from the date of the 
completion of its publication in the Official Gazette or in at least two (2) 
newspapers of general circulation. 
Approved,