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ANALYSIS OF LOCAL REVENUE GENERATION AMONG LOCAL GOVERN-

MENT UNITS IN THE PROVINCE OF TARLAC: IMPLICATIONS TO LOCAL
AUTONOMY

________________

A Thesis Proposal Presented to

The Faculty of Graduate Studies
Tarlac State University
Tarlac City

_____________

In Partial Fulfilment of the

Requirement for the Degree
Master of Public Administration

________________

JOI ANGELIE F. DOMINGO

March 2021
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Chapter 1

THE PROBLEM AND ITS BACKGROUND

Introduction

Income generation processes in local government goes through a comprehen-

sive chain of steps. Local governments are dependent on the Internal Revenue Allot-

ment given by the national government. Dependence on IRA runs counter to the con-

cept of local autonomy hence, Local Revenue Generation has a critical role in local

government administration.

Income generation is frequently subject in quite generic, broad-brush terms.

Likely, there are different sources of income which are always part of an archive’s

overall funding model and these depend of what organization they are. These includes

income from statutory funders – for those archives in receipt of core funding for some

provisions of services and these are deposits for public records (Holden, Bohl and

Wynn, 2016).

Interventions on the income generation is an attempt to address the problems

regarding poverty, unemployment and also, with the lack of economic opportunities

in increasing participant’s ability to generate income and have a secured livelihood.

There is a wide variety of forms of interventions; these include microcredit programs

which are providing small loans to entrepreneurs or individuals who are not qualified

for loans from conventional financial institutions. Another income generation inter-

vention focus on the vocational skills as well as business training for participants, ei-

ther for positions on existing industries or from emerging small-scale businesses or

are self-employed entrepreneurs (Alone, 2013).

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According to Gordon (2018), cities are the place for many people to come and

find a living. In the United States, urban and suburbs generate almost 90 percent of

their Gross Domestic Product. But cities like any other local government still face

hostile challenges. Initially, among these are fiscal challenges, many were laid on the

Great Recession. Locally generated revenue, or the receipts wholly owned by local

governments, tumbled nearly 5 percent. When the funds of the national stimulus ran

out, the local governments cut their aids as to balance their own budgets. Those cuts

were the worst since it started keeping track in 1960 with the national income and

product accounts.

Meanwhile, Walker (2018) said that learning how to manage the expansion

and ensuring the ability to provide exceptional services to clienteles are paramount for

long-term success.

On Section 129 of the Republic Act No. 7160 (Local Government Code of

1991) states that all local government units shall have the power to exercise creation

of its own revenue sources but subject to the provisions herein as well as the levying

of taxes, fees and charges which are consistent with the local autonomy as its basic

policy. And these taxes, fees and charges are all accrued to local government units ex-

clusively.

On the enactment of the Real Property Tax Code or the Presidential Decree

No. 464 (1974), it has been mentioned that the progress of this country could not be

steady if its local governments are not contributing their proportionate shares to na-

tional progress. And, it seems clear that in spite of all these laws, local governments

still find difficulty in providing funds adequate for the essential public services within

their respective areas. Another is that one of the main reasons behind the statement

above is that local governments fail to fully tap the income potentialities of the real
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property tax. Therefore, income generation processes from local government units are

important to the nationwide progress of the country.

In relation to that, one of the significant costs in business is taxes. As such,

managing and controlling the inherent tasks properly is a must. And to keep track

with the tax developments and to have more lucid understanding, it helps the top busi-

nessmen to have a professional advices for managing tax risk, controlling the costs

and grasping tax planning opportunities (Price Waterhouse Coopers, 2015).

Local governments’ investment project being implemented depends on their

ability to accrue necessary funds from the combination of their own income genera-

tion based resources and external financing. Financing through borrowing enables

municipalities to pursue more infrastructure projects in a short period of time as com-

pared to financing from their own funds. Although, there are risks associated with that

debt financing and that should be understood and documented well in terms of their

future potential impact on local budget. That is the reason why before a local govern-

ment could undertake borrowing, each local government has been recommended to

have a debt management strategy and policy on debt duly written for such purposes

(Network of Associations of Local Authorities of South-East Europe, 2014).

Revenue enhancement is the augmentation in revenues which could be

achieved through raising the amount of taxes that the citizens or individual remit to

the government. Most of the times, budget deficits occur on the government due to the

incapacity to meet the demands of all citizens for services and infrastructures because

of incapacity. It means continuous innovations are needed to learn new ways of rais-

ing other additional revenues to cover up the deficit and also to meet the demands of

the citizens (Corporate Finance Institute, 2015). Through revenue enhancements,

LGUs would be able to address more expenditure.

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In meeting the Government’s broad objectives regarding macroeconomics, fis-

cal policy has a huge contribution. Arguments arise about the significant increase in

the investment of the Government on expenditures which will require that it is meet-

ing targets with regards to economic growth. As noninterest government current ex-

penditure is relatively low and largely nondiscretionary and that concludes that it

would be achieved through higher revenue generation (Gerson and Nellor, n.d.)

According to Diokno (2010), huge and unsustainable budget deficits have oc-

curred in 1980s in the Philippine national government. There is a near-balanced bud-

get which occurred in the mid-1990s but large deficits have been noted again in recent

years. There are similarities and differences on the large public-sector deficits which

occurred in the early 1980s and with the recent years. During those periods, soaring

oil prices, interest rates went high and volatile foreign exchange rates have occurred

on both episodes. Also, low tax efforts have been associated on those episodes. In-

vesting on physical infrastructure has a positive effect on the fiscal balance. Through

that, private investment would become more productive, transaction costs would be

reduced, and there will be an increased in profitability of private-sector businesses

and this result to the expansion of the economic output.

The passing of the Local Government Code in 1991 is one of the significant

milestones in the history of governance. This assimilate the essence of decentraliza-

tion as a support to local government units towards becoming self-reliant, though giv-

ing them more powers and complete autonomy in the delivery of the basic services

such as the health, agriculture, education, environment and natural resources, public

works and many more. A new scheme of revenue and expenditure assignments have

also been provided by the Local Government Code of 1991 which then made the de-

centralization process possible (Marzan, 2011a).

