Professional Documents
Culture Documents
Credit Financing
Financing Schemes (with Table)
Factors to Consider in Weighing Short-Term Over Term-Financing
Payment Schemes
Limitations on LGU Debt Servicing
LGU Credit Financing Options
A. Loans, Credits and Other Forms of Indebtedness
B. Deferred Payment and Other Financial Schemes
C. Inter-Local Government Loans
D. Bonds and Other Long-Term Securities (with Table and Figure)
E. Public-Private Sector Participation (PSP)
1. BOT Variants (with Table)
BOT Approval Scheme (with unlabeled Table)
Preparatory Work for BOT Arrangements
Project Development Facility
2. Service Contracts
3. Management Contracts
4. Lease or “Affermage”
5. Concession Arrangements
Ensuring Contractor Compliance
Credit Finance Program
Role of Government Financial Institutions (GFIs)
Role of the Municipal Development Fund (MDF)
LGU Credit Policy Framework (with Figure)
4
CHAPTER 2. APPROACHES AND TOOLS IN PREPARING THE
STATEMENT OF RECEIPT AND EXPENDITURES (SRE) 63-71
Tables
1.1 Strategic Plan to Manage the Fiscal Gap
1.2 LGU Resource Structure
1.3 Comparative Summary of LGU Impositions
1.4 Tax Map Preparation
1.5 Summary of Land-Based Tools
1.6 Distribution of Proceeds
1.7 Sample Taxpayer's Index Card
1.8 Strategies for Improving Assessment
and Collection of Land-Based Taxes
1.9 Business Related Taxes Allocated
To The Province and Cities
1.10 Rates of Taxes by Business
Classification for Municipalities
1.11 List of Possible PIL Indicators
1.12 Common Regulatory Fees LGUs May Impose
1.13 Samples of Service and User Fees LGUs Collect
1.14 Sample of Receipts/Charges from Economic Enterprises
1.15 Analyzing the Financial
Performance of an Economic Enterprise
1.16 Comparison Between Short Term and Term Financing
1.17 Comparative Advantages of Bonds vs. Bank Loans
1.18 BOT Variants and Their Primary Characteristics
1.19 Oversight Framework for LGU Debt
3.1. BLGF Performance Indicators
6
Figure
1. Municipal Bond Issuance Process
2.1. SRE Reporting Framework
2.2. Flowchart in the Preparation of Statement
of Receipts and Expenditures
Box
1. Procedures in Applying the PIL Technique
7
CHAPTER 1. APPROACHES AND TOOLS IN RESOURCE MOBILIZATION
Dual Nature of LGUs. Awareness of the dual nature of local governments leads to
better understanding of resource mobilization opportunities. An LGU exercises its taxing and
police powers as it imposes taxes and issues permits. On the other hand, in their proprietary
and corporate capacity, LGUs can also establish and operate economic enterprises, charge
for its services, and enter into contracts.
•Expanding resource base by tapping potential partners from the private sector and
international community;
•Restructuring government budget in favor of poverty reduction programs. This
involves giving priority to government expenditures across geographic, program or
sectoral coverage to favor poverty-focused programs;
•Increasing efficiency of technology and processes for resource management. The
latter involves transparent fund management and efficient allocation and targeting;
•Effective use of official development assistance by streamlining them for poverty
reduction and economic development;
•Expanding the tax base;
•Exploring new revenue sources for LGUs, e.g., fees and charges in the use of
natural resources;
•Enhancing tax collection efforts;
•Encouraging partnerships with people’s organizations;
•Effective and efficient use of the countryside development fund or priority
development assistance fund.
Who Benefits and Who Pays Principle. The issue for all LGUs reviewing their
revenue generation and resource mobilization policies is determining who benefits from public
goods and services and who should pay for these. The following diagram highlights the
proportion of fees/charges versus general revenue funding. The more significant fees and
charges are as a source of revenues, the more entrepreneurial the LGU. This also connotes
that there exists several service delivery functions where the private sector could participate.
8
Individuals From fees & charges
REVENUES –
WHO PAYS?
From general revenue sharing (IRA) and local
property/ business taxes
Community
Service Delivery Options. The way in which the LGU delivers services impacts on
their revenue generation and resource mobilization choices. Service delivery options include
the following:
1.Do nothing, leaving the provision of services to market forces (laissez faire);
2.Regulate the activity, without directly providing the services (regulation);
3.Contract out services to the private sector (outsourcing);
4.Develop an in-house business to provide the service, or conduct as a joint
venture in combination with other services or partners (business unit);
5.Allow in-house teams to compete in the market place for the right to provide the
service (competition); and
6.Set up a public monopoly where no other organization is able to provide the
service (LGU monopoly).
Five Steps for Effective LGU Revenue Generation and Resource Mobilization
Strategy
A. Prepare the LGU Development Plan and Ensure an Efficient Local Tax
Collection System. This demands that the LGU has a clear idea of what it is trying to
achieve for the community. A key question is “What is the LGU's governance strategy?” or
specifically, “What are its vision, mission, goals and objective?”
B. Determine Service Costs and Standards. Determining the actual unit cost of
service provision and the standard at which that service is provided enables the LGU to
decide on the standard and the corresponding fees to charge for it. A key question is: “What
is the unit cost of service deliver and the standard of service delivered?”
C. Investigate Other Revenue Generation Options. Once the LGU has determined
the cost of service delivery, it is able to formulate its revenue generation policy and make long
term forecasts about the sustainability of its services. This assists the LGU in presenting the
business case to private investors about the likely returns on possible joint LGU-private sector
initiatives. A key question is, “What opportunities exist for the LGU to levy fees and charges?”
E. Monitor, Evaluate and Review. Leading practice LGUs closely and periodically
monitor their performance to ensure their goals are being achieved. This requires regularly
searching for new ways of doing. A key question is, “What strategies are in place to monitor,
evaluate and review service provision?”
Plan to Manage the Fiscal Strategic Gap1. The five steps above were outlined to
assist LGUs determine revenue generation and resource mobilization policies that will enable
them to manage the fiscal gap. A strategic plan can be mapped out using the matrix below:
LGU Resource Structure. LGU resources come from two basic sources: (a) internal
funds are internally generated or come from regular income; and (b) external funds come
from the LGU's share in national revenues and foreign or local borrowings and grants.
Key Features of the Local Tax Structure. LGUs can choose the taxes, fees and
charges to impose, set tax rates within prescribed ranges, and adjust tax rates every 5 years
at a maximum of 10 percent. Other options include the imposition of penalties and charges,
and the provision of tax relief, discounts and incentives.
Central Grants. The provision of grants involves the transfer of funds from the
National Governments to the LGUs with the idea of getting the LGUs to use the transfers for
augmentation of funds and not as an exclusive financing source. Following are central
grants:
12
A. Internal Revenue Allotment (IRA). This is the share of all LGUs in the national
internal revenue taxes of the third year preceding. The LGU share is based on a
predetermined formula, i.e., 40 percent of gross internal revenue collections, which can be
reduced to 30 percent if an “unmanageable” public sector deficit is declared. Internal revenue
collections pertain to income tax, excise taxes, capital gains tax and other taxes collected by
the Bureau of Internal Revenue (BIR).
IRA Allocation3. The IRA is vertically and horizontally allocated to provinces, cities,
municipalities and barangays. (a) Vertical allocation among the LGU levels has been fixed by
the formula: 23% each for provinces and cities, 34% for municipalities and 20% for
barangays. (b) Horizontal allocation for provinces, cities and municipalities is based on three
factors with corresponding weights of 50% for population; 25% for land area; and 25% for
equal sharing. For barangays, a distinction has to be made if it has 100 or more inhabitants.
All barangays with 100 inhabitants get an automatic P80,000 each. The remaining balance
shall be proportionately allocated to all barangays on the basis of 60% population and 40%
equal sharing. It is mandatory for LGUs to commit 20 percent of its IRA to a development
fund.
