DEPARTMENT OF FINANCE

BUREAU OF LOCAL GOVERNMENT

FINANCE

LGU Taxation and

Revenue Practices
Overview of Philippine Fiscal Decentralization
• Geographically strategic: 7,107 islands
• History of fiscal decentralization:
✓ Local Autonomy Act of 1959
✓ Decentralization Act of 1967
✓ 1973 Constitution
✓ Batas Pambansa 337 of 1983
✓ Presidential Decrees during the Martial Law
✓ 1987 Constitution
✓ Local Government Code of 1991

• From centralist (transfer of authority) to people-oriented service delivery at the local

level
• Presently under the regime of the 1987 Constitution and the Local Government Code
of 1991
• With revenue assignments, expenditure responsibilities, intergovernmental transfers,
and subnational debt
 Philippine Local Governments

Provinces (81)

Municipalities (1,489) Component Cities (105)

Barangays Barangays

Independent Cities (40)

Highly Urbanized Cities (35)
Independent Component Cities (5)

Barangays

Total Number of Barangays: 42,028

 Administrative Structure
• Local governments as political and territorial subdivisions of the State

• Provinces, cities, and municipalities are directly headed by a local chief

executive (Governor for provinces, and Mayor for cities and municipalities)
and a vice (Vice Governor; Vice Mayor)

• Each local government has a local legislative council called “Sanggunian”

(Provincial Board; City/Municipal/Barangay Council) composed of councilors,
with the Vice Governor/Vice Mayor/Punong Barangay serving as Presiding
Officer

• Barangays are headed by a Chairman

 Revenue Assignments of Local Governments

• Largely fixed (with maximum rates/ceilings) and not indexed

to inflation
• Tax rates can only be adjusted up to 10% and once every 5
years
• Rates/levies must be legislated through local council
• Basis for real property tax is through a Schedule of Market
Values, subject to revaluation/revision once every 3 years
 Revenue Assignments of Local Governments
TAXES

Tax Base Provinces Cities Municipalities Barangays

Business No Yes Yes No

Real property Yes Yes Share Share
Idle land Yes Yes No No
Real property transfers Yes Yes No No
Printing and publication Yes Yes No No
Sand, gravel and other
Yes Yes Share Share
quarry resources
Delivery vans and trucks Yes Yes No No
Amusement places Yes Yes Share No
Professionals Yes Yes No No
Community tax No Yes Yes Share
Franchise Yes Yes No No
 Revenue Assignments of Local Governments
FEES & CHARGES

Agricultural Machinery Demolition Permit Health Services Parking Special Cockfighting

Storage of Flammable
Annual Inspection Electrical permit Holding of Benefits Pedicab Operations
Materials

Bicycle Permit Exhumation of Cadaver Hospital fees Permit & Solemnization Tax Clearance

Fee on Occupation or Impounding of Stray Physical Exam &

Boats Permit Terminal Fees
Calling Animals Medical Certification

Building Permit Filmmaking Market Plumbing Permit Toll Fees & Charges

Burial Permit Fire Certification Marriage Police Clearance Towing Charges

Registration of Large
Bus Terminals Firearms Permit Mayors Permit Traffic Violations
Cattle

Carts and Sledge Fiscal’s Clearance Mechanical Permit Rental of Facilities Tricycle Franchising

Certification Fishing Permit Mineral Lands Sanitary Permit Tuition Fees

Gaffers and Cockpit

Civil Registry Fees Mining Claims Secretary’s Certification Video Tape Rental
Persons
Other Heavy
Cockpits Garbage Colections Sheriff’s Fees Water and Power
Equipment
Slaughterhouse &
Court Fees Hawkers Parades Weights and Measures
Corrals
Income Profile of Local
Government Units
Provinces, Cities and Municipalities: 2009 - 2014
CONSOLIDATED PUBLIC SECTOR FINANCIAL POSITION
Levels (In Billion Pesos)
Particulars
2009 2010 2011 2012 2013 2014
TOTAL SURPLUS(+)/DEFICIT(-) (240.15) (356.65) (175.10) (165.33) 42.41 82.21
Percent of GDP -3% -4% -2% -2% 0% 1%