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From the time that the local taxes and fees are legally established, LGUs have

been granted the authority to levy their own taxes, fees and own sources of revenues

which are then all consistent with the basic policies attached to the Code. However,

these Local Government Units could not survive alone just by their local taxation and

other income. From the past 3 years (2008-2010), this income sources have only risen

slightly by its average of 6% per annum and it was seen stagnant with its share in total

revenues (Marzan, 2011b).

This study will provide relative information about the income generation pro-

cesses on local governments and the enhancement measures that could be promul-

gated to improve income generation processes. Through this study the whole Province

of Tarlac would be able to benefit and come up with a new model of enhancement

measures for their revenue generation.

Statement of the Problem

This study intends to analyze the revenue generation among the Local Govern-

ment Units in the Province of Tarlac.

Specifically, this study will answer the questions below.

1. How may the following income sources of the LGUs in the Province of Tarlac be

described?

1. Tax revenues

1.1. Real Property Tax

1.2. Business tax

1.3. Other Taxes

2. Non-tax revenues

2.1. Fees and charges

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2.2. Receipts from economic enterprises

2.3. Borrowings

1. Internal Revenue Allotment

1. How may these income sources be analyzed in terms of

1.1. Actual collection against potential

1.2. Actual against target

1.3.Actual against budget

2. What problems were encountered by the LGUs in revenue generation?

2.1.

2.

3. What plan of action can be proposed to improve the local revenue generation?

2. What is the implication of the study to local government administration?

Significance of the Study

This research will analyze the local revenue generation among the Local Gov-

ernment Units (LGUs) of the Tarlac Province and the results of this study could pro-

vide an enhancement model for each. This would be a useful study to improve the

revenue generation of each LGU in the whole Province of Tarlac and for them to be-

come more efficient when it comes to their fiscal responsibility.

To the Provincial Government of Tarlac, the output of this study would pro-

vide them realizations regarding the loopholes of the implementation of fiscal policies

and determination of more transparent governance. Through this research, strengths

and weaknesses in relation to income generation processes of LGUs will also be de-

termined.
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To the Local Government Units, this study would be beneficial in improving

their fiscal administration as well as in becoming more self-sufficient when it comes

to economic viability. This would press them to focus onto their main and own prod-

ucts.

To the local finance committee of each LGU, this study will help them come

up to a new strategy in formulating feasible fiscal policies appropriate with each juris-

diction as well as new enhancement model for their income generation processes.

To the citizens and other stakeholders, this study could provide them easier

and more convenient way of paying their taxes and the benefits of doing it will be per-

ceived.

Lastly, future researchers of Public Administration would benefit from this

study for this study could provide them further knowledge particularly to the fiscal

administration and socio-economic aspects. This research could be an additional ref-

erence for their future undertakings on the field of public administration and akin re-

searches.

Scope and Delimitation

This study is focused and delimited on analyzing the income generation pro-

cesses among LGUs in the Tarlac Province. Income sources will be defined based on

its classification of: tax revenues and non-tax revenues. Income generation processes

would be determined as to: local taxation, borrowing and its management, operation

of public enterprises, revenue enhancement measures and revenue planning, forecast-

ing and accounting. Generated data from local government’s financial reports would

determine what source of income generates less and generates more and that would

also describe the dependency of each LGU to the IRA provided. Problems encoun-
 8

tered while administering the local revenue generation among the LGUs will also be

garnered to address the needed enhancement for each LGU. The analyzed data regard-

ing the local revenue generation of each LGU will be the basis for the creation of an

enhancement model applicable for each.

Results of this study would provide basis for enhancement models which will

derive new fiscal opportunities and finer local revenue generation. With this, LGUs

could come up to ideas that could provide them additional resources.

The subjects of this study are the local revenue generation among local gov-

ernment units in the Province of Tarlac. This study covers the fiscal year 2019.

Definition of Terms

The researcher defined the pertinent terms used in the title of this study and

statement of the problems for clarification purposes.

Borrowing. It is the act of obtaining money from a bank or the amount that a

person, company or government borrows (Cambridge Dictionary, n.d.). In this study,

borrowing is an action of the government to increase their income.

Enhancement Model. This is an improvement or an additional to something

to make it better (In Your Dictionary, n.d.). It is the description of the output of this

study that is needed to generate that outcome. It is needed to generate the outcome of

this study. This will be done through the combination of the inputs.

Forecasting. It is the estimation of future financial outcomes. It is the usual

estimations of the future income and expenses for a certain period of time, and it is al-

ways the following year (Syndicate Room, n.d.). In this study, it is determining the fu-

ture financial undertakings and estimating the revenues to be generated by the local

government unit.
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Income. This pertains to any money obtained by business entity or an individ-

ual and/or an exchange payment from providing services through an invested capital.

The most common form of incomes is subject to taxation (Kagan, 2020). This is the

money earned from the local economic enterprises, levied taxes, fees and charges of a

certain local government unit.

Income Generation/ Revenue Generation. This is a process of creating sales

of services and products which aims to gather income (Xotels, n.d.). This process is

the main subject of this study. This is an action of the government to generate income

to provide basic services, projects and programs for its constituents.

Plan of Action. This is a course to be done (Merriam-Webster, n.d.). This

refers to the plans of the LGUs that could determine its next tracks.
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Chapter 2

REVIEW OF RELATED LITERATURE AND STUDIES

Related literature and studies are herein presented and reviewed on this chap-

ter, which will serve as the frame of reference for analysis of the income generation of

the local government units which is the main subject of the study to be conducted. Ar-

ticles on journal reports, researches, publications, and facts about the processes of in-

come generation, which are relevant to this study were encapsulated and used as the

basis for crafting the conceptual framework of this study. Available resources such as

books, journals, magazines, theses, dissertations and other online sources were also

utilized by the researcher.

Related Literature

The widening gap between the availability of fiscal resources and municipal

spending needs have been the primary problem confronting those local authorities

managing cities in developing countries. One of the main reasons for this growing fis-

cal gap is the rapid expansion of urban populations, which increases the countless de-

mand for public services, new public infrastructures together with its maintenance. In

developing countries, cities depend mostly to the central government transfers, and

with lesser revenues extracted from property taxation and service charges. The central

governments have a continuous control with the other sources of revenue which are

suitable for financing the cities, such as income taxes, business taxes, and sales taxes

(United Nations Habitat, 2015).