It is expected that the IRA will change over time due to factors which can positively or
negatively affect it, e.g., economic conditions, austerity programs, population census and the
creation and conversion of new LGUs. LGUs should also look at these factors for purposes
of anticipating trends in IRA shares.
Permit Fees Charges made by law Based on cost Mayor’s permit fees
or ordinance for the regulation of the
regulation or inspection activity Large cattle
of business activities registration fees
Slaughter fees
14
REAL PROPERTY TAX
Stages in Real Property Tax Administration. These four stages are interdependent
such that the failure or deficiency in one stage affects the other and eventually the collection
of RPT:
Pre-field Operations
Field Operations
Post-field Operations
15
Step 2 Prepare and finalize Section and Tax Maps
C.Records Conversion and Management. This stage entails the creation, filing,
maintenance and disposition of records necessary to levy and collect real property tax.
Records conversion translates the actual field conditions to the following records, most of
which are completed in pre-printed forms:
RECORDS PURPOSE
Field Appraisal & Assessment (FAAS) Data capture format
Tax Declaration (TD) Legal format & record of assessment
Ownership Record Form (ORF) Alphabetical ownership file as cross-reference
for the numeric file
Assessment Roll (AR) Bases for the preparation of the RPTOP
Real Property Tax Order Payment (RPTOP) Notice to property owners to satisfy the due
process requirement
Journal of Assessments (JAT) Audit trail & preparation of reports
D. Tax Collection and Enforcement. This last phase consists of billing and record
updating, collection and recording, collection of delinquent taxes, redemption of real property
after sale; and financial reporting.
16
Types of Real Property Impositions. Following is a summary of land-based taxes
with their distribution schedule and description below:
Special Levy Assessed Value Not to exceed 60% of Not to exceed 60% of
actual cost of projects actual cost of projects
and improvement and improvement
PROVINCIAL SHARING
CITY SHARING
17
Special Levy City 100%
A. Basic RPT. The basic real property tax covers land, buildings, machineries and
other improvement on land. Collection from this tax accrues to the all-purpose general fund
of the LGU.
B. Special Education Fund Tax. The SEF is an additional levy indexed on the real
property to support public education. The Local School Board determines the allocation of
funds for various needs of public schools.
C. Idle Land Tax. This is an annual levy on the assessed value of real property which
remains idle. Idle land tax is punitive. The relatively high tax rate is to discourage land
acquisition for speculative purposes and hopefully stimulate a more efficient and rational
utilization of land.
D. Special Levy. These are imposed on lands within an LGU's territorial jurisdiction
which are specially benefited by public works projects or improvements funded by the LGU.
Exemptions are those discussed below and the remainder of the land portions which have
been donated to the LGUs. The imposition provides LGUs with the opportunity to recover the
cost of infrastructure projects. Proceeds accrue to the general fund of the LGU.
Other Features of RPT. (a) tax discounts must be legislated before it is granted; (b)
tax incentives may be given: 10% discount for prompt payment and up to 20% for advance
payment; and (c) penalty rate for delinquent accounts of 2% a month or a fraction thereof, up
to a maximum of 36 months or 72%.
RPT Formula. The LGC-provided tax rates and assessment levels on land are the
maximum rates and therefore could be adjusted downwards through legislation. However,
the determination of the market value is purely a technical function:
Dynamics of Real Property Taxation. The assessment levels and tax rates are not
fixed rates. The Sanggunian may exercise its legislative fiat by manipulating the assessment
level and/or tax rates while allowing the market value to seek its level, i.e., reflect actual
conditions and be insulated from politics.
A. Real Property Tax Collection Efficiency (CE). This is the ratio of tax collections to
tax collectible, an indicator that measures LGU performance in collecting real property tax.
B. Cost of Collection Ratio (CCR). Indicates the amount spent for every peso
collected from property tax and reflects LGU performance in administering real property tax.
These data can help LGUs decide whether to add more resources to the administration of
real property tax or cut back its support to maximize revenue potential from RPT.
19
CCR 1: CCR for the current year's tax
Assessment Strategies. Below are strategies for LGUs to improve assessment and
derive huge economic and financial gains from their land resources.
B. Explore Other Land-Based Taxes. Explore the potentials of idle land tax and
special levy which remain largely untapped by LGUs.
D. Land Banking. Bank or reserve land through an integrated land control and
management policy. Investment in land development provides direct revenues to the LGU in
terms of profits upon disposition, enhanced property value and higher property tax base.
20
G. Improve Coordination Among Offices. (i) Require the Building Official to provide
the Assessor's Office with a list of all occupancy permits quarterly for proper adjustments to
land classification and assessment levels; (ii) Adopt BIR zoning valuation system for transfer
taxes; and (iii) Require notaries public to send a copy of Deeds of Sale to local treasurer.
D. Simplify Systems, Procedures, Forms for Payment. Simplify forms and cut
down on number of signatories and processing time; set up and post for reference, a
flowchart incorporating required documents and number of copies; and prepare an Annual
Land-Based Revenue Mobilization Work Plan for integration in the Annual Revenue Plan of
the LGU.
G. Network with Other Offices/Agencies. Tie-up with relevant offices (e.g., NBI, DTI,
SSS, Mayor's Office, banks) to require RPT clearance before issuance of clearances, IDs,
approval of business permits, transfer of real property ownership, or accepting property as
collateral for loans.
21
H. Explore Cost Recovery Mechanisms. Pricing of development permits and similar
mechanisms to recover imputed cost impact of development of existing asset base.
22
Table 1.7. Sample Taxpayer's Index Card
Transaction Previous
Code ARP Ref.
23
Table 1.8. Strategies for Improving Assessment and
Collection of Land-Based Taxes
LGU: ___________________________________
24
Reform Agenda for LGUs4. Possible steps LGUs can take to improve local resource
mobilization and delivery of services within the LGC framework:
Following are the steps in enacting a valid ordinance: (1) Pre-publication and/or
posting of proposal within ten days from date of filing, for three consecutive days in a
newspaper of local circulation, or posted in four conspicuous places; (2) Written notices to
interested or affected parties specifying the dates and venue of the public hearings, with
attached copy of ordinance; (3) Public hearing which should have a ten-day lead from last day
of publication or sending of written notices. LGUs should adequately prepare a package of
responses and explanations to answer expected adverse comments. The Sanggunian is
required to compile and document people's reactions including submissions which may serve
as inputs to their decisions; (4) Once approved by the Sanggunian, the Ordinance shall be
forwarded for signature by the LCE who shall, in case he decides to veto it, put his specific
veto in writing and communicate this to the Sanggunian within fifteen days in case of a
province and ten days in case of a municipality. The Sanggunian may override the veto by
2/3 votes; and (5) The LGU should publish the approved ordinance three consecutive times in
a newspaper of local circulation within ten days after approval. Within three days after
approval the Sanggunian Bayan/Panlungsod shall forward it to the Sangguniang
Panlalawigan who shall act on the Ordinance within thirty days from receipt thereof. The
Ordinance is deemed approved if no action is taken within said period.
4 Supporting details for this agenda are enumerated in the Assessment Strategies and Collection Strategies described above.
25
estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise
provided in the Code; (d) customs duties, except wharfage on wharves constructed and
maintained by the city; (e) goods passing through; (f) agricultural and aquatic products when
sold by marginal farmers or fisherman; (g) enterprises certified by BOI as pioneer or non-
pioneer for a period of six and four years, respectively, from the date of registration; (h) excise
taxes on alcohol, tobacco, petroleum and miscellaneous products (e.g., fireworks, jewelry,
perfume, etc.); (i) percentage of VAT on sales, barters or exchanges; (j) transportation
contractors; (k) taxes on premiums by way of reinsurance or retrocession; (l) vehicle
registration, except tricycles; (m) export products; (n) Countryside and Barangay Business
Enterprises duly registered under RA 6810 and cooperatives duly registered under RA 6938
of the Cooperatives Code of the Philippines; and (o) National Government.