TOTAL PSBR (7182.25) (8253.04) (4792.78) (4935.96) (2071.03) (859.43)

Percent of GDP -4% -4% -2% -2% -0.8% -0.3%

PUBLIC SECTOR BORROWING (329.85) (379.03) (220.11) (226.69) (95.11) (39.47)

National Government -4% -4% -2% -2% -1% 0%

CB Restructuring (329.85) (379.03) (220.11) (226.69) (95.11) (39.47)
Monitored (GOCCs) (298.532) (314.458) (197.754) (242.827) (164.062) (73.092)
Adjustment in net lending and
equity to GOCCs (8.759) (7.689) (3.536) (3.506) (3.506) (2.675)
Other Adjustments (19.300) (66.925) (19.842) (4.955) 60.872 21.154

OTHER PUBLIC SECTOR 89.706 22.376 45.018 61.357 137.524 121.683

SSS/GSIS/PHIC 44.500 39.268 47.966 72.731 62.493 68.767
Bangko Sentral ng Pilipinas (BSP) (0.168) (63.722) (47.432) (94.848) (23.725) (10.735)
Government Financial Institutions 10.800 9.452 9.760 9.888 15.315 12.227

Local Government Units (LGUs) 34.695 34.103 34.724 73.648 83.441 51.424
Timing adjustment of interest
payments to BSP (0.328) 0.395 0.000 0.000 0.000 0.000
Other adjustments 0.207 2.880 0.000 (0.062) 0.000 0.000

Source: Department of Finance

 Consolidated Statement of Receipts and Expenditures
PARTICULARS 2009 2010 2011 2012 2013 2014 Average
Amount in Million Pesos
Current Operating Income & Expenditures
Operating Income 311,011 336,613 366,093 367,912 389,558 429,429 366,769
Operating Expenditures 233,662 253,867 266,240 282,506 297,731 300,887 272,482
Net Operating Income/Loss 77,349 82,745 99,853 85,407 91,826 128,542 94,287
Non-Income Receipts & Non-Operating Expenditures
Non-Income Receipts 12,785 14,726 11,816 8,873 12,895 14,185 12,547
Non-Operating Expenditures 46,525 47,551 50,055 47,577 52,159 62,941 51,135

Net Increase/Decrease in Cash 43,608 49,921 61,614 46,703 52,562 79,785 55,699

Growth Rate
Current Operating Income & Expenditures
Income 8% 9% 0% 6% 10% 7%
Expenditures 9% 5% 6% 5% 1% 5%
Net Operating Income/Loss 7% 21% -14% 8% 40% 12%
Non-Income Receipts & Non-Operating Expenditures
Receipts 15% -20% -25% 45% 10% 5%
Expenditures 2% 5% -5% 10% 21% 7%
Growth rate of Net
14% 23% -24% 13% 52% 16%
Increase(Decrease) in Cash
1.60% 200,000

180,000
1.40%

160,000
1.20%
140,000

Amount in Million Pesos

1.00%
120,000

0.80% 100,000

80,000
0.60%

60,000
0.40%
40,000

0.20%
20,000

0.00% -
2009 2010 2011 2012 2013 2014

LGU Overall Surplus/(Deficit) LGU Overall Surplus/(Deficit) (% GDP)

LGUs Overall Surplus/Deficit

 450,000 50%

400,000
40%

350,000
30%
Amount in Million Pesos

300,000

250,000 20%

200,000 10%

150,000
0%
100,000

-10%
50,000

0 -20%
2009 2010 2011 2012 2013 2014
Operating Income Operating Expenditures Net Operating Income/Loss