In developing and transitional economies, Billand (2016a) asserted that an ex-

citing paradigm shift is emerging. With the expanded decentralization and urbaniza-
 11

tion, there is greater responsibility entrusted to local governments in the provision of

basic municipal services. To help fund education, solid waste management system,

water and sanitation, and other economic development projects, and to meet local de-

mands, municipalities have turned to innovative financing mechanisms.

In the United States, based on Open Gov (2020a) lower governments include

counties, municipalities (including cities, villages, and boroughs), townships, special

districts (e.g., water and sewage authorities, parks and recreation), and school dis-

tricts. Most local governments have multiple funds, or budgets, that keep allocations

for public money organized and transparent. There is a line-item budget that tracks

every dollar spent for personnel, operating, and equipment costs (broken down further

into more detail by program) in each major department of local government. The bud-

get process is highly complex. While the annual budget process of specific depart-

ments, services, and budget calendars may differ from state to state.

Over $5.5 billion were collected in 2012 from the cities and towns which are

collectively known as municipalities. User charges including utility fees generates

more than half of all city revenues ($3.1 billion). In fact, two-thirds of all local user

charges were obtained by the cities. Fees from hospitals, water, electric and sewerage

charges were the largest sources. Sales tax was the second largest source of revenue

for Oklahoma cities after the user charges, generating $1.8 billion (Oklahoma Policy

Institute, n.d.).

In 2017, 30 percent of the local government general revenue was from the

property taxes and this comprises $509 billion. It was noted that it was the largest sin-

gle source of tax revenue in localities. Local governments’ 7 percent of general rev-

enue was from the $124 billion worth of sales taxes and only 2 percent ($33 billion)

was accounted from the individual income taxes. Another 2 percent were provided by
 12

other taxes which include income taxes, business licenses taxes and hotel taxes with a

total of $40 billion. 23 percent of the local general revenue which is $385 billion was

from the charges and miscellaneous fees collected by municipal or county govern-

ments from water, sewerage and parking meter fees (Tax Policy Center, 2020a).

The 32 percent of the general revenue of local governments was from the state

government transfers (including indirect federal funds) and the federal government di-

rectly gives 4 percent. Over two-thirds of the state government transfers are transfers

for education programs. On the other hand, 40 percent of federal transfers were for the

housing-program transfers of local governments (Tax Policy Center, 2020b).

Bauer and Halling (2016) bring up that almost every country has its subna-

tional government receive public funds; it is either through direct tax collection or

transfers from the national government. But countries from Bolivia to Canada to DRC

to Indonesia – special revenue system has been chosen and created by their policy-

makers to dispense non-renewable natural resource revenues.

The ongoing trend of decentralizing governance functions to the sub-national

level in many countries in sub-Saharan Africa (SSA) is probable to continue in the

next generations. In order to attain its objectives, it will be critical that this transfer of

responsibilities will be complemented by equal efforts to increase sub-national Public

Financial Management (PFM) capacity (The Broker, 2013a).

Meanwhile, municipalities in India and Philippines have reduced their depen-

dence on government cash transfers and donor loans and grants through their own

generation of revenues. Increasing own-source revenues supplies new funds to dis-

burse for buildings and other infrastructures. To increase own-source revenues, local

government units have adopted programs to: improve the billing and collection

process; reduce the operation costs by implementing some energy conservation; and
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in the case of water supply, lessen lost water by fixing leaks. These should all mani-

fest with the reasonable interest of elected municipal officials and officers and does

not warrant difficult political decisions such as raising rates. In some scenarios, where

there have been developments in service delivery, local governments have been able

to raise service charges and tariffs to increase local revenues (Billand, 2016b).

Sub-national governments are a noteworthy source of fiscal risks in the Euro-

pean countries as has been mentioned from the recent studies, especially since the

global financial crisis. One reason for the scenario, Karamaga (2013) said that it is the

responsibility in similar functions of the central government with the local govern-

ment with the financial transactions. Local government units may borrow from the

central government and other sectors depending on the depth of devolution as well as

in the management of enterprises.

However, Boex (2019) said that the main purpose of decentralized governance

is to decrease the control of central government – including Ministry of Finance – and

to commit a larger share of planning, budgeting and local government operations that

by its definition will never have the level similar to technical specialization in area of

public financial management as the Ministry of Finance. With that, the critical ele-

ment of fiscal) decentralization is to decrease the ability of the central government

with its control to the public finances of subnational government.

In the Local Service Taxes (LST), it has been cited that poor data is the key

challenge in particular with the informal nature of business which seldom have

records or just hesitant to disclose information. Lower Local Governments (LLGs)

concede having been slow in responding to some of these challenges which the politi-

cal interventions have worsened (Cardno Emerging Markets USA, 2016a).

 14

Swanson (2008a) said that, as part of the critical component of their financial

management practices, cities, counties, and other local government agencies are in-

creasingly adopting long-term financial forecasting. Too many governments have

found out the hard way what can happen in the absence of a realistic forecast model,

one that projects and quantifies the impact of potential revenue shortfalls and in-

creased liabilities well into the future. In creating a strategic context for evaluating the

annual budget, forecasts can be used, also with the establishment of a baseline for

measuring the decisions’ long-term effects, as well as to test the economic effects of

best-case and worst-case funding scenarios, and to establish a baseline projection of

revenues, expenditures, and future cash flows and fund balances.

There are challenges that municipalities experience and are intrinsic in the Lo-

cal Government sector in that municipal level generated revenue is not at the level

where the municipality would like it to be. As an outcome, the municipality is com-

mencing a conscious revenue enhancement strategy. This revenue enhancement strat-

egy is a collaboration of bringing about additional revenue flows and also increasing

revenue within current revenue streams. It includes revenue categories not typically

expected to gain considerable revenue in rand value terms and is identical with the

revenue categories where substantial revenue is deemed expected, in other words it

looks at actual and possible municipal revenue beyond the two opposite points (Mo-

hokare Local Municipality, 2017).

