1 - Sir Alex Overview PPT Only - Rationalization of Fees and Charges-1

RATIONALIZATION OF LOCAL
FEES AND CHARGES FOR LOCAL

GOVERNMENTS:
AN OVERVIEW
Department of Finance | Bureau of Local Government Finance

OUTLINE
I. Introduction
i. Legal Basis
ii. Guiding Principles
iii. Scope of Imposition
iv. Distinction of Fees and Charges
II. Study on Rationalization of Fees and Charges
i. Background
ii. Survey of Business tax and fees
iii. Cost of Delivering of Service
II. Cost Recovery Principles
III. Statistics on the Collections of Fees and Charges
IV. Overview: Local Fees and Charges Toolkit

INTRODUCTION
The Constitution grants each LGU the power to create its
own sources of revenues and to levy taxes, fees, and
charges which shall accrue for its sole benefit.

I.
INTRODUCTIO
N

LEGAL
• Sections 147, 151,153 and 186 of Republic Act 7160
To impose and collect reasonable fees and charges on business
and occupation and on the practice of any profession and calling
commensurate with the cost of regulation, inspection and
licensing.

RATIONALE FOR THE IMPOSITION OF FEES AND
CHARGES
• Efficient resource management – to downsize the
government’s spending and yet maintain its obligation of
providing efficient services to the public
• Cost recovery principle – to relieve the government of its

funding burden

PRINCIPLES IN THE INCREASE IN FEES AND CHARGES /
IMPOSITION OF NEW FEES
• Concept of comparability of service with other local
governments;
• Length of time the fee or charge has not been revised;
• Some social services remain exempt from requirement to hike

fees and charges, e.g., fees related to constitutionally
mandated free or subsidized services (education, health
services);
• Balance between cost recovery and socio-economic impact of

new/revised rates to stakeholders
SCOPE
To all fees and charges (not taxes) being imposed LGUs,
whether regulatory or service fees, the purpose of which is to
recover the cost of service rendered, except when the rate or the
method for determining the rate has already been prescribed
under the Local Government Code and other applicable laws.

DISTINCTION
"Tax" refers to a charge levied by a local government on a
product, income, or activity, the purpose of which is to generate
public revenues to finance public goods and services.

DISTINCTION
"Fee" refers to a charge fixed by law or ordinance for the
regulation or inspection of a business or activity.

DISTINCTION
"Charge" refers to the pecuniary liability, as a rent imposed
against a person or property in exchange for the use or utility of
a facility or service of the government.

II. STUDY ON
LOCAL FEES &
CHARGES

BACKGROUND
The Department of the Interior and Local Government (DILG)
and Bureau of Local Government Finance (BLGF), with support
from USAID’s Investment Enabling Environment Project
(INVEST), jointly conducted a study which involving two parts:
1. A survey on the fees and business tax imposed by LGUs,

and,
2. An examination of the cost of delivering services by LGUs

PART ONE
Survey of Business Tax and Fees
Business cases were selected to reflect popular business

investments based on statistics from DTI and those from project
cities. • Bank • Restaurant
• Packaging Plant • Medical clinic
• Construction Supply • Internet shop

Trading
• Supermarket • Bakery

PART ONE
Survey of Business Permit Fees
Cities in the least expensive category
Large, Medium and Small Enterprises
Cons. Supply
Rank Packaging Plant Bank Supermarket
Trading
1 Kabankalan Bogo Valenzuela Sagay
2 Bacolod Sagay Sagay Bogo
3 Bogo Bayawan Bogo Bayawan
4 Sagay Valenzuela Bayawan Iriga
5 Bayawan Iriga Toledo Santiago
6 Iriga Muntinlupa Dasmariñas Toledo
7 Tacloban Panabo Iriga Valenzuela
8 Santiago Toledo Muntinlupa Pagadian
9 Toledo Pagadian Santiago Calamba
10 Valenzuela Santiago Tacloban Muntinlupa