Net Operating Income(Loss): Growth Rate

 Income from Local and External Sources

PARTICULARS 2009 2010 2011 2012 2013 2014 Average

Amount in Million Pesos

Income 311,011 336,613 366,093 367,912 389,558 429,429 366,769

Local Sources 97,510 107,316 117,447 132,278 135,176 150,721 123,408

External Sources 213,501 229,296 248,646 235,634 254,381 278,708 243,361

Percentage Distribution

Income 100% 100% 100% 100% 100% 100% 100%

Local Sources 31% 32% 32% 36% 35% 35% 34%

External Sources 69% 68% 68% 64% 65% 65% 66%

Growth Rate

Income 8.2% 8.8% 0.5% 5.9% 10.2% 6.7%

Local Sources 10% 9% 13% 2% 11% 9%

External Sources 7% 8% -5% 8% 10% 6%

 1.26% 1.25%

1.24%
1.21%
1.22% 1.21%
Percentage

1.20% 1.19% 1.19%

1.17%
1.18%

1.16%

1.14%

1.12%
2009 2010 2011 2012 2013 2014
Year

Local Sources as % of GDP

Local Sources vs. External Sources
14%
12%
External Local 10%
Sources Sources
66% 8%

Growth Rate
34%
6%
4%
2%
0%
-2%
-4%
-6%
2010 2011 2012 2013 2014
External Sources 7% 8% -5% 8% 10%
Local Sources 10% 9% 13% 2% 11%

Local Sources vs. External Sources

(Average Percentage Contribution) External Sources Local Sources

Growth Rate of Revenues from Local and External Sources

 Provinces Inter-Local Cities
Grants/Aids Transfer Grants/Aids
0.26% Local Sources 0.33% 0.44%
Inter-Local 18.79%
Transfer
0.46%
IRA and Nat'l
Shares
43.53% Local Sources
55.70%
IRA and Nat'l
Shares
80.48%

Municipalities
Grants/Aids
Inter-Local 0.65%
Transfer
0.30%
Local Sources
19.17%
IRA and
Nat'l Shares
79.88%

Operating Income Per LGU Type

Tax and Non-Tax Revenues

PARTICULARS 2009 2010 2011 2012 2013 2014 Average

Amount in Million Php
Local Sources 97,510 107,316 117,447 132,278 135,176 150,721
123,408
Tax Revenues 67,717 71,148 81,105 92,869 96,328 107,809 86,163
Real Property Tax 31,518 33,057 36,000 39,315 41,191 45,349 37,738
Business Tax 32,334 33,565 40,434 48,730 49,458 55,634 43,359
Other Taxes 3,864 4,526 4,670 4,823 5,679 6,825 5,065
Non-Tax Revenues 29,793 36,168 36,343 39,409 38,848 42,913 37,246
Fees and Charges 11,299 12,949 13,848 15,149 16,136 19,839 14,870
Receipts from Economic
12,124 13,074 14,354 16,357 16,922 17,674
Enterprises 15,084
Other Receipts 6,370 10,145 8,140 7,903 5,791 5,400 7,291
Percentage Distribution
Local Sources 100% 100% 100% 100% 100% 100% 100%
Tax Revenues 69% 66% 69% 70% 71% 72% 70%
Real Property Tax 32% 31% 31% 30% 30% 30% 31%
Business Tax 33% 31% 34% 37% 37% 37% 35%
Other Taxes 4% 4% 4% 4% 4% 5% 4%
Non-Tax Revenues 31% 34% 31% 30% 29% 28% 30%
Fees and Charges 12% 12% 12% 11% 12% 13% 12%
Receipts from Economic
12% 12% 12% 12% 13% 12%
Enterprises 12%
Other Receipts 7% 9% 7% 6% 4% 4% 6%
Growth Rate
Local Sources 10% 9% 13% 2% 11% 9%
Tax Revenues 5% 14% 15% 4% 12% 10%
Real Property Tax 5% 9% 9% 5% 10% 8%
Business Tax 4% 20% 21% 1% 12% 12%
Other Taxes 17% 3% 3% 18% 20% 12%
Non-Tax Revenues 21% 0% 8% -1% 10% 8%
Fees and Charges 15% 7% 9% 7% 23% 12%
Receipts from Economic
8% 10% 14% 3% 4%
Enterprises 8%
Other Receipts 59% -20% -3% -27% -7% 1%
 25%
100%
31% 34% 31% 30% 29% 28%
90%
20%
80%
70%
15%
60%
Growth Rate

50%
10%
40%
69% 66% 69% 70% 71% 72%
5%
30%
20%

0% 10%
2010 2011 2012 2013 2014 0%
2009 2010 2011 2012 2013 2014
-5%
Year Tax Revenues Non-Tax Revenues