Business and Other Related Taxes. As part of the taxing powers of LGUs, the LGC
specifies a wide range of business and other related taxes that may be imposed.
A. Tax on Business of Printing and Publication. This tax may be imposed on the
business of printing and/or publication of books, calendars, posters, leaflets, handbills,
certificates, receipts, pamphlets and other printed materials of similar nature.
B. Franchise Tax. A right or privilege, affected with public interest, conferred upon
private persons or corporations, under such terms and conditions as the government and its
political subdivisions may impose in the interest of public welfare, security and safety.
C. Tax on Sand, Gravel and Other Quarry Resources. The tax covers the
extraction of ordinary stones, sand, gravel, earth and other quarry resources from public lands
or beds of seas, lakes, rivers, streams, creeks and other public waters within the territorial
jurisdiction of the LGU. Before extraction is allowed, a permit to quarry identifying the place
and quantity of extraction, must be secured from the Provincial Governor.
E. Tax on Delivery Vans. The levy shall cover trucks, vans or any motor vehicles
used by manufacturers, producers, wholesalers, dealers, or retailers within the province. The
owners of these trucks shall be exempt from payment of the peddler's tax.
26
Table 1.9. Business Related Taxes Allocated To The Province and Cities
A. Tax on Business of Printing and Publication. (a) Get periodic advisory from
DepEd on the list of school texts and references; (b) Keep and maintain an updated listing of
business and persons engaged in the printing or publication of books, cards, posters, leaflets,
handbills, certificates, receipts, pamphlets and others of similar nature; and (c) Provide for
accounting and bookkeeping guidelines.
C. Tax on Sand, Gravel and Other Quarry Resources. (a) Promulgate rate and
regulations on the taking, removal, and disposition of sand, gravel, and other quarry products;
and (b) Closely monitor compliance with rules and regulations in close coordination with
NGOs, POs and the public in general.
27
D. Amusement Tax. (a) Assign as checkers in movie houses college students doing
practicum or, as in the case of Olongapo City, disabled members of the community; (b) Use
registered tickets; (c) Require centralized procurement/printing of tickets through the Local
Treasurer; (d) Rotate checkers to avoid collusion with business operators; (e) Conduct
surprise inspections; (f) Impose heavy penalties and closure for delinquencies; (g) Use the
PIL approach to establish gross receipts from admission fees; and (h) Monitor trend per
theater.
E. Tax on Delivery Vans. (a) In coordination with the local LTO, require tax
clearance for registration/renewal or registration for deliver tucks and vans; (b) Require all
deliveries to be covered by cash or charge invoice; and (c) Establish checkpoints with the
assistance of barangay officials.
A. Tax on Transfer of Real Property. Tax imposed on the sale, donation, barter or
any mode of transferring ownership or title of real property. The maximum rate is 50% of 1%
of the total consideration in the acquisition of the property or fair market value based on the
values enacted by the Sanggunian for property tax purpose, whichever is higher. Payment of
the tax shall be within sixty days from the date of the execution of the deed or from the date of
the property owner's death. Exemption is granted to the sale, transfer, or other disposition of
real property pursuant to the Comprehensive Agrarian Reform Law. A revenue enhancement
measure could be for LGUs to enforce the codal provision requiring the Registrar of Deeds
and the notaries public to furnish the Assessor with all copies of contracts related to real
property.
B. Tax on Professionals. The tax covers persons engaged in the practice of their
professions requiring government examination, except when practiced exclusively as a
government employee. This shall not exceed three hundred pesos (P300.00). Professional
taxes shall be paid on or before January 31 in the province where the professional practices
his profession or where he maintains his principal office. Payment of this tax entitles the
professional to practice his profession in any part of the country.
City and Municipal Impositions: Business Tax. This is an annual tax specifically
allocated to cities and municipalities imposed on the act of doing business within the LGU.
28
This is based on gross sales or gross receipts of the preceding year. For old businesses,
unless otherwise specified, business taxes shall accrue on the first day of January each year;
for new businesses, these shall accrue on the first day of the next quarter following the
effectivity of the ordinance imposing such levies. Business taxes may be paid within the first
twenty days of January of each subsequent quarter, as the case may be. The Sanggunian
may also extend the period of payment for a period not exceeding six (6) months for justifiable
reasons or allow payment in four equal monthly installments.
Business Tax Computation. Step 1: Classify the business based on the business
clusters provided in the LGC; Step 2: Determine the gross receipts based on the declaration
by the owner; and Step 3: Locate the tax based on the schedule of graduated fixed rates if
the gross receipts has a pre-determined bracket, or compute the tax due on the basis of
standard tax formula: Tax due = tax base X tax rate +/- penalty/discounts.
Surcharge and Penalties. A surcharge not exceeding twenty five percent (25%) may
be imposed on delinquent taxpayers. The LGU may also increase the tax liability through 2%
per month or a fraction thereof, of penalty/interest on the unpaid amount for a maximum of 36
months equivalent to 72%.
Rate Structure. The rate is structured as a graduated fixed tax with each business
classification falling under a tax schedule based on accumulated gross receipt. Each bracket
in the tax schedule has an equivalent fixed tax amount. After reaching the highest level in the
tax schedule, the tax becomes a percentage tax.
30
a)Rice and corn at a rate not exceeding one-
b)Wheat or cassava, flour, meat, dairy products, locally half percent (1/2%) of the
manufactured processed or preserved food, sugar, salt, and other prescribed rates under
agricultural, marine, and fresh water products, whether in their sections (a0 and (b) and (d)
original state or not of this table
c)Cooking oil and cooking gas
d)Laundry soap, detergents and medicine
e)Agricultural implements, equipment, and post harvest facilities,
fertilizers, pesticides, insecticides or other farm output
f)Poultry feeds, and other animal feeds
g)School supplies
h)Cement
P400,000.00 or less 2%
More than P400,000.00 1%
c)On banks and other financial institutions with gross receipts of at a rate not exceeding fifty
the preceding calendar year derived from interest, commissions, percent (50%) of one
and discounts from lending activities, income from financing, percent (1%)
leasing, dividends, rentals on property and profit from exchange or
31
sale of property, and insurance premium
d)On peddlers engaged in the sale of any merchandise of article or at a rate not exceeding fifty
commerce percent (50%) of one
percent (1%)
On any other business not otherwise specified in the preceding paragraphs which the
Sanggunian may deem proper to tax: provided that on any business subject to the excise value-
added or percentage under the National Internal Revenue Code, as amended, the rate shall not
exceed 2% of gross sales or receipts of the preceding calendar year.
Rate Structure for New Business. New businesses have another tax base and rate
structure. With capital investment of new businesses as base, the maximum rate for cities is
3/40 of 1 percent, while that for municipalities is 1/20 of 1 percent.
Need for Proper Classification. The most critical role of the evaluator is classifying
business under a specified classification, as misclassification can mean excessive exaction
for the taxpayer or forgone revenues for the government. Another challenge is sorting through
business lines when an owner operates several establishments and several business lines.5
B. Improved Tax Records Management. (a) Conduct business tax mapping and
establish revenue data bank; (b) Conduct regular census and listing of taxpayers; and (c)
Prepare business firms'/taxpayers' lists.
C. Improved Internal Controls. Install an internal control system (ICS) suited to the
LGU's requirements and capabilities. This can evolve from either the COA Model or the LGC-
UPCPA/LRM-NEDA Model.
D. Educate and Inform Taxpayers. Wage a continuing tax information and education
campaign (TIEC) to overcome taxpayer resistance and make citizens more tax conscious.
Direct campaign can come in many forms: flyers, leaflets, bulletin boards, media
announcements, town criers, etc; indirectly, through popularity contests and school-organized
activities such as poster or essay-writing contests.
5 Module IV of the Revised Resource Mobilization Manual, pp. 17-20, discusses examples of cases related to business classification for
which the Department of Finance has rendered an opinion.
32
E. Enforce Collection Through Administrative Action. Local Treasurers will need
full support from local leadership to enforce collection of delinquencies through distraint of
personal property and by levy upon real property.