In addition, Price Waterhouse Coopers (2010a) listed the challenges that local

governments are facing in the revenue management and enhancement and that in-

cludes: non-payment of taxes, poor management and free basic services, budgeting,

tariff determination and revenue planning, little to no growth in the rates bases Cus-

tomer data accuracy, meter reading & billing accuracy, debt management and credit
 15

control, non-technical losses due to meter tampering and illegal connections, call cen-

ter & customer relationship management, cash flow planning and management and

high level of outstanding consumer accounts.

Sovereign debt management is the process of initiating and executing a tech-

nique for managing the government's debt in order to increase the required amount of

funding, realize its risk and cost objectives, and to meet any other sovereign debt ad-

ministration goals the government may have set, such as evolving and maintaining an

efficient market for government securities (World Bank, 2001a).

It has also been noted that sound debt management policies lessen susceptibil-

ity to infirmity and financial risk through playing a catalytic role for an extensive fi-

nancial market maturity and financial deepening. Experience sustains the argument

(World Bank, 2001b).

Public Fiscal Management (PFM) is a core dimension of governance in all de-

veloping and developed regions, this includes but not limited to technical systems and

processes, but also with wider issues of institutions and incentives. Achieving more

transparent, more efficient and effective governments’ management of revenues, ex-

penditures, assets and accountabilities is the hindmost objective of PFM reforms. It is

necessary for all countries to have well-functioning PFM systems: these are required

in the efficient and effective implementation of policies in all sectors (The Broker,

2013).

The development of the public sector’s annual budget is more than just pro-

cessing numbers; the budget realize a strategic plan and its impression should con-

sider the stakeholders’ needs and priorities, from government employees and adminis-

trators to citizens and business leaders. The development, approbation and administra-
 16

tion of a public agency’s budget are all crucial steps of the process of budgeting

(Open Gov, 2020b).

It is evident on the job market paper of Martinez (2015) which suggests that

improvements in accountability as an outcome of the devolution of expenditure re-

sponsibilities to local government units are being reduced as the reliance on external

revenue sources such as natural resource rents or intra-government transfers simulta-

neously increases.

On 2011, Santos noted that traditional method of revenue planning consists of

the estimation of the income based on the past collections, newly enacted tax ordi-

nances, amendments to existing tax or revenue ordinances and program collection

campaign. While revenue forecasting, is the estimation of the income based on the av-

erage growth rate of the actual income of the LGU for the last five years.

In order to maximize the net income, the income generation activities must be

consistent with the principles of the organization and should be organized efficiently

(Lee, 2008).

In policy issue confronting LGUs’ exercise of corporate power, Quizon (2015)

stated that LGUs lack the roadmap to establish disengaged in the operation of LEEs.

Also, the basis to establish LGU corporations is vague. Another is the absence of

LGUs’ clear-cut guidelines to enter into joint venture with the private sector.

According to Salcedo (2018), LGUs have remained mendicants for funds to

the national government. Also, LGUs lacks adequate coordination and cooperation

among offices involves with the processes. There is also a need for an adoption of a

new technology to improve efficiency in their operations. Lastly, it has been men-

tioned that understaffing and mismatch and lack of career system is the reality that

LGUs are always facing.

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In the levying and collection of revenue, it is enumerated that it is a civic and

constitutional duty; it is for the betterment of service delivery; it is an additional re-

source for local priority services; it will meet the external funding conditions and sta-

tus; it should be a transparent downward accountability and it is for better remunera-

tion (Cardno Emerging Markets USA, 2016b).

Internal revenue management capacity of the Local Government Units is pos-

sible to be real and have sustainable transformation and it will be done through part-

nering in action (Price Waterhouse Coopers, 2010c).

The aspiration of the income generation and commercial opportunities tech-

nique is to assist the delivery of strong communities with a lucid future through the

development and implementation of a range of income generation and commercial

opportunities, which will complement other sources of funding (Vale of Glamorgan,

2017).

Generally, local governments use one or a mixture of the three forecasting

techniques for revenues and expenditures: expert judgment and analysis, econometric

modeling, and deterministic forecasting. Forecasting methods would depend on the

type of revenue and the availability of historical current economic data, together with

some factors that steer the revenue (Swanson, 2008b).

The Department of Finance (DOF) has its Bureau of Local Government Fi-

nance (2017) define the preparation of the Statement of Income and Expenditures

(SIE) in conformity with its mandate to sustain financial information on all local gov-

ernment units (LGUs), oversee the financial performance, and support the develop-

ment of LGUs including their fiscal operations through supervision and technical as-

sistance.
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Related Studies

A. Foreign

The study of Jacobs (2019) on Local Government Revenue Enhancement: A

Case Study of Umsobomvu Local Municipality revealed that local government’s own

sources of revenue are the most critical means of advancing its fiscal autonomy. Con-

sequently, to attain financial sustainability, debt collection, management of credit con-

trol, indigent management, meter reading, billing accuracy, cash flow planning and

tariff determination are critical elements of revenue enhancement. The socio-eco-

nomic and fiscal conditions for local government have emphasized wide variation in

social and economic contexts that are cue amongst the local South African govern-

ment. The key elements of the local government financial framework and how it is

correlated to municipalities were described through intergovernmental relations.

There is a great importance to get the basics right in connection to revenue manage-

ment and the gathered consumer debtors and under-pricing of provided services. The

study investigated the collecting of outstanding debt from the municipal debtors that

resulted in negative cash flow that produced poor services delivery. Moreover, na-

tional fiscal policy provides municipalities the space to be responsive to these chal-

lenges and the capacity of municipalities to rise to these obstacles will eventually be

determined through the quality of their governance and administrative operations.

This study suggested to the South African local government that other sources of rev-

enue can be maximized.

Meanwhile, the study of Symoom (2018) with regards to “The Impact of Fis-

cal Policy on Economic Growth: Empirical Evidence from Four South Asian Coun-

tries” which stated that there is a continuous debate regarding the effectiveness of fis-

cal policy on economic growth of countries which are still developing. Policy makers
 19

in these countries normally attempt to discourse socioeconomic issues such as

poverty, unemployment, hunger, poor investment, and illiteracy while having to ad-

just the levels of public spending and determination of tax rates. . Empirical outputs

show that both government expenditure and tax revenue have no significant impact on

real GDP growth in those South Asian countries. Moreover, real investment is

strongly positively correlated with real GDP growth in these countries.