PART ONE
Cities in the least expensive category
Micro Enterprises
Rank Restaurant Medical Clinic Internet Shop Bakery
1 Sagay Zamboanga Sagay Sagay
2 Bogo Sagay Bayawan Bayawan
3 Bayawan Bayawan Bogo Bogo
4 Toledo Bogo Iriga Kabankalan
5 Iriga Iriga Palayan Iriga
6 Santiago Panabo Panabo Panabo
7 Kabankalan Baguio Kabankalan Palayan
8 Panabo Cavite Guihulngan Guihulngan
9 Palayan Kabankalan Pagadian Santiago
10 Bacolod Santiago Toledo Pagadian

PART ONE
Cities in the most expensive category: Business Permit Fees and Other Fees and Charges
Large, Medium and Small Enterprises
Cons. Supply
Rank Packaging Plant Bank Supermarket
Trading
1 Masbate Ozamiz Masbate Cadiz
2 Dumaguete Dumaguete Santa Rosa Danao
3 Bago Masbate Victorias Roxas
4 T. Martires Bago Malolos Tandag
5 Bislig T. Martires Tuguegarao Santa Rosa
6 Cavite Cadiz Bayugan Cavite
7 San Carlos Iloilo Quezon Dasmariñas
8 Santa Rosa Bislig T. Martires Masbate
9 Tandag San Carlos Bislig Victorias
10 Quezon Bayugan San Carlos Tuguegarao
PART ONE
Cities in the most expensive category: Business Permit Fees and Other Fees and Charges
Micro Enterprises
Rank Restaurant Medical Clinic Internet Shop Bakery
1 Bago Ozamiz Victorias Bago
2 Malolos Dumaguete Dumaguete Malabon
3 Dumaguete Tandag Iligan Dumaguete
4 Cavite Masbate Bago Tacloban
5 Ozamiz T. Martires Ozamiz Ozamiz
6 Tandag Malolos Malabon Baguio
7 Cadiz Tacurong Lipa Iligan
8 Victorias San Carlos Butuan San Carlos
9 Passi El Salvador Tacloban Calapan
10 San Carlos Quezon Valenzuela Lipa

PART ONE
Survey of Business Tax and Fees
BASIC OTHER FEES AND

FEES
• Mayor's Permit CHARGES
• Garbage Fee
• Business Permit
• Signboards and
• Registration Fee
Inspection
• Inspection &
• Peace and Order Fee
Monitoring
• Environmental
• Sanitary Fee
Protection
• Fire Inspection Fee
• Health Permit Fee
• Zoning Fee
• Police Clearance
• Building Inspection
• Notarial Fee
Fee
• Delivery trucks
• Occupancy Permit Fee

PART TWO
Cost of Delivering Services
The Study focused on the guideline for costing of inspection

services using a cost accounting framework and methods to
determine the cost of delivering business permit and licensing
services for each relevant department in LGU.

PART TWO
The framework, applying the principles of Cost

Accounting, follows six broad steps to arrive at the
reasonable fee for a service and determine appropriateness
of the
Step current
1: fee.
Identif Step 2: Step 6:
y Determ Compar
Step 4: e fee
availab ine the Step 5:
Step 3: Quantif with
le portion Estimat
Separat y the cost of
resourc of e fixed
e variabl deliveri
es resourc cost
Variabl e costs ng
related es for using services
e from (Salary,
to busines standar &
Fixed transpo
busines s d adjust
Cost rtation,
s permit costing fee
etc.)
permit process accordi
process
Department of
es
Finance | Bureau of Local Government Finance ngly
PART TWO
Capacity vs. Utilization
(Number of transactions)
Capacity Application Inspection
8,320
6,8646,901
5,436 5,436 5,436
4,368
3,298 3,450
2,555 2,302
1,352 1,200
477
208
Zoning Sanitary Fire BPLD Building*
Note: This capacity-utilization comparison is based on the result of operational assessment in

one USAID project city
PART TWO
Fee Collection vs. Cost
(In million PHP)
Fee Collection Variable Cost Total Cost
P10.3 P10.5
P9.9
P8.5
P6.5
P5.1 P4.9 P5.0

P4.0 P4.3 P4.6
P2.3 P2.4
P1.9
P1.5
Zoning Sanitary Fire BPLD/Treasury Building

Note: This fee collection-cost comparison is based on the result of operational assessment in one
USAID project city.
2019 LOCAL FEES AND CHARGES TOOLKIT
STEP 7:
STEP 6: Compare
Estimate Fee with
STEP 5: Cost of
Allocate and
STEP 4: Distribute Delivering
Quantify the Services
STEP 3: Variable the Fixed
Classify the costs
STEP 2: Variable costs for
Identify activities the
STEP 1: into costs for
Map the the Critical
resource Standar Activitie
your d or Standar
“Service s for d s
each “Critical
” process ” Activitie
flow activity s