Tax Revenues Non-Tax Revenues

Growth Rate of Tax and Non-Tax Revenues Share of Tax and Non-Tax Revenues

Tax and Non-Tax Revenues

 Composition of Tax Revenues
120,000
Average Percentage Contribution of
RPT, BT and Other Taxes to Tax
Revenues
100,000
Amount in Million Php

80,000 Other
Taxes Real
6% Property
60,000 Tax
44%

40,000

20,000

-
2009 2010 2011 2012 2013 2014
Other Taxes 3,864 4,526 4,670 4,823 5,679 6,825 Business
Business Tax 32,334 33,565 40,434 48,730 49,458 55,634 Tax
Real Property Tax 31,518 33,057 36,000 39,315 41,191 45,349 50%

Tax Revenues
 Composition of Non-Tax Revenues
50,000 Average Percentage Contribution of
45,000
FC, EE and Other Receipts to Non-Tax
Revenues
40,000

35,000
Amount in Million Pesos

30,000 Other
Fees and
Receipts
Charges
25,000 20%
40%
20,000

15,000

10,000

5,000
Receipts
-
2009 2010 2011 2012 2013 2014 from
Other Receipts 6,370 10,145 8,140 7,903 5,791 5,400 Economic
Enterprises
Receipts from Economic
12,124 13,074 14,354 16,357 16,922 17,674 40%
Enterprises
Fees and Charges 11,299 12,949 13,848 15,149 16,136 19,839

Non-Tax Revenues
 Inter-Governmental Transfers
Internal Revenue Allotment
• Formula-based block grant from National Government
• 40% share in the national internal revenue taxes based on the National
Government’s collection of the third fiscal year preceding the current fiscal
year

Allocated according to type of local Share of Provinces, Cities and

government: Municipalities based on:

• Population - 50%;
• Provinces - 23%;
• Land Area - 25%; and
• Cities - 23%;
• Equal sharing - 25%
• Municipalities - 34%; and
Barangays: 60% Population + 40%
• Barangays - 20%
Equal Sharing
 Inter-Governmental Transfers

Other Shares from National Tax Collection

• Share from National Wealth
• Share from Tobacco Excise Tax
• Share from Government Corporations (PAGCOR/PCSO)
• Share from Economic Zones
• Share from Expanded Value Added Tax
 IRA and Other Shares from National Wealth
140,000.00

120,000.00

100,000.00
Amount in Million Php

80,000.00
Province
City
60,000.00
Municipality

40,000.00

20,000.00

-
2009 2010 2011 2012 2013 2014
 Expenditure Responsibilities
Environmental
Health & Social Regulatory
Agriculture Protection & Infrastructure Tourism
Services Functions
Management
• Primary health care • Inter-barangay • Solid waste Provision for: • Development of Certain regulatory
• Maternal and child irrigation disposal system • Public markets tourism facilities functions of the
care system • General hygiene • Public buildings and other national
• Disease control • Water and soil and sanitation • Freedom parks and tourist government:
services resource • Community- other public assembly attractions • Inspection of
• Purchase of utilization and based forestry areas • Acquisition of food products
medicines, medical conservation projects • Other similar facilities equipment • Adoption of
supplies, and projects • Management and • Regulation and quarantine
equipment • Enforcement control of Maintenance and supervision of regulations
• Social welfare of fishery laws communal rehabilitation of: business • Enforcement of
services for in municipal forests • Roads and bridges, concessions the National
children, youth, waters • School buildings and Building Code
family, community, • Conservation other facilities for basic • Regulations of
women, elderly, of mangroves education transport
disabled persons, • Clinics, health centers operations
rebel returnees and and other health • Licensing of
evacuees; facilities cockpits
• Relief operations; • Fish ports
• Population • Artesian wells
development • Water supply systems
• Socialized housing • Seawalls and dikes
• Drainage and sewerage
• Flood control system
• Traffic signals and road
signs
 Current Operating Expenditures: FY 2009 – FY 2014
PARTICULARS 2009 2010 2011 2012 2013 2014 Average
Amount in Million Pesos
EXPENDITURES 233,662 253,867 266,240 282,506 297,731 300,887 272,482