Moreover, the empirical findings of the study, “Decentralization and Financial

Performance: A Comparative Analysis of Local Government’s Financial Sustainabil-

ity in Tanzania” of Sinde (2016) suggest that decentralization in Tanzania controls fi-

nancial sustainability of local government authorities (LGAs) in different manners.

First, councils with a large proportion of indigent people not only have small financial

sustainability, low spending per person and low own source revenue per person but

also collect a lower average grant per person. This constitutes the risk of overstating

the horizontal space in service access. Secondly, contributing negatively are the coun-

cil size and population size while those which have positive contributions are the flow

of government grants and poor financial management practices to variations in finan-

cial sustainability. Thirdly, the findings recommend decentralization may not dis-

hearten complacency in LGAs’ income mobilization and financial management prac-

tices. On the other hand, remarks from the case studies include financial hurdles are

rampant in LGAs. Unfortunately, they affect LGAs’ operations, especially in execut-

ing development projects in priority sectors: health, education, water and agriculture.

To reduce the difficulties, LGAs integrate people in service provision, cuts or delay-

ing activities as immediate options, and seeking substitute revenue sources for the

long term.
 20

Richard (2018) on “Factors Affecting Local Revenue Generation in Local

Governments: A Case Study of Wakiso District” revealed the results that business li-

censes, market fees, property tax, fish levy, business licenses, fines, penalties, revenue

from agricultural and forestry products market fees, bus stand and car parking are the

revel for the major sources of local revenues. The shift of local revenue collection

kept on altering over the period of time with the immense decrease of from the year

2016 to date which warrant the poor performance at Wakiso district due to insuffi-

cient financing of activities. Changes in local revenue collection have dominant fac-

tors which include: incompetency of revenue assessors, poor planning for revenue

management, lack of adequate equipment, failure to conduct feasibility study and fail-

ure to inform people on time of their dues, assessment of tax is poor which adversely

affect a large part of the revenue collection. Nonetheless, compliance to local revenue

payments in local government was influenced by low affordable tax rate. Suggested

strategies are: introducing new sources of revenue and benchmarking techniques

which already succeeded, enhancing the relationship between the district and tax pay-

ers and making the public sensitive on payment of revenues. This study suggested that

local government should use the local media to sensitize the public to comply with

paying revenues, community meeting with local leaders for the regular conducting of

feasibility studies to locate or know the revenue viable sectors to assist the efficiency

of local revenue generation.

Scott (2018) conducted a study regarding the “Influence of Revenue Mobiliza-

tion Practices on Service Delivery in Decentralized Governments: The Cases of Dis-

trict Assemblies of Ghana” which provided a result that revenue mobilization prac-

tices at the District Assemblies (DAs) had a positive and significant effect on service

delivery. This study suggested that the DA authorities should inspect and review the
 21

tools for automated revenue generation to ensure favorable benefits from these au-

tomations. The parliament and District Assemblies are motivated to evaluate and con-

solidate the existing legal framework for financial management to make sure faster

transfer of funds to the DAs and identify sanctions on officials of the national govern-

ment who will misuse or delay the funds.

Moreover, Natrini and Ritonga (2017) on “Design and Analysis of Financial

Condition Local Government Java and Bali 2013-2014)”assessed upon the financial

condition that local government are able to determine how would they fulfill public

needs, how resources be utilized and how to transfer available resources into a more

productive ones. This study showed that among the 7 analyzed clusters, there are dis-

parities of results, even though each cluster is alike in socioeconomic conditions. This

variation was a result of the regional autonomy upon the financial condition of the lo-

cal government of Indonesia.

Furthermore, in the recent study of Chauke (2016) on “Municipal Revenue

Collection Function: A Comparative Study on the Efficiency and Effectiveness of

Tshwane Metropolitan Municipality and the South African Revenue Service”, it is

presented that municipalities have the power to finance their affairs through imposing

fees for their services, additional charges on fees, rates, levies, and duties. This study

investigated the strategies and legislative framework that is engaged by the municipal-

ities and contrasted with what the South African Revenue Service used, with the aspi-

ration of obtaining possible ideals that can be applied to municipalities. It is con-

cluded that there is a need to propose guidelines that can be utilized in the municipali-

ties’ revenue generation.

Pantamee (2018) on “A Tax Administration reform Model for Revenue Gener-

ation in Nigeria” garnered the findings on the first objective specifying that there is no
 22

congruency joining tax administration and legislative, companies, judiciary and the

executive as well as banks. The findings further shows that Federal Inland Revenue

Service (FIRS) performance is affected by an absence of required tangible and intan-

gible resources and insufficient knowledge of employees of the previous challenges

and achievements recorded by FIRS in carrying out their mandates. Secondly, the

findings disclose that the Nigerian government does not play a great role in giving

taxpayers with a safe environment, opportunity for employment, and taxpayer educa-

tion that will enhance voluntary compliance. Thirdly, the study finds congruence

among tasks, employees, and formal and informal settings in FIRS. Fourthly, the

study discovers that performance is evaluated by the degree of loyalty an employee

has to his/her supervisor and not based on the quality and quantum of the work deliv-

ered. The main policy implication of this study is that Nigeria can ensure tax compli-

ance and greater tax revenue collection by adopting the Performance-Governance

Model of Tax Administration Reform.

The recent study of Umar (2013) “A Study of the Process and Barriers of

Property Tax Revenue Generation in Local Government (A Case Study of Pasir Gu-

dang Municipal Council)” had discovered that inadequate supply of infrastructural fa-

cilities and services were the factors of the decline in the property tax revenue genera-

tion in the area been studied. The findings of this study have discovered that the tax

payers are expecting to have adequate infrastructural facilities and services which are

the usual target of the taxes being paid due to the absence of those tax payers evaded

paying the property tax. It has also been established with the results the relationship

between the public authorities and the taxpayers. The research contribution based on

the findings of this is a significant knowledge. This attested that the provision of pub-

lic facilities is a factor to tax payers’ compliance.