2019 LOCAL FEES AND CHARGES TOOLKIT
Subsequent Steps – Reporting & Accountability
STEP 11:
BLGF to
STEP 10: publish the
Submit the schedule of
STEP 9: report, action rates online
Propose taken and
STEP 8: necessary updates to the
Submit the adjustments LRC to the
results to the to the BLGF
Oversight Revenue Code
Committee of
the LGU

III. COST-
RECOVERY
PRINCIPLES

COST RECOVERY PRINCIPLES
Arguments for and Against Cost-recovery Initiatives
ARGUMENTS FOR FEES AND
CHARGES
1. Create equity by 1. Monopoly supplier

charging user directly may over-charge leading
to inefficiencies
2. Increases economic
2. Administrative
ARGUMENTS AGAINST FEES AND

efficiency
complexity
3. Generates revenue to
offset costs and protect 3. Potential exclusion of
services those who cannot pay -
social inclusion issues
4. Increases direct
accountability by 4. Impact on
providing a link between competitiveness and
economy of charges on
CHARGES
services and fees charged
business and individuals
5. Not charging or
undercharging can 5. Potential appearance
resulting over of double taxation
consumption and 6. Fee collection process
subsidization from other usually not as efficient as
COST RECOVERY
RECOVER
COSTS
Y
Manpower
Other Variable Fee/

Costs Charge
Attributable
Fixed Costs

COST RECOVERY
Why is there a need to “balance”?
Reasonable fees and charges determine the competitiveness of

local government units (LGUs) for investments, otherwise:
• Too high - less attractive to investors
• Too low - LGUs face the challenge of having to subsidize the

cost of regulation and licensing

THREE KEY ISSUES TO BE ADDRESSED
COST • Does a policy exist with regard to cost
RECOVERY recovery?
POLICY AND • Are services periodically reviewed if the use
of fees and charges is appropriate?
PRINCIPLES
CAPTURING,
• What basic level of information on fees and
charges is available?
MONITORING • Is the information base for cost attribution
sufficient?
AND • What review and reporting procedures are in
REVIEWING place?
THE COST OF • How frequently are fees and charges
• Is the collection of fees and charges
reviewed?
SERVICE
COLLECTION • periodically analyzed?
Are differential fees considered?
• What incentives and sanctions are in place
AND for fee collection?
ENFORCEME • Are payment method options periodically
scrutinized?
NT • What enforcement mechanism are in
place?
PRINCIPLES OF COST-RECOVERY
EFFICIENCY – the fees are simple and are not cumbersome to administer
TRANSPARENCY – the nature and use of the service is understood

by users
EFFECTIVENESS – the fees provide value for money for users
CLARITY – users are clear about when and how fees apply
EQUITY – the fees are fairly applied across a range of users
ETHICS – users with special service needs are not charged exorbitant fees
directly in accord with the cost of higher servicing requirement

IV. STATISTICS
ON THE
COLLECTION OF
FEES AND
CHARGES

STATISTICS
Averag
PARTICULARS 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
e
Fees and Charges 11,299
12,949
13,848 15,149 15,680 20,003 22,973 25,603 29,902 34,643 20,205
Locally-Sourced 104,08 104,73 123,14 138,10 149,96 170,01 188,77

75,081 79,684 90,410 122,400
Revenue 8 5 2 5 3 1 7
323,79 351,33 377,90 367,91 395,16 450,44 530,42 579,81 611,90 641,41
Total Revenues 5 9 9 2 2 9 1 8 9 3
463,013
Fees and Charges

- 15% 7% 9% 4% 28% 15% 11% 17% 16% 14%
Growth Rate
Percent Contribution to
• In terms of the growth
LSR
15% rate
16%of15%
F&C,15%
the highest
15% 16%has been
17% recorded
17% 18% on FY
18% 16%
2014
Percent at 28%,towhile the lowest growth was recorded on FY 20135%
Contribution at 4%.5% 4%
3% 4% 4% 4% 4% 4% 4% 4%
Total Revenues
• In terms of the % Contribution of F&C to LSR, the average from FYs 2009
to 2018 is at 16%.
• In terms of the % Contribution of F&C to Total Revenues, the average from

FYs 2009 to 2018 is at 4%.