General Public Services 128,806 142,478 146,303 154,815 161,732 160,904 149,173
Social Services 57,291 58,973 65,025 69,980 76,247 79,639 67,859
Economic Services 43,884 48,427 50,288 53,173 55,384 55,943 51,183
Debt Service 3,681 3,989 4,625 4,538 4,369 4,402 4,267
Percentage Distribution
EXPENDITURES 100% 100% 100% 100% 100% 100% 100%
General Public Services 55% 56% 55% 55% 54% 53% 55%
Social Services 25% 23% 24% 25% 26% 26% 25%
Economic Services 19% 19% 19% 19% 19% 19% 19%
Debt Service 2% 2% 2% 2% 1% 1% 2%
Growth Rate
EXPENDITURES 9% 5% 6% 5% 1% 5%
General Public Services 11% 3% 6% 4% -1% 5%
Social Services 3% 10% 8% 9% 4% 7%
Economic Services 10% 4% 6% 4% 1% 5%
Debt Service 8% 16% -2% -4% 1% 4%
Note:
Social Services is the sum of Department of Education, Health, Nutrition and Population Control, Labor and Employment, Housing and
Community Development, and Social Services and Social Welfare
100% 10.00%
Average Current Operating
90% 9.00% Expenditure by Sector
80% 8.00%
Debt
70% 7.00% Service
Economic
Services 1%
60% 6.00%
19%
50% 5.00%
40% 4.00%
30% 3.00%
20% 2.00%
General
10% 1.00% Public
Social Services
0% 0.00% Services 55%
2009 2010 2011 2012 2013 2014 25%
General Public Services Social Services
Economic Services Debt Service
Growth Rate

Current Operating Expenditures Growth Rate

 20%

15%
Growth Rate

10%

5%

0%

-5%
2010 2011 2012 2013 2014
General Public Services 11% 3% 6% 4% -1%
Social Services 3% 10% 8% 9% 4%
Economic Services 10% 4% 6% 4% 1%
Debt Service 8% 16% -2% -4% 1%

Current Operating Expenditure by Sector

 Sub-national Debt/Borrowing

• Any local government unit may create indebtedness, and

avail of credit facilities to finance local infrastructure and
other socio-economic development projects (based on the
approved local development plan and public investment program)

• Forms of indebtedness/credit facilities:

• Loans, deferred payment and other financial schemes
• Bonds and other long-term securities
• Inter-local government loans, grants, and subsidies.
• Loans from funds secured by NG from foreign sources
• Build-Operate-Transfer/Joint Ventures: financing, construction,
maintenance, operation, and management of infrastructure projects by
the private sector
 Sub-national Debt/Borrowing

• Statutory Limitations: the amount of appropriations for

debt servicing shall not exceed 20% of the regular income
of the local government unit concerned.
• Ex ante monitoring/regulations: DOF/BLGF certifies debts
service ceiling and net borrowing capacity of LGUs; the
Monetary Board issues opinion on the monetary and
balance of payments implications for every proposed
borrowing of local governments
• Policy preference to secure loans with government
financial institutions
 80,000 0.80%

70,000 0.70%

60,000 0.60%
Amount in Million Php

50,000 0.50%

40,000 0.40%

30,000 0.30%

20,000 0.20%

10,000 0.10%

0 0.00%
2009 2010 2011 2012 2013 2014

LGU Debt Service LGUs Loans Oustanding

LGU Debt Service (% of GDP) LGUs Loans Oustanding (% of GDP)

LGU Borrowings
 The Bureau of Local Government Finance

• Role of the BLGF

• Legal Basis & Mandate
• Clientele
• Organizational Structure
• Strategic Thrusts and Programs
• Special Projects

VISION:
The Bureau of Local Government Finance of the Department of Finance is the focal agency
and an authority in local finance that aims to be at the forefront of local economic growth
leading the way towards national development.
Role of the BLGF

• As an attached agency of the Department of Finance (DOF), the BLGF

supports the DOF’s mandate to:
 Supervise the revenue operations of all local government units; and
 Monitor and support the implementation of policies and measures on local revenue
administration;