 23

As stated in the study of Akyoo and Kazungu (2016) “Tax Administration In-

tegrity and its implications on effective revenue collection in Local Government Au-

thorities: Insights from Moshi Tanzania” which sought to establish the relationship

joining tax employee integrity and the Local Government Authorities effectiveness in

revenue collection and the Moshi Municipal as the scope. This study showed that em-

ployees’ integrity is a core value and must be an integral part of the tax collection and

administration of LGA. Thus, employees on local government units who entrusted

with the revenue collection process exhibits high levels of honesty, commitment,

morality, qualifications, trustworthiness, competence in the workplace and self-disci-

pline, they will be able to participate decisively in managing the revenue collection

process of local government units. It also concluded that there is a need to build a vi-

able system on which tax payers will have the initiative to pay their taxes.

The studies of Jacobs (2019), Symoom (2018), and Sinde (2016) are the same

with their subject fiscal policy and in reducing difficulties through such. Though these

studies are focused more on the intergovernmental relations, these are still aligned

with the ultimate aspiration of the study to be conducted which is to analyze and re-

duce the difficulties in the income generation process.

Similarly, studies conducted by Richard (2018), Scott (2018), and Natrini and

Ritonga (2017) are same in terms of the factors collected for the enhancement of local

revenue generation together with the financial design and condition. These are relative

with the undertakings to be proposed through the present study to improve the income

generation processes.

Also, the studies of Chauke (2016), Pantamee (2018),Umar (2013), and Akyoo

and Kazungu (2016) are similar with the present study in their focus on the revenue

generation and the reforms that could be made. These studies discovered potential
 24

factors for non-compliance and the need to have a system that will make tax payers

provide the initiative to pay their taxes. This study is similar to the present study to be

conducted through determining what possible solutions should be carried out in order

to convince the citizens to provide the initiatives which will then cater the problem in

revenue generation.

B. Local

This study entitled “Economic Accountability in the Context of Local Gover-

nance in the Philippines: A Structural Equation Modeling Approach” posits that by

merit of the enabling role of local government units, the development of their locality

in its economy must be at the core of their public accountability, which is mentioned

here as “economic accountability”. Grounded on this idea of accountability, along

with enabling theory and institutional theory, the study presents empirical evidence

supportive of the argument that the enabling role of local governments, as manifested

in a capacity to establish or adhere to formal institutional arrangements, has a direct

impact on the entrepreneurial strategic posture and performance of local small and

medium enterprises (SMEs) which are key players in local economic development.

The results of the structural equation modeling support the view that institutional ar-

rangements as manifestations of the enabling role of city governments are positively

associated with an entrepreneurial strategic posture of local firms, which consequently

improves the firms’ overall economic performance. Therefore, SME development in

particular and local economic development in general, should be part of the economic

accountability of local governments in the Philippine context of local governance

(Roxas, Lindsay, Ashill, and Victorio, 2010).

 25

Manasan (2011) conducted the “Assessment of the Impact of the Fiscal Stimu-

lus, Fiscal Risk and Fiscal Transparency: The Philippines” which provided informa-

tion on the evidence on the relative effectiveness of expenditure expansion versus tax

cuts is mixed, the overall effectiveness of the fiscal stimulus appears to be well sup-

ported by evidence. A number of fiscal risks related with the fiscal stimulus package

was distinguished in this paper. First, the Philippine experience proved concerns lifted

in the literature that tax cuts made in response to an economic slowdown tends to be

permanent or are difficult to reverse. Second, while most of the spending programs in-

cluded in the fiscal stimulus package are temporary in nature, the growth of the condi-

tional cash transfer program is not. Third, even when the a country’s fiscal position

appears to be temperate at the start of the crisis, countries with high debt-to-GDP ratio

like the Philippines have very little elbow room to do countercyclical policy without

running into fiscal sustainability concerns. Fourth, while the government’s fiscal

stance in 1998/ 1999 and 2009 is appropriately countercyclical, its fiscal opinion was

procyclical in about half the time in the period between 1991 and 2010. Given this

view, it is required to guard against procyclical policy as it tends to promote smaller

than warranted fiscal balances and, as a result, higher levels of government debt over

time. The wisdom here is that fiscal prudence even during good times helps improve

the government’s capacity to do countercyclical fiscal policy when times are bad.

In the study of Sargiacomo and Gomes (2011), this provided an analysis pub-

lished historical research on accounting and accountability in local government (LG)

and in public organizations that have links to LG. The study recognized the main

themes and trends in this historical research, the area of adoption of particular theoret-

ical views, the nature of sources explored, the periods of time investigated, and the

main contributions of published research on accounting’s past within LG settings.

 26

Therefore, this study highlighted feasible future research topics and makes a call for

rigorous and robust research on the development of systems of accounting and ac-

countability in LG around the globe. Such research will recognize that accounting, be-

sides being perceived as a technical practice, is also a social practice, with implica-

tions for organizational and social functioning.

This study “Creating the Enabling Environment for More Transparent and

Better-resourced Local Governments: A Case of E-taxation in the Philippines” con-

ducted by Canares (2016) had been an additional research for the growing body of lit-

erature that advocates for the use of information and communication technology

(ICT) in particular with the public finance management of the local government. This

study had been conducted in Bohol, a province in the Philippines, it has been dis-

cussed in this paper the impact of ICT on the local revenue generation within its 15

municipalities through analyzing both the quantitative and qualitative data as the e-

taxation was utilized. Arguments arise that the utilization of ICT can make attainable

more transparent and accountable revenue generation systems to both satisfy the gov-

ernment and the tax payers. Nevertheless, the results depends on the level of political

leadership, the nature of expressing the demand to use ICT, the ratio between benefit

and cost, and the availability of technical skills and resources at the sub-national level.

It is within this consequence that an eco-system analysis is argued to be practical in

analyzing how ICT can be adopted, scaled, and utilized by sub-national governments

to attain better governance.