STATISTICS
20%
Fees and Charges (PCM) 18% 18%
18% 17% 17%
40,000 30%
16% 16%
16%
15% 15% 15% 15%
35,000
25% 14%
30,000
12%
20%
25,000
10%
20,000 15% 8%
15,000 6%
5% 5%
10%
4% 4% 4% 4% 4% 4% 4%
4% 3%
10,000
5% 2%
5,000
0%
0 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Percent Contribution to LSR
Fees and Charges Fees and Charges Growth Rate Percent Contribution to Total Revenues
There has been a continuous growth for the F&C collection for In terms of the % Contribution of F&C to LSR and Total
FYs 2009 to 2018. Moreover, the graph shows that the peak for Revenues, ± 2-3% insignificant change has been noted from years
the F&C growth rate was on year 2014 and its lowest on year 2009 to 2018.
2013.

FEES AND CHARGES STATISTICS BY LGU TYPE
PARTICULARS 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Average
Fees and Charges 11,299 12,949 13,848 15,149 5,680 20,003 22,973 25,603 29,902 34,643 20,205
Provinces 1,643 1,843 2,074 2,628 2,851 4,422 6,142 7,054 8,092 9,532 4,628
Cities 6,323 7,304 7,619 8,008 8,611 10,405 11,483 12,475 14,601 16,609 10,344
Municipalities 3,333 3,802 4,155 4,513 4,219 5,177 5,347 6,073 7,209 8,501 5,233
Provincial Percent
15% 14% 15% 17% 18% 22% 27% 28% 27% 28% 21%
Contribution
City Percent
56% 56% 55% 53% 55% 52% 50% 49% 49% 48% 52%
Contribution
Municipal Percent
29% 29% 30% 30% 27% 26% 23% 24% 24% 25% 27%
Contribution
• Cities have the highest fees and charges collection at 48% in 2018, followed by
provinces and municipalities at 28% and 25%, respectively.
• Although the provinces have the highest growth rate, cities remained be the
highest contributor to fees and charges collections at 48% in 2018.

PROVINCES
Fees and Charges 1,643 1,843 2,074 2,628 2,851 4,422 6,142 7,054 8,092 9,532 4,628
Locally-Sourced
7,231 8,389 9,264 10,840 11,018 13,241 16,424 18,042 20,202 22,379 13,703
Revenue (LSR)
Total Revenues 77,400 84,694 91,104 88,478 93,633 104,914 124,510 138,907 144,470 154,923 110,303
Fees and Charges
- 12% 13% 27% 8% 55% 39% 15% 15% 18% 22%
Growth Rate
23% 22% 22% 24% 26% 33% 37% 39% 40% 43% 31%
LSR
For the provinces,
2%
fees 2%
2%
and charges
3% 3%
comprised
4% 5%
43%
5%
of6%the locally
6% 4%
Total Revenues
sourced revenues in 2018.

CITIES
Fees and Charges 6,323 7,304 7,619 8,008 8,611 10,405 11,483 12,475 14,601 16,609 10,344
Locally-Sourced
52,674 54,711 62,182 73,218 73,934 86,932 96,725 104,954 118,331 131,209 85,487
Revenue (LSR)
Total Revenues 135,718 144,070 155,109 161,374 167,523 193,566 228,503 241,665 257,729 255,188 194,044
Fees and Charges
- 16% 4% 5% 8% 21% 10% 9% 17% 14% 12%
Growth Rate
12% 13% 12% 11% 12% 12% 12% 12% 12% 13% 12%
LSR
For the cities, fees and charges comprised 13% of the locally
6% 7% 5%
Total Revenues
5%
sourced
5% 5%
revenues
5% 5%
in 2018.
5% 5% 5%