Community taxes shall accrue on January 1st of each year and will become payable
without penalty until February 28. Proceeds collected by the City or Municipal Treasurer shall
entirely accrue to the city or municipality while proceeds collected by the Barangay Treasurer
shall be shared by the city/municipality and barangay at 50 percent each.
Other Local Tax All LGUs May Impose. The LGC provides that LGUs may impose
other taxes on any other tax bases or subject not otherwise specifically enumerated in the
Code or taxed under the provisions of the National Internal Revenue Code, provided that the
taxes, fees or charges shall not be unjust, excessive, oppressive or contrary to national
policy; the ordinance levying such taxes, fees and charges shall be subjected to a public
hearing; and that the tax is not part of the common limitations which LGUs are prohibited to
impose.
Computation of Sales Allocation Applying the Rule of Situs6. There are complex
businesses which run nationwide operations. While key decisions are taken from the head or
principal office, production, sales, shipment and other key activities may be scattered in
different parts of the country. For purposes of giving LGUs their rightful share of the business
tax, the rule of situs allocates the gross sale in accordance with the rule provided in Section
250 of the LGC.
Situation 2
In cases where plantation and factory exist and the two are located in different LGUs:
•60% of the 70% share shall be allocated to the city or municipality where the factory is
located; and
•the remaining 40% of the 70% shall be allocated to the LGU where the plantation is
located.
Situation 3
Where there are two or more factories or plantations, their respective allocations shall be
prorated to the cities or municipalities where they are located on the basis of production
during the period when such tax is due.
Codal Provisions to Enhance Revenue Collection. The LGC provides the following
6 Two cases with sample computations are provided on the application of the situs rule in Module IV of the Revised Resource Mobilization
Manual, pp.31-33.
34
opportunities:
Presumptive Income Level (PIL) Technique. The PIL makes use of easily verifiable
indicators as a means for determining gross sales for purposes of computing the tax due.
Major considerations in identifying possible indicators are for these to be quantifiable,
verifiable, common for the business and acceptable to both the LGU and taxpayers.
Civil Remedies for Collection of Revenues7. Either of these remedies or both may
be pursued concurrently or simultaneously at the discretion of the Local Treasurer: (a)
administrative action through distraint of goods, chattels or effects and other personal
property of whatever character, including stocks and other securities, debts, credits, bank
account, and interest in and rights to personal property and through levy upon real property
and interest in or rights to real property; and (b) judicial action.
7 Annex D, Module IV of the Revised Resource Mobilization Course Book, pp.63-69 outlines the procedures and details using each of
these remedies.
35
Box 1. Procedures in Applying the PIL Technique
Step 1. Identify a type of business in the locality or simply identify the business in your
community where you have difficulty determining actual or realistic annual gross sales.
Step 2. Identify possible indicators which must be readily verifiable and realistic, for
each type of business. (See list of possible PIL Indicators below).
36
Actual tax payments made by majority of business taxpayers will most likely be
below the PIL computation. Often, actual tax payments should have been at least 50
percent more using PIL.
37
Sample Table of Minimum Gross Sales
Business Minimum Gross Sales
Sari-sari store P100,000.00
Mini-grocery P250,000.00
Grocery P400,000.00
Supermarket P750,000.00
Step 7. Compare the result of Steps 5 and 6 with the taxpayers' sworn declaration and
tax payment made.
It will be very hard for the business taxpayer to argue against the computations
for determining the least acceptable gross sales and will most likely settle for the
compromise business income rather than have his book of accounts examined.
Step 8. Levy the appropriate business tax on the compromise business income.
Failure or refusal of taxpayers to settle their tax payments can be ground for
revocation or non-renewal of their business permit.
It is suggested that the base amount be regularly updated every three years and
base data from businesses regularly monitored, keeping in mind price increases,
possible expansion of operations, increase in floor space, additional machinery, etc.
Passing a local ordinance adopting the use of the PIL technique in conjunction with
other strategies is also recommended.
38
Table 1.11. List of Possible PIL Indicators
Coverage of LGU Impositions on Fees and Charges. (a) Municipalities - fees and
charges on business and occupation and on the practice of any profession or calling (except
on professionals reserved to the province); (b) Cities - fees and charges that the province and
the municipalities are authorized to impose or collect; and (c) Cities and Municipalities – fees
for sealing and licensing of weights and measures, and for the grant of fishery privileges over
municipal waters.
Regulatory Fees. A charge fixed by law or ordinance for the regulation or inspection
of a business or activity; an exaction in the exercise of the LGU's police power for the general
welfare of the people and is intended to cover the cost of regulation, inspection and
surveillance. Even if the revenue side of the fees is secondary, the LGUs must see to it that
resultant costs, e.g., costs of issuing the permit or license plus inspection costs, are fully
recovered.
IMPOSITION BASES
Business permit Cost of issuing permit and regulating the activity or
privilege, and size and type of business
Building permit Cost of issuing the permit and surveillance based on the
National Building Code
Plumbing permit Cost of issuing the permit and inspection based on the
41
National Building Code
Electrical permit Cost of issuing the permit and inspection based on the
National Building Code
Occupancy permit Cost of issuing the permit and inspection
Mechanical permit Cost of issuing the permit and inspection based on the
National Building Code
Demolition permit Cost of issuing the permit and inspection
Dog license fees Cost of issuing
Registration fees on fishing Cost of issuing the permit and inspection, and type of
boats, tricycles and conveyance
caretelas or calesas
Holding benefits permit Cost of issuing the permit and surveillance
Police clearance Cost of issuing and purpose for securing clearance
Impact fees and exactions Cost of issuing permit and inspection and negotiated or
formula-based payments made by the developer to cover
“damages” to the existing system of infrastructure or
provide facilities at private expense
Development permit Cost of issuing the permit, surveillance, type of activity
based on cost-benefit analysis (i.e., benefit conferred on
the developer which cannot be reflected in the typical
charge incurred for permit issuance
Large cattle registration and Cost of registration, inspection, and type of cattle
transfer fees
Excavation fees Cost of issuing the permit and type and area to be
excavated and surveillance based on length of time of
excavation
Permit for cockfighting Cost of issuing the permit, inspection and type of
cockfights held
Permit fee for cockpit Cost of issuing the permit and surveillance based on type
owners, operators, of personnel
licensees and other cockpit
personnel
Permit fee on film-making Cost of issuing the permit, surveillance, and type of film
and number of film-making days
Permit fee on parades Cost of issuing permit and surveillance
Permit fee for agricultural Cost of issuing permit and type of machinery and
machinery and equipment equipment
Permit fee for zoning and Cost of issuing based on HLURB guidelines
locational clearance
Permit on occupation/calling Cost of issuing permit based on category of occupation
42
not requiring government or calling
examination
Occupation fee for mining Cost of issuing based on hectare coverage and type of
claims mining claim
Other Regulatory Fees8. (a) Fees for licensing of weights and measures; (b) fishery
rentals, fees and charges; (c) public utility charges; (d) toll fees and charges; and (e) Mayor's
permit fees on business.
Restructuring Mayor's Permit Fees. Since permit fees are impositions under the
police power of municipal corporations, they must be just, reasonable and not confiscatory.
A. Definition of Business Size. For purposes of the mayor's permit fee, the following
Philippine definition of business size may be adopted.
Classification Size
Manufacturers/Importers/Producers Micro Industry
Cottage Industries
Small Scale Industries
Large Scale Industries
Banks Rural Banks
Thrift/Savings Banks
Development Banks
Commercial/Industrial Banks
Universal Banks
Other Financial Institutions Small
Medium
Large
Contractors/Service Establishments Micro Industry
Cottage Industries
Small Scale Industries
Medium Scale Industries
Large Scale Industries
Wholesalers, Retailers, Dealers or Micro Industry
Distributors Cottage Industries
Small Scale Industries
Medium Scale Industries
Large Scale Industries
Other Business Micro Industry
Cottage Industries
Small Scale Industries
Medium Scale Industries
8 These fees are described in detail on pp. 5-10, Module V of the Revised Resource Mobilization Course book.
43
Large Scale Industries
B. Setting Permit Fees. The permit fee shall be based either on capital investment or
number of workers whichever will yield higher fees.