The analysis of Hutchcroft (2012) based on his study “Re-slicing the pie of pa-

tronage: the politics of the internal revenue allotment in the Philippines, 1991-2010”

stated that the goal of the IRA is for the barangays, municipalities, cities and prov-

inces to undertake the devolved functions to them, as the code provided. For all the
 27

celebrated talk encouraging local autonomy and setting on the fiscal decentralization,

however, the IRA is a good story as it is known to be an enhanced patronage resource

for local politicians. This analysis surveys the political dynamics of the IRA from its

inception through the administrations of Fidel Ramos, Joseph Estrada, and Gloria

Macapagal-Arroyo. Particular observation had been made to the evolution of the three

tensions: (a) between the national executive and local politicians, (b) between national

legislators and local politicians, and (c) among and within categories of local politi-

cians.

Llanto (2012) on his research about “The Assignment of Functions and Inter-

governmental Fiscal Relations in the Philippines 20 years after Decentralization”, he

mentioned that people getting near to governance can generate a welfare gain, but lo-

cal government units must have enough revenues to finance local development. This

paper examined the current status of the tax-expenditure assignment and the connec-

tion to intergovernmental fiscal, and determines areas for reform. There is a need for a

clearer and more accountable assignment of expenditure by eliminating particular sec-

tions of the code, which serve as a route for national government agencies to be en-

gaged in devolved activities, and for politicians to insert funding for pet projects,

which distort local decision making and preferences. It is required as well to review

the tax assignment to enhance local revenue generation. The allotment of intergovern-

mental fiscal transfers may be enhanced by introducing matching grants to improve

equalization transfers to local governments, and performance-based grants to encour-

age greater local revenue mobilization. Without a clear funding source, unfunded

mandates inflicted on local governments defeat the resolution of the policy objectives

laid in those mandates. Local government alliances and cooperative agreement may

supply public goods with interjurisdictional spillover satisfaction. Consolidation, bet-

 28

ter coordination of the activities of local government, and assets pooling for better lo-

cal service delivery are pathways stipulated by successful experiences of LGU al-

liances.

On the study entitled “Intergovernmental Fiscal Transfers and Geographical

Disparities in Local Government Income in the Philippines”, it has been mentioned

that it has been a matter of dispute whether intergovernmental transfers can remedy

geographic imbalance in development without a direct horizontal equalization fea-

tures. To address that issue, Yeeles (2015) explored spatial inequalities in per capita

of local government income in the Philippines over alternative notions of geography

and tested the intersecting effect of vertical revenue transfers on perceived inequali-

ties. The analytical tools being used are the Gini and Theil indices with its corre-

sponding sub-group decompositions. First, the income generation’s inequality in local

government is moderate across national space. Second, across different geographic

groupings the severity of income inequality varies. Third, the current Philippine trans-

fer system has a considerable equalizing effect in terms of national imbalance, but a

minor impact on specific spatial inequalities. Over the last decade, it is notable that

the spatial income imbalances between local governments have remained stable. In

addition, local governments are not sharply stratified over national space. Rather,

overlapping regional economic systems comprise the space economy.

According to the recent study of Panao (2020) entitled “Beyond Flypaper: Un-

conditional Transfers and Local Revenue generation in the Philippines, 1992-2016”, it

is noted that in the case of Philippines, fiscal decentralization is linked on uncondi-

tional central to local transfers, this induces overreliance to the national government

support and conquer the principle of fiscal autonomy. Philippine fiscal and electoral

data from 1992 to 2016 as being examined, two empirical observations were formu-
 29

lated. First, internal revenue allotment is a form of unconditional transfers is a re-

source which crowds out local revenue generation and generates fiscal dependency

among local government units. Second, relying less on the IRA not only incline local

government units to become more active in raising their own revenue sources but

these LGUs would be able to allot more funds to public welfare. As an inference, the

result of this study recommends that federalism as a method of decentralization will

not be a requisite for the creation of a more efficient and equitable fiscal governance

system if its organization is abrupt and if it does not capture the coordination of its in-

strumentalities as direct stakeholders.

On the research of Mendoza and Ocampo (2017), it has been highlighted that

the original rationale behind decentralization and efforts towards more efficient gov-

ernance and the expanded fiscal independence of local government in the Philippines.

Historical data and evidence had been inspected with a focus on the local government

units. It discusses some of the potential links behind these patterns; and this concludes

with a few very initial thoughts on possible reforms towards more effective fiscal fed-

eralism.

Another study was conducted by Cruz, Cruz, & Antonio in 2018 with a title

“Assessing the Revenue Raising Capacity of the Local Government of Bongabon in

the Philippines” which affirmed the capacity of the Municipality of Bongabon, Nueva

Ecija in its local revenue generation and revealed that its efficient collections that had

been calculated is only 20.6% of the total collectibles on their Real property Tax. The

average local revenue raising capacity within 7 years (2011-2017) is only 40.9% of

the externally sourced revenue or IRA. The study agreed that the Municipality of

Bongabon, Nueva Ecija was still dependent on the funds provided by the national

government. This study also exposed various constraints to have an efficient tax col-
 30

lection while local citizens viewed the LGU’s ability to collect tax negatively. More

researches were encouraged to come up with an adequate baseline data that may serve

as a resource of data for policy making and solving the problems derived in the tax

collection in the local level.

The studies of Roxas, Lindsay, Ashill and Victorio (2010), Manasan (2011),

Sargiacomo and Gomes (2011), Canares (2016), and Hutchcroft (2016) are all similar

in terms of their focus on the development of the systems of accountability of local

government and the local economic development. These studies are similar with the

study to be conducted in terms of its pre-determined implications and assumed pur-

poses.

Simultaneously, the studies of Llanto (2012) and Yeeles (2015) are both fo-

cusing on the intergovernmental fiscal relations in the Philippines. The present study

is related to these two studies in terms of perceiving the performance of local govern-

ment with their dependence on external source of revenue rather than generating their

own source of income and the enhancement of the revenue generation processes to

fund the necessary mandates and public satisfaction.

On the other hand, the studies of Panao (2020), and Mendoza and Ocampo

(2017) concluded that fiscal independency on decentralization of local governments to

the national government will not necessarily mean that it will be more efficient on fis-

cal federalism. These are connected to the present study since the point of view of

these two recent studies are on having a more efficient system for fiscal governance to

enhance the local revenue generation.