MUNICIPALITIES
Averag
PARTICULARS 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
e
Fees and Charges 3,333 3,802 4,155 4,513 4,219 5,177 5,347 6,073 7,209 8,501 5,353
Locally-Sourced
15,177 16,585 18,963 20,030 19,784 22,968 24,956 26,967 31,477 35,189 23,210
Revenue (LSR)
131,69 126,93 134,00 151,96 199,24 159,55
Total Revenues 110,677 122,574 177,408 209,710 231,302
6 3 7 9 7 2
Fees and Charges
- 14% 9% 9% -7% 23% 3% 14% 19% 18% 11%
Growth Rate
LSR For the cities,
22% fees
23%and charges
22% 23% comprised
21% 23% 21%24%23%
of the
23%locally
24% 23%
Total Revenues
3% sourced
3% 3% revenues
4% 3% in3%
2018.
3% 3% 3% 4% 3%

REFERENCES FOR THE TRAINERS
• Local Government Code (Book II)

• Study
on Fees and Charges by the National Tax
Research
Center
• Reforms
on Setting Inspection Fees for Cities and
Municipalities by the Investment Enabli
ng Environment (INVEST) Project of th
e
USAID
• Using
Fees and Charges – Cost Recovery in Lo
cal Government by Richard Boyle publis
hed by Local Government Research Seri
(02) 527-2780 BLGF@BLGF.GOV.PH WWW.BLGF.GOV.PH

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RATIONALIZATION OF LOCAL

FEES AND CHARGES FOR LOCAL

Department of Finance | Bureau of Local Government Finance

Department of Finance | Bureau of Local Government Finance

Department of Finance | Bureau of Local Government Finance

Department of Finance | Bureau of Local Government Finance

Department of Finance | Bureau of Local Government Finance

• Cost recovery principle – to relieve the government of its

Department of Finance | Bureau of Local Government Finance

• Length of time the fee or charge has not been revised;

• Some social services remain exempt from requirement to hike

• Balance between cost recovery and socio-economic impact of

Department of Finance | Bureau of Local Government Finance

Department of Finance | Bureau of Local Government Finance

Department of Finance | Bureau of Local Government Finance

Department of Finance | Bureau of Local Government Finance

Department of Finance | Bureau of Local Government Finance

1. A survey on the fees and business tax imposed by LGUs,

Department of Finance | Bureau of Local Government Finance

Business cases were selected to reflect popular business

• Packaging Plant • Medical clinic

• Construction Supply • Internet shop

Department of Finance | Bureau of Local Government Finance

Department of Finance | Bureau of Local Government Finance

Department of Finance | Bureau of Local Government Finance

Department of Finance | Bureau of Local Government Finance

BASIC OTHER FEES AND

Department of Finance | Bureau of Local Government Finance

The Study focused on the guideline for costing of inspection

Department of Finance | Bureau of Local Government Finance

The framework, applying the principles of Cost

5,436 5,436 5,436

Note: This capacity-utilization comparison is based on the result of operational assessment in

P5.1 P4.9 P5.0

Zoning Sanitary Fire BPLD/Treasury Building

Department of Finance | Bureau of Local Government Finance

Department of Finance | Bureau of Local Government Finance

Department of Finance | Bureau of Local Government Finance

1. Create equity by 1. Monopoly supplier

ARGUMENTS AGAINST FEES AND

Other Variable Fee/

Department of Finance | Bureau of Local Government Finance

Why is there a need to “balance”?

Reasonable fees and charges determine the competitiveness of

• Too high - less attractive to investors

• Too low - LGUs face the challenge of having to subsidize the

Department of Finance | Bureau of Local Government Finance

TRANSPARENCY – the nature and use of the service is understood

EFFECTIVENESS – the fees provide value for money for users

EQUITY – the fees are fairly applied across a range of users

Department of Finance | Bureau of Local Government Finance

Department of Finance | Bureau of Local Government Finance

Locally-Sourced 104,08 104,73 123,14 138,10 149,96 170,01 188,77

Fees and Charges

• In terms of the % Contribution of F&C to Total Revenues, the average from

Department of Finance | Bureau of Local Government Finance

Department of Finance | Bureau of Local Government Finance

Department of Finance | Bureau of Local Government Finance

Department of Finance | Bureau of Local Government Finance

Department of Finance | Bureau of Local Government Finance

Department of Finance | Bureau of Local Government Finance

• Local Government Code (Book II)

Department of Finance | Bureau of Local Government Finance