C. Sin Goods and Activities. The “social dimension” involved makes it justifiable to
fix higher rates of permit fees in the following class of business: retail dealers of foreign and
domestic liquors and manufactured tobacco, retailers of distilled spirits and fermented liquors,
tobacco dealers, amusement places, and etc.
G. Elimination of Other Fees. Elimination of fees that are better enforced at the
barangay level or fees in the tax ordinance that the LGU has no intention of enforcing. It may
be prudent for the LGU to concentrate its efforts on collecting taxes, fees and charges with
the highest yield.
44
I. New Assessment. Provide for developmental fees that promote the LGU's
environmental and conservation concerns, e.g., higher fees for golf links and forest
conservation fees, etc.
Service and User Charges. These are impositions for services rendered by the LGU
which directly benefit certain individuals. Failure to pass the cost in full to readily-
determinable beneficiaries implies it is being subsidized, to the detriment of other services. In
the delivery of services by a public officer, charges are justified to cover the cost and therefore
ensure continuance of the performance of such services.
Setting Rates for Charges. The LGUs may adopt any or a combination of the
following forms of service and user charges: (a) fixed rates for each kind of business activity;
(b) a schedule of graduated fixed rates for each kind of business activity; (c) similar business
or activities are grouped and assigned a fixed rate; and (d) a schedule of permit fees for each
type of business based on number of employees, floor space, etc.
45
Charges/Receipts from Local Economic Enterprises (LEEs). The operation and
maintenance of economic enterprises is an exercise of the proprietary functions of local
governments. Traditionally, these undertakings were viewed as part of the LGU's
responsibility although these may incur losses. However, with the LGC's permission to allow
private sector participation, LGUs are now looking at economic enterprises from the
investment perspective.
Revenue Enhancement Measures for Fees and Charges from LEEs. Increasing
the productivity of local economic enterprises requires taking steps to ensure a positive
financial position (i.e., a profit) by keeping operating costs low while implementing measures
to increase collections of fees and charges.
A. Increasing Gross Revenues. This can be achieved by (a) increasing fees and
charges (as low rental fees and under-pricing have been cited as major concerns); (b)
improving collection efficiency; (c) collecting delinquencies; and (d) eliminating
spillage/leakage by stalling an effective internal control system.
B. Price and Rate Setting. Factors that influence pricing: (a) cost recovery
considerations - e.g., factor in capital cost, operating costs, hidden costs, inflation; (b)
46
physical infrastructure - location of the enterprise and condition of structures and amenities;
(c) demand/need – utilization rate or the demand for facilities/services and social benefits-
perceptions on the “good” to society that the economic enterprise offers; (d) commercial
aspects – opportunities, profitability, nature and volume of business conducted; and (e)
political considerations – acceptability and political will.
47
LOANS AND OTHER FINANCING OPTIONS: PPP
48
MEDIUM-AND •all things equal, less risky for •the LGU borrower is stuck
LONG-TERM LGUs since the chances of with the terms of the long-
defaulting on principal and interest term loan for a longer period
payments are reduced
•higher cost of financing,
more expensive for the LGU
Payment Schemes. Several ways by which LGUs can pay their debts: (a) pay or
amortize loans, including all interests incurred, partly from the income of projects or services
from the regular income of the LGU; (b) appropriate regularly in the annual budget the
amounts necessary for debt servicing until all loans and interest have been fully paid; and (c)
creation of a sinking fund for the repayment of bond issues. The LGC also allows LGUs to
maintain trust funds which can only be used for a specific purpose, and likewise maintain
special accounts in the general funds for “loans, interest, bond issues and other contributions”
for specific purposes.
Limitations on LGU Debt Servicing. While there is no specific amount or limit on the
level of LGU borrowing, the LGC specifically provides that the amount of debt servicing shall
not exceed twenty percent of the regular income of the LGU. LGUs will have to carefully
select the credit mix to use in financing their projects to ensure that debt servicing for the year
will not exceed this limit.
Key features of Codal provisions: (a) sources of loans include GFIs, domestic private
banks and other private financing institutions, other LGUs, agencies with specific lending
programs for LGUs (e.g., Municipal Development Fund administered by DOF); (b) terms and
Usual requirements for availment: (a) no past due obligations and other adverse
findings on credit standing; (b) statement of the purpose of the loan; (c) approved local
development plan and public investment program; (d) endorsement of Local Sanggunian
through a resolution; (e) LGU to contribute at least 10%-30% of total project cost; (f)
professional managers to make up project management team; (g) project viability with loan
capable to repaid within approved loan tenor; (h) loan 100% covered by collateral; (i) loan
term should not be longer than tenure of local officials who contracted the loan; (j) a longer
repayment period not exceeding 5 years may be granted if an irrevocable commitment to pay
could be legally configured; (k) affidavit from LGU that it has no other applications with other
creditors for the same purpose and that it will not contract loans for the project without
knowledge and written consent of the concerned bank; (l) certification from the Local
Treasurer acknowledging the loan and that it will be officially entered in the LGU's books as
contractual obligation; and (m) COA-audited financial statements for the past two consecutive
years.
B. Deferred Payment and Other Financial Schemes. LGUs are authorized to enter
into lease contract arrangements with suppliers with the option to purchase later on, in
acquiring property, plant machinery, equipment, etc. This arrangement allows the LGU tax
exemption privileges for the importation of heavy equipment or machinery which shall be used
in civil works and other infrastructure projects, as well as garbage and fire trucks and similar
equipment.
C. Inter-Local Government Loans. LGUs may obtain loans, grants and subsidies
from other LGUs, up to the extent of the surplus funds of the latter provided the loan is
approved by a majority of the lending LGU's Sanggunian. Further, LGUs may jointly or
severally contract loans, credits and other forms of indebtedness for mutually-beneficial
purposes upon approval of their respective Sanggunian.
50
Table 1.17. Comparative Advantages of Bonds vs. Bank Loans
Lower interest rates, pricing based on Pricing is based on transfer pool rates of
margins over T-bills banks
More widely established and developed Limited to credit standing in the banking
credit standing in the financial market sector
51
Figure 1. Municipal Bond Issuance Process10
I.Project identification and feasibility study •Project ID, evaluation, and feasibility
preparation study
10 According to the Resource Mobilization Course book, a Municipal Bond Manual is available free of charge to LGUs from the FINEX
Committee at tel no. (02) 811-4397. Details of each step are also provided in pp.14-18 of the Course book Module VIII. Loans and
Other Financing Options: Public and Private Partnership.
52
E. Public-Private Sector Participation (PSP). PSP is a contractual agreement
entered into by local or national bodies to authorize a private sector entity to finance,
construct, operate and maintain a facility and in the process, charge user fees or receive
compensation from the government. The risks are allocated between the LGU and the
private sector proponent, through a security package (i.e., limited guarantees).
1. BOT Variants. The choice of PSP mode may vary from any of these nine variants
(and other modes subject to the President's approval) authorized under the Build-Operate-
Transfer (BOT) Law or joint venture agreement allowed under the LGC and the BOT Law.
The main difference between the schemes concerns ownership and its implications on project
risk, determined by the transfer aspect (i.e., the “T”, if any) of the project. Whoever owns the
project (private or government) should bear most of the project's risk. Criteria for
implementability of BOT-Type arrangement include profitability or the generation of a
competitive rate of return and a guaranteed revenue stream that will enable the project to pay
for itself over a period of time.
BOT Approval Scheme. The identified list of projects will have to be approved by
different bodies depending on the project cost. Further, Local Sanggunian approval is
54
required for projects before bidding, and contracts prepared before issuance of notice of
award.