The study conducted by Cruz and Cruz and Antonio (2018) are comparable

with the study to be conducted through the local revenue generation and how its effi-
 31

cient collections will be done. In contrast, the researcher will have the whole province

of Tarlac as its scope.

Conceptual Framework

It is shown in figure 1 the main concept of this study. This study will analyze

the local revenue generation among the local government units in the Province of Tar-

lac through their income sources such as tax revenues, non-tax revenues, and the in-

ternal revenue allotment. Also, through this study the revenue source which generates

more and less would be determined through analyzing the financial summary per

LGU. Problems encountered in the local revenue generation would be delineated. Pro-

posed undertakings to improve the local revenue generation would be drawn.

Lastly, the implications of the study to the local autonomy of the LGUs would

be a significant aftermath of this study.

Tax revenues
Real Property Tax
Business tax
Other Taxes
Non-tax revenues
Problems in Local Revenue
Fees and charges
Generation
Receipts from economic
enterprises
Borrowings
Internal Revenue
Allotment

Plan of Action to Improve the

Local Revenue Generation

Implication of the study to local

government administration
 32

Figure 1. Paradigm of the Study

 33

Chapter 3

METHODS OF STUDY AND SOURCES OF DATA

This chapter presents the overall design as well as the methods that will be

used in order to pursue the study to be conducted. This will also show the procedures

on how data for the study would be gathered. Particular instruments to be used in the

accumulation of data would also be discussed on this chapter.

Research Design

The research design that will be utilized is a combination of descriptive and

analytical which will be used to provide elaborated results that is pertinent to the un-

dertakings that this study needs to be proposed and which also be the basis for a new

enhanced model of local revenue generation on the local government units. The local

revenue generation will also be defined through accumulated data from the Local

Government Authorities and their financial summary per Local Government Unit.

Comprehensive understanding of the data to be provided by the respondents to the re-

searcher is needed. This study aims to describe and analyze the local revenue genera-

tion among local government units in the Province of Tarlac. The output of this study

is an implication to the local autonomy of each local government unit and this could

be used to craft an enhancement model of the local revenue generation. Implication to

local autonomy would be made available from the findings of this study which is its

groundwork.

According to Yang (n.d.), descriptive research aims to describe, determine, or

identify what is something, while analytical research aims to show why does some-

thing went that way or how something came to be. To describe certain phenomena,
 34

descriptive research uses measurement, classification, description and comparison of

data. Usually, analytical research is concern to the cause-effect relationships. Descrip-

tive studies are bound to specify or describe persons’ characteristics, geographies of

the variables, and time of events or scenarios that occurred such as diagnosis, testing,

and reporting. Analytic studies, on the other hand, studies exposure-outcome relation-

ship and comparison of variables or group data (Centers for Disease Control and Pre-

vention, n.d.).

Research Locale

The Province of Tarlac is situated in Region III and it is known as the “Melt-

ing Pot” of Central Luzon, characterized as a progressive province and have four bor-

ders namely Nueva Ecija on its west side, Pampanga to the south, Zambales on the

east, Pangasinan is on the North of the Province of Tarlac. It was known for its large

diversity in terms of its dialects and culture in general since there are about 3 dialects

in the province namely Pampango, Ilocano and Tagalog.

Figure 2. Map of the Province of Tarlac

 35

It has 17 municipalities which are Anao, Camiling, Mayantoc, Moncada

Paniqui, Pura, Ramos, San Clemente, San Manuel and Sta. Ignacia on its first district,

Gerona, Victoria, and San Jose on its second district while its third district comprises

Bamban, Capas Concepcion, La Paz, and the only city, the Tarlac City. The estimated

population in the Province of Tarlac is about 1, 366, 027.

Sampling Design

Consecutive sampling is the sampling design that the researcher will utilize in

determining the respondents to be. This type of sampling is one of the non-probability

sampling techniques on which the respondents who will participate in the study are

completely accessible population for the study to be conducted. This technique re-

quires a criteria for every respondent and those who will meet the set requirement will

be included until the sample size is being achieved (Maheshwari, 20170). Those re-

spondents are the primary source of the data that the researcher needed in the study to

be conducted.

Respondents of the Study

The respondents of this research will be the local government authorities such

as the local finance committee from the eighteen (18) different local government units

in the Province of Tarlac.

Methods of Gathering Data

The researcher of the study will utilize two (2) instruments namely: (1) docu-

mentary analysis; and (2) interview.

Documentary Analysis. This is commonly known as the method of analyzing

existing organizational records, reports and other pertinent documents. The informa-
 36

tion gathered here are usually beneficial to the internal management of the document

owner or the organizations involved.

Interview. This method which has been administered by the researchers is a

face to face interaction with the respondents. It was conducted in the typical setting of

their day to day living to conserve important data and let an open conversation flow

out from the respondents. Commentary type of conversations is preferred by the re-

searchers. It is a conversation wherein researchers would need an interview guide in

order to direct the conversation with the pertinent topics and issues.

Ethical Consideration

The researcher of this study to be conducted in full consideration with the re-

spondents’ personal information, perspective and response with the context of the

study and these will not be disclose to anyone without proper consent from the owner.

The information to be gathered from this study are all for educational purposes only

rest assured these would be treated with confidentiality.

Statistical Treatment

In the interpretation and analysis of the data to be collected, the researcher will

simply present the results of the analysis with the use of frequency count, ranking, and

percentage. These are used in determining pertinent data needed in the study.

Frequency Count.  This will show how often a particular determinant would

be chosen as an information for a question asked. This is a pertinent tool in converting

information into a more viable data.

Mean. This pertains to the center of the value of the set observation in the re-

sults from the survey to be conducted. It could be computed by dividing the sum of all

scores by the number of scores as expressed in the formula provided below:

 37

X = n (1) + n (2) + n (3)

N
Where:

X = mean

n = score in the distribution

N = no. of score/ sample

Ranking. This will state particular value a determinant stands for. This also

showed the difference of each determinant from each other.

Percentage. This will determine the part of the whole fraction of a certain

population or number which will be the determinant for an answer.

f
Where: P= x 100
N

P= percentage

f= number of frequency

N= total number
 38

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