• Provide technical assistance to local governments on local treasury

and assessment operations, and overall revenue generation activities
• Assist in policy development and implementation to promote fiscal
decentralization in the LGUs
• Assist the DOF in appointment and overall administrative supervision of
local treasurers and in providing technical supervision to assessors in
all local governments
Legal Basis & Mandate

Section 43 of Executive Order No. 127 of 1987, as amended

• Assist in the formulation and implementation of policies on local
government revenue administration and fund management;
• Assist LGUs in the development and implementation of Real Property Tax
Administration (RPTA) projects;
• Develop plans and programs for the improvement of tax collection
enforcement mechanisms and credit utilization schemes at the local levels;
• Exercise administrative and/or technical supervision over local treasury
and assessment operations;
• Exercise line supervision over its regional offices and coordinate regional
activities to maximize manpower and financial resources; and
• Perform such other appropriate functions as maybe assigned.
Legal Basis & Mandate

Local Government Code of 1991 (RA 7160) and its Implementing Rules &
Regulations
• Assist in the promulgation of necessary rules and regulations for the
classification, appraisal and assessment of real property necessary for taxation
purposes (Sec. 201)
• Assist in the promulgation of necessary rules and regulations for simplified
disbursement scheme designed for the speedy and effective enforcement of
the IRA system (Sec. 288);
• Appointment of the treasurer of each LGU from at least three (3) ranking
eligible recommendees of the Local Chief Executive, subject to civil service law,
rules and regulations (Sec. 470 and 471);
• Certification of the requirements for the creation of LGU or conversion from one
level to another (Sec. 7); and
• Income classification of LGUs (Sec. 8)
BLGF Clientele

• LGUs: Local Chief Executives, Local Legislative, Council,

Local Finance Committee, Local Treasurer, Assistant
Treasurer and Treasury Personnel, Local Assessor,
Assistant Assessor and Assessment Personnel
• National Government Agencies: DOF, DILG, DEN, DAR,
DBM, NEDA, CSC, COA, Ombudsman
• Government Financial Institutions: BSP, LBP, DBP, etc.
• Development Partners/Bilateral/Multilateral Institutions
• General Public/Taxpayers
Organizational Structure
 Special Projects

L O G O F I N D Local Government Finance and Development

Project (with MDFO)

Second Land Administration & Management

Project (with DENR, LRA)

EU PFM 2 LGU Public Financial Management (with DBM,

DILG, COA, NEDA)

ADB TA 7809
Support to Local Government Revenue
REGALA Generation and Land Administration &
Management (with DENR)
Recent DOF/BLGF Interventions
• Professionalization Law including government appraisers and assessors (under the Real
Estate Service Act or Republic Act No. 9646)

• Directive of the Secretary to all local treasurers to step up revenue collections and to
the assessors to update property values and adopt idle land tax

• Electronic Statement of Receipts and Expenditures, with sanctions for non-compliant

treasurers

• LGU Fiscal Sustainability Scorecard, Publication of Fiscal Performance of LGUs and Tax
Watch Advertisements (http://iskor.blgf.gov.ph)

• Performance Standards for Local Treasurers (forthcoming)

• Updating of Treasury and Assessment Operations Manuals (ongoing)

• Scaling up of land governance and valuation reforms in more LGUs

• Capacity building programs on updating of property values

LGU TAX WATCH Ads
LGU TAX WATCH
LGU TAX WATCH
LGU TAX WATCH
LGU TAX WATCH
LGU TAX WATCH
 Moving forward
 Review of the fiscal provisions of the 1991 Local Government Code: consider
amendments on tax assignments and revenue mandates

 Review current regulations on utilization of national transfers, local fiscal incentives,

subnational borrowing, etc.

 Prioritize the key legislation pending in Congress:

Valuation Reform Bill: recentralize the approval of property valuations
Income Classification Bill for the Secretary of Finance to set income brackets and to
regularly reclassify local governments every 3 years
Bill increasing the income requirement for creation of cities from Php100M to Php250M
(which may be increased every 3 years).

 Continuous monitoring/technical assistance through oversight agencies: improve

accountability and transparency, more capacity building for resource mobilization, harmonize
PFM tools at the local levels, among others

 Focus on rural areas/local governments with high poverty incidence

THANK YOU & MABUHAY!