NATIONAL PROJECTS
P300 million and above NEDA Board through the Investment Coordination
Committee (ICC)
Below P300 million NEDA-ICC
LOCAL PROJECTS
P20 million and below Municipal Development Council
P20 million – P50 million Provincial Development Council
Up to P50 million City Development Council
P50 million – P200 million Regional Development Council
Above P200 million NEDA-ICC
Preparatory Work for BOT Arrangements. The LGU should adopt a “customer”
mindset in determining project preparations for a BOT-type of project which it plans to bid out.
The key question is, “What does the private sector need to bid for this project?”. Instead of a
feasibility study, the LGU can make a detailed market demand study to project the amount of
revenue the project can generate and determine the financial support the LGU needs to
provide, then prepare the bidding documents. If the LGU conducts the feasibility study and
even the detailed engineering study, and then calls for proposals based on these, the pre-
qualified contractor shall no longer submit a feasibility study. However, the bidder is solely
responsible for the validity and soundness of the inputs of LGU-conducted studies. LGUs
may accept unsolicited proposals or use public bidding to foster transparency.
Project Development Facility. This is a loan facility that supports project preparation
and packaging for PSP/BOT Implementation. It can be tapped by LGUs for the preparation of
pre-investment studies, tender documents and draft agreements; and includes provisions for
technical assistance in the tendering process, bid evaluation, negotiation and start-up
assistance after award. LGUs availing of the PDF must agree to publicly tender their
proposed projects. It also requires the winning bidders to reimburse the cost of the PDF loan.
Ensuring Contractor Compliance. The LGU may include any or all of the following
provisions in the contract to insure compliance: (a) confiscation by the LGU of the
performance bond of the contractor in case of contract rescission due to contractor's fault; (b)
liquidated damages on the contractor for failure to complete the project within stipulated
period; (c) incentive bonus to the contractor for completing the project earlier than stipulated;
and (d) nullification of the contractor's franchise for failure to perform according to minimum
design and standards prescribed in the contract.
Credit Finance Program. The LGU leadership should explore the feasibility of
adopting a Credit Finance Program which assures (a) a reasonable expectation that local
electorate support exists and can be developed, (b) that any revenue-producing project
funded through borrowings will have a sound internal rate of return and a reasonable cash
flow; (c) arrangements are in place for sustaining repayments financially and legally (even by
succeeding administrations) until all obligations are met; and (d) loss of jurisdiction over
properties through collateralization/ conversion of LGU assets is minimal and carefully
planned.
Creditworthy LGUs
III I
GFI loans BOT projects Revenue
Social/ MDF loans bonds
Environmental Generating
limited commercial loans Projects
Projects
MDF grants GFI loans
II
IV
BOT arrangements
GFI loans
MDF grants
limited MDF
and TA
grants, loans and TA
The first quadrant shows revenue-generating projects of creditworthy LGUs that can be
funded mostly from private sources of capital. The second quadrant shows marginally or non-
creditworthy LGUs with revenue-generating projects which could source funding from BOT
arrangements, GFI loans and limited MDF loans with technical assistance (TA). TA grants
can help improve creditworthiness through the development of project management
capability. In the third quadrant, creditworthy LGUs undertaking social/environmental projects
whose returns are low or are long in coming could be allowed to tap long-term, lower-cost
ODA funds through GFIs or MDF. In the fourth quadrant, the marginally or non-creditworthy
LGUs with social or environmental projects could be assisted with matching grants through
MDF.
DEBT MANAGEMENT
Debt Management, General Principle. LGUs should try to minimize borrowing cost,
subject to an acceptable degree of risk. An LGU accessing low cost funding sources faces
higher risks in meeting borrower eligibility guidelines, more stringent loan/credit evaluation
procedures undertaken by the fund source, and more volatility in debt service. Higher cost
lending alternatives, on the other hand, have higher tolerance for risk because of the wide
11 Less creditworthy LGUs are those not qualified to obtain GFI loans nor have viable BOT projects.
57
spreads or income they expect to earn from a lending transaction.
58
Table 1.19. Oversight Framework for LGU Debt
59
B. External
Toll Regulatory Board, •Grants authority to operate toll facilities •TollOperation Decree
Department of Public and terms of conditions thereof (P.D. 1112)
Works & Highways
ADDITIONAL FOR BOND FLOTATIONS
1 Department of Finance •Approval of the Secretary of Finance •Article 397, LGC-IRR
for bond issues bearing the guarantee
of the NG
Authorization Process for New Borrowings, General Principles. (a) The LCE is
authorized to borrow in the name of the LGU for all forms of borrowing; (b) All forms of
borrowing require Sanggunian Approval; and (c) Institutions supervised by the Bangko Sentral
ng Pilipinas (BSP) are required to obtain a Debt Service Certification from the BLGF before
each new borrowing is made.
The Cost of Debt, General Principles. Interest paid is usually not the only cost to
borrowing money hence there should be an attempt to include all costs in a year when
analyzing the cost of borrowing. This is called the financing rate or the all-in cost. Some
costs include the amortization of discount (e.g., discounts on securities lead to an interest
charge), losses on foreign currency conversion, change in market value (e.g., when repaying
61
a loan early or repurchasing a bond), hidden fees and charges associated with borrowing
(e.g., arrangement fees or commitment fees), and administration costs (e.g., rating agency
fees, legal fees and SEC fees).
Financing Rate. Analogous to the internal rate of return (IRR), this represents the true
cost of borrowing, including all expected costs and fees; sometimes referred to as the all-in
cost of borrowing. The basic methodology in calculating the financing rate is as follows: (1)
Forecast all cash flows associated with the borrowing (principal, interest, and fees). Treat
cash inflow as positive, cash outflow as negative; (2) Calculate the value of the above cash
flows using a single discount rate; (3) Adjust the discount rate iteratively until the total of the
present values of all cash flows (i.e., the net present value) is zero; and (4) The discount rate
that makes the NPV of the borrowing equal to zero is the financing rate.
The Risks of Debt, General Principles. (a) Borrowing creates many additional risks
to the borrower, cost is not the only concern; (b) Attempt to identify all the risks of a borrowing
and think about how these risks would impact the LGU; (c) Do not borrow if the risks are not
acceptable. Following are possible sources of risks: interest rate risk (as interest rates are
variable), currency risk (if loan is foreign-denominated), operational risk (e.g., legal risk or
fraud risk), reputation risk (higher borrowing costs for poor reputation of making late
payments) and refinancing risk (refinancing existing loans at disadvantageous rates).
Evaluating Debt Proposals, General Principles. (a) Choose borrowings that offer
the best mix between low cost and low risk; and (b) Compare borrowing proposals using a
common base as closely as possible.
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CHAPTER 2. APPROACHES AND TOOLS IN PREPARING THE STATEMENT OF
RECEIPT AND EXPENDITURES (SRE)
A. Cash Basis. Using this method in SRE reporting, all revenues shall be recognized
when received while expenses shall be recognized when paid.
B. Modified Accrual Basis. All expenses shall be recognized when incurred while
revenues shall be recognized when earned except for transactions when accrual basis is
impractical (e.g., market fees) or when other methods may be required by law.
C. Fund Balance. The ending fund balance of the SRE report based on cash basis
shall be reconciled with the ending balance of the New Government Accounting System
(NGAS) cash flow statement. On the other hand, the current operating income and
expenditures portion of the year-end SRE report based on modified accrual basis shall be
reconciled with the NGAS statement of Income and Expenses, while the ending fund balance
shall represent the calculated fund balance.
D. Chart of Accounts and Account Codes. New accounting titles and account
codes were added and shall be adopted in the preparation of SRE report in order to conform
with the NGAS account classification.
SRE System. The SRE System was primarily established to provide the BLGF with
sufficient detailed financial information in order to monitor the LGUs' financial performance in
terms of receipts and expenditures and to cater to the various needs of the users of the
report. The system was developed as an online operation with the following functions, among
others: generate derived values and calculate automatically from different entry forms so that
the user only needs to input raw SRE data, readily search, view and compare historical SRE
information, and provide real-time database read access on the BLGF client-server network.
SRE Reporting Framework. The framework shows the graphical relationships of the
various prescribed reports.
63
Figure 2.1. SRE Reporting Framework
SRE
Basic Financial Statement
Supplemental Reports
SRS SFOEE SOE
QRRPTC
QRCBTFCEE
Other Quarterly Reports
Supporting Records
Record of Real Record of Record of Prior
Record of Record of
Property Tax General Years Accounts
Expenditures Debt Service
Collections Collections Payable
66
Figure 2.2. Flowchart in the Preparation of Statement of Receipts and Expenditures
67
SRE Reports12. The Local Treasure is responsible for the preparation of reports and
records. The description of each report is immediately shown below the list.
1.Supplemental Statements
a. Statement of Receipt Sources;
b. Statement of Expenditures;
c. Statement of Financial Operations of Economic Enterprises; and
d. Statement of Indebtedness, Payments and Balances.
2.Other Reports
a. Quarterly Report on Real Property Tax Collections;
b. Quarterly Report on Real Property Tax Collections;
3.Records
a. Record of Real Property Tax Collections;
b. Record of General Collections;
c. Record of Expenditures;
d. Record of Prior Year Accounts Payable Payments; and
e. Record of Debt Service.
Supplemental Statements
a. Statement of Receipt Sources;
b. Statement of Expenditures;
c. Statement of Financial Operations of Economic Enterprises; and
d. Statement of Indebtedness, Payments and Balances.
68
B. Supplemental Statements. These shall serve as supporting documents in the
preparation of the SRE.
1. Statement of Receipt Sources (SRS). This statement reports the detailed income
items reported in the SRE prepared in both cash basis and modified accrual accounting basis.
For the SRE Report prepared on cash basis, the source of data for SRS shall be the record of
general collections and the record of real property collections. For the SRE Report prepared
on modified accrual basis, the source of data shall be the pre-closing trial balance from the
Accounting Office.
C. Other Reports. In addition to the above reports, the Treasurer is also required to
submit the following quarterly reports.
69
Consolidated Provincial Quarterly Provincial Treasurer Regional Director
Report on RPT Collections
Consolidated Regional Quarterly BLGF Regional Office BLGF Regional Director
Report on RPT Collections
D. Other Records. The Treasurer needs to maintain the records of the following
reports to serve as supporting documents:
1. Record of Real Property Tax Collections. This accounts for all real property tax
collections received based on Official Receipts issued. This record should be maintained for
each property classification and should be updated daily. The entries shall be based on the
Official Receipts issued by the Treasury Office and the duly approved Journal of Entry
Vouchers (JEVs) from the Accounting Office for un-receipted receipts directly deposited to the
bank.
2. Record of General Collections. This records all collections received, except Real
Property Taxes based on Official Receipts issued on a daily basis. It includes
income/revenues and receipts collected by the LGUs, net of share of barangay or municipal in
case of provinces, or barangay or province share in case of municipalities. The entry bases
are the same as those used for the Record on RPT Collections.
3. Record of Expenditures. This record lists the details of cash expenditures of the
LGU per office/function.
70
4. Record of Prior Year Accounts and Accounts Payable Payments. This record
lists all payment of prior year's payables made during the period which includes accounts
payable due to BIR, GSIS, PAG-IBIG, PhilHealth and other payables.
5. Record of Debt Service. Lists all loan amortizations made during the period.
SRE Including Trust Fund. Another format of the SRE report that includes Trust
Fund receipts and expenditures should be prepared (system-generated). Receipts from trust
funds are another source of LGU funds, however these could not be appropriated because
these are given/transferred by donors/funders for specific purposes. A separate SRS and
SOE will also be prepared for the Trust Fund. Individual record of receipts and expenses for
each kind of trust fund shall be maintained by the Treasury Office.
Deadline for Submission of Reports. The Local Treasurer who shall be responsible
for ensuring the completeness and accuracy of the reports shall submit these through
encoding in the web-based SRE system, emailing a soft copy (excel or flat file), or providing a
hard copy of the duly accomplished supplemental statements together with the quarterly
reports, to the Province (for municipalities) and to the BLGF Regional Office for validation,
verification and analysis on or before the following deadline dates:
Cash Basis Report for the first three quarterly reports – on or before the 10th day of the
month following the end of the quarter; and for the year-end report – on or before February 28
after the end of the calendar year.
Modified Accrual Basis Report for the year-end – on or before March 31 after the end
of the calendar year.
Copy Distribution. All quarterly and year-end reports required for submission shall be
prepared by the municipal LGUs in three copies for distribution to the BLGF Regional Office,
Provincial Office and the Municipal Treasury Office. For the provincial and city LGU, only two
copies shall be prepared for the BLGF Regional Office and the Provincial/City Treasury Office.
71
CHAPTER 3. APPROACHES AND TOOLS IN CONDUCTING FINANCIAL ANALYSIS
AND REVENUE FORECASTING
BLGF Fiscal Performance Indicators. There are at present nineteen (19) indicators
grouped as revenue indicators, expenditure indicators and debt and investment capacity
indicators.
13 Calculated as the average annual increase in the Gross Regional Domestic Product (GRDP) Implicit Price Index (1985=100) for the
region in which the LGU belongs, as published by the National Statistical Coordination Board (NSCB)
14 Annual compound growth rate of the LGU population calculated from the formula Pn = Po(1+r)t where Pt=population at year n, Po = base
year of population, t number of years elapsed between base year and year n, and r is the annual growth rate. The appropriate population
levels may be taken from the National Statistics Office (NSO)
15 Locally Sourced Revenues include income from business and other local taxes, real property taxes, economic enterprises, fees and
charges. This does not include IRA, LGU share in national wealth, loans, credits, bond proceeds, tobacco excise taxes, etc.
72
class to which the
LGU belongs
6 % Regular Regular Revenues % Regular The share of Used as evidence of
Revenues to -------------------------- x 100 Revenues to Total recurring revenue to predictability of an
Total Total Revenues Revenue total LGU revenue > appropriate revenue
Revenue16 average share for level
the LGU income
class to which the
LGU belongs
A.3 Revenue Mobilization Efficiency
7 Cost of Total Collection Cost
Collection -------------------------- x 100
Total Revenues
•For real Real Property Tax The cost of RPTCC > average This reflects the cost
property tax: Collection Cost collecting a peso for the LGU income effect effectiveness of
-------------------------- x100 of RPT class to which the the local revenue
Total RPT Total Real Property LGU belongs generation efforts of
Collection Tax Collected LGU. The cost of
Cost to Total collecting real, property
RPT taxes – the major local
revenue source of
Philippine LGUs – can
be considered highly
indicative of the cost
effectiveness of the
local revenue efforts of
an LGU
•For all other All Other Revenues The cost of TRCC > average for This reflects the cost
revenues: Collection Cost collecting a peso the LGU income effect effectiveness of
-------------------------- x100 of revenue class to which the the local revenue
Tax Revenue Total All Other LGU belongs generation efforts of an
Collection Revenues LGU. The cost of
Cost to Total collecting taxes can be
Revenues considered highly
Collected indicative of the cost
(TRCC) effectiveness of the
local revenue efforts of
an LGU
8 Real Property Actual RPT % of current RPT RPTAR > 100% Used as evidence of
Tax Collection collected within the collection
Accomplishm -------------------------- x100
the year to the efficiency of the LGU
ent Rate Targeted RPT total RPT due for
Collections the year as
estimated from the
assessed value of
taxable real
properties17
•Expenditure Indicators – define the degree of flexibility that an LGU has to allocate resources for different purposes.
The expenditure indicators distinguish between rigid or compulsory expenditures that cannot be avoided by the LGU and
discretionary expenditures.
9 Total Total Expenditures Average amount Per capita total LGU This is indicative of the
Expenditures -------------------------- spent by the LGU expenditure > amount of services
73
per capita Population per constituent average for the extended by the LGU to
income class to its constituent as a per
which the LGU capita basis
belongs
10 Personnel Personnel Services The ratio of LGU PSER < 45% for 1st Regarded as the most
Services Expenditures expenditures for to 3rd class LGUs rigid expenditure
Expenditure -------------------------- x100 personal services and 55% to 4th or category for an LGU
Ratio (PSER) Total Expenditures to total lower class LGUs
expenditures and should exhibit a
decreasing trend
11 Debt Service Debt Service The ratio of LGU DSER < average for Debt service is
Expenditure Payments expenditures to the LGU income regarded as an equally
Ratio (DSER) -------------------------- x100 debt service18 to class to which the rigid expenditure
Total Expenditures total expenditures LGU belongs and category for an LGU
should be
decreasing
12 Social Social Services The ratio of LGU SER > average for
The level of LGU social
Expenditure Expenditure social the LGU income expenditures has a
Ratio (SER) -------------------------- x100 expenditures to class to which the
high degree of
Total Expenditures total expenditures LGU belongs andrelationship with
should be increasing
poverty alleviation and
improvement in the
human development
index
13 Economic Econ Services The ratio of LGU EER > average for The level of LGU
Expenditure Expenditure economic the LGU income economic expenditures
Ratio (EER) -------------------------- x100 expenditures to class to which the also has a high degree
Total Expenditures total expenditures LGU belongs and of relationship with
should be increasing poverty alleviation and
improvement in the
human development
index
•Debt and Investment Capacity Indicators – define the extent to which the LGU considers the importance of capital
expenditures and local governance capacity to attract long-term financing for investment.
14 Debt Service Debt Service The ratio of LGU DSR < 20% of This indicator defines
Ratio (DSR) Payments expenditures for annual regular the extent to which a
-------------------------- x100 debt service to income and ratio local government could
Regular Revenues total LGU annual should at least be engage in additional
regular income stable if not debt, taking into
decreasing across account the debt limits
time provided by law. These
limits give decision
autonomy to local
governments as long
as the expenditures
related with the debt
servicer remain within
prudent acceptable
limits
15 Gross Gross Operating Surplus The ratio of LGU GOSDSR > average The gross operating
Operating (Deficit) operating surplus for the LGU income result represents the
Surplus to -------------------------- to debt service class to which the main and essential
Debt Service Debt Service LGU belongs and source that could be
Ratio Payments should be increasing mobilized by the LGU
(GOSDSR) in order to finance the
public service
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infrastructure
investments or the
servicing of loans
contracted for these
purposes
16 Debt to Net Total Debts The ratio of an DAR should be < 1 This reflects the value
Asset Ratio -------------------------- x100 LGU’s debt to its indicating that an of risk of lenders to an
(DAR) Total Assets - depreciated asset LGU has a sufficient LGU in case of a
Depreciation base asset base to back default
up its debt
17 Capital Capital Investments The % share of CTTRR > average Measures the extent to
Investments -------------------------- x100 capital for the LGU income which the LGU
to Total LGU Total Revenues investments to class to which the considers the
Revenue total LGU LGU belongs and importance of capital
Ratio revenues should be stable if expenditures
(CTTRR) not increasing
18 Net Operating Net Operating Surplus The ratio of LGU NOSTRR > average This indicator shows
Surplus to (Deficit) net operating for the LGU income the ability of local
Total LGU -------------------------- x100 surplus to total class to which the governments to be sure
Revenue Total Revenues LGU revenues LGU belongs and their budget will be
Ratio should be increasing balanced
(NOSTRR) on case of operating
surplus and
decreasing in case
of operating deficit
19 Uncommitted Uncommitted Cash The calculated UCBTER > average Few LGUs explicitly
Cash Balance Balance figure reflects the for the LGU income provide for a financial
to -------------------------- x100 uncommitted class to which the reserve, and the
Expenditure Total Expenditures portion of LGU belongs and nearest equivalent will
Ratio government equity should be increasing be the uncommitted or
(UCBTER) in the LGAS. This free cash balance of
is roughly LGUs. This indicator
equivalent to sort shows the ability of
of an annual local governments to
financial reserve ensure their budget will
be balanced even in
the face of financial
uncertainties
Functions of Performance Indicators. Carefully selected indicators, accurately
calibrated, regularly updated and presented in easily understood formats provide information
that promote good governance as they aid in (a) strategic planning and forecasting; (b)
performance accounting and benchmarking; and serve as valuable inputs for (c) an early
warning system; (d) quality management; and (e) a well-planned incentive system.
Single Case versus Comparative Analysis. Single case analysis represents year-to-
year changes in income and expenditures of a single government unit and shows the
variable's trend over time. Comparative analysis entails comparing the performance of an
LGU with other similarly-situated LGUs.
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Standardizing Data. Comparative analysis requires standardizing group data using
per capita measures or common size statements. Per capita is derived by dividing raw data
by population, while common size figures are generated by converting raw data into
percentages.
Trend Analysis. Trend analysis examines the composition and growth trends of group
data over time. It is useful in comparing data from one LGU with data from a group of LGUs.
The simplest technique is the moving average method which uses the average of several
years' data to plot the values on a graph. For example, in a two-year moving average
calculation, we take the average for CY 2001 and 2002 and plot that number, then we next
plot the moving average for CY 2002 and 2003 and plot that number, and so on.
Analyzing LGU Income Trend and Composition. [Please also refer to description in
Appendix 4.1]
A. Average Annual Growth Rate (AAGR) Method. Uses the average growth for a
specified number of years to grow the latest year's figure in order to come up with projected
income or expenditure for the next year.
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Linear Regression By Hand. Linear regression coefficients and constants may be
calculated by use of a computer program, a programmable calculator, both with built-in
functions for the purpose, or by hand calculation. To determine a regression line by hand, a
table must first be constructed:
Column 1: Years over which the time series is plotted with the first year indicated as
Number “1”; this column is called the “X” values.
Column 2: Shows the recorded data for the variable for which a trend line will be
developed, e.g., revenue collections; this column is termed “Y” values.
Column 3: Value of X minus the average of all X values
Column 4: Value of Y minus the average of all Y values
Column 5: Square of Column 3
Column 6: Square of Column 5
Column 7: Column 2 times Column 3
Guide Questions for Evaluating Targets. [Please refer to description in Appendix 4.1]
Estimating the Fiscal Gap. (1) Determining AIP items that found their way into the
budget document; (2) Considering as gap AIP items that were not funded in the budget; (3)
Culling from the LDIP/PDIP and ELA the priority projects and activities of the LGU; and (4)
the estimated gap is the sum of items 1 and 2.
Estimating Prospective IRA Shares. LGUs can easily estimate their prospective IRA
shares using the following steps:
Step 1 Get the total IRA allocation from GAA or BIR Certification
Step 2Compute for the total share of provinces, cities, municipalities or barangays
TOTAL IRA x 23% (Province) = IRA Share of Province
TOTAL IRA x 23% (Cities) = IRA Share of Cities
TOTAL IRA x 23% (Municipalities) = IRA Share of Municipalities
TOTAL IRA x 23% (Barangays) = IRA Share of Barangays
Step 3 (a) For the share of individual province, city, or municipality, compute for the
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allocation per factor
(b) Then compute for the proportionate share of the province with respect to total of
all provinces
Step 4Add the shares of the province from all the three factors. The summation represents
the total IRA of the subject province.
This process can be utilized to determine the IRA shares of cities and municipalities.
Step 3 (a) Determine the number of barangays with 100 inhabitants and multiply it by
P80,000.
(b) Deduct the result from the 20% IRA shares of the barangays to get the
remaining allocable share
Population Factor:
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Step 4Add P80,000 (if the barangay has 100 inhabitants) with the results of (a), (b) and (c) of
Step 3.
Newly created barangays such as those created after the effectivity of the Code will not
be subject to the IRA computation above because their funds shall be taken from the IRA of
their money barangay.
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Sources
Budget Operations Manual for Local Government Units (An Updated Version of the June
2005 Edition), April 2008