Report on

Local Gov’t Finance Admin

(PA-251a)

Reporter: Ogie Morales & Roland Coquilla

Agenda

 Part 1: Background on LG Incomes &

Budgeting
 Part 2: Issues & Problems
 Part 3: Example in Makati City
Objectives

 Explain LG income and their sources

 Describe the local budget process
 Show how resources are allocated and
utilized
Income

 Covers “all revenues and receipts collected or

received, forming the gross accretion of
funds of the local government;”
 Accretion - growth or increase in size by gradual
external addition, fusion, or inclusion.
Sources of LG Income

 Internally
 local taxations
 External
 National government
 Other LGUs
 Loans/borrowings,
 Aid and grants
 Inter-local authority transfers
Internal Income Sources

 Article 10 Section 5 of the Constitution:

 “Each LGU shall have the power to create its own
sources of revenues and to levy taxes, fees, and
charges subject to such guidelines and limitations
as the Congress may provide, consistent with the
basic policy of local autonomy. Such taxes, fees,
and charges shall accrue exclusively to the local
governments.”
Meaning…

 Local sources of income can be through tax

and non-tax revenue measures;
 Two important points can be deduced:
 Local sources of income can be through tax and
non-tax revenue measures
 Collections from these sources go to the LG
concerned.
Guiding Principles (Sec. 130)
 Uniform taxation for every LGU;
 Taxes, fees, charges and other impositions shall:
 Equitable and based on the ability to pay;
 Levied and collected only for public purposes;
 Not unjust, excessive, oppressive, or confiscatory;
 Not contrary to law, public policy, national economic policy,
or in restraint of trade;
 Collection of local taxes, fees, charges, etc. not by
private person;
 Revenue collected shall inure only to benefit the LGU
 LGUs shall evolve a progressive system of taxation.
LGUs in RP
LGU Type No.
Provinces 80
Cities 137
Highly Urbanized 33
Independent 5
Component 84
Municipalities 1,513
Barangays 41,995

Notes: Excludes Shariff Kabunsuan province; 16 cities

returned as municipalities; includes Biñan City (Feb ‘10)
LG Income by Source, 2008

 Source: Bureau of Local Government

Finance, Department of Finance
 Shows that real property tax is a significant
source of local tax revenues for provinces
 It accounts for PhP 4 billion of the PhP 5.5
billion total tax revenues.
 While comparatively less in all cities (PhP
20.9 billion out of PhP 47.1 billion), the
amount is still very significant.
LG Income by Source, 2008
Income Source All Provinces All Municipalities All Cities
Local Sources 9,821,846,779 17,128,731,358 62,601,564,387
Tax Revenue 5,574,452,159 10,094,534,420 47,146,044,927
Real Property Tax 4,098,343,164 4,746,313,628 20,954,203,450
Business Tax 719,090,916 4,821,538,436 23,339,458,738
Other Taxes 757,018,079 526,682,356 2,852,382,740
Non-Tax Revenue 4,247,394,620 7,034,196,937 15,455,519,460
Regulatory Fees 218,569,216 1,698,587,896 3,518,088,625
Service/User Charges 974,450,340 847,376,748 2,401,732,047
Receipts from Economic
2,089,856,778 3,467,886,612 4,737,870,170
Enterprise
Toll Fees 0 66,203,367 3,407,879
Other Receipts 964,518,285 954,142,314 4,794,420,739
Shares from National Tax 52,235,133,716 74,790,259,390 49,536,617,307
IRA 50,151,233,330 72,915,125,500 48,794,841,092
Other Shares 2,083,900,386 1,875,133,890 741,776,215
Extraordinary Receipts/Aids 833,178,873 945,906,535 741,372,546
Loans and Borrowings 1,177,518,391 1,277,840,833 2,741,465,406
Inter-Local Transfers 950,432,423 147,962,918 148,072,534
TOTAL INCOME 65,018,110,182 94,290,701,034 115,769,092,179
Bureau of Local Govt Finance, DOF
Income Sources

 1.0 Local Sources

 1.1 Tax Revenue
▪ Real property tax
▪ Business tax
▪ Other taxes
 1.2Non-tax Revenue
 2.0 Shares from Nat’l Tax
 2.1 IRA
 Other Shares
Other Local Tax Revenues

 Tax on transfer of real property ownership

 Tax on business of printing and publication
 Franchise tax
 Tax on sand, gravel and other quarry
resources
 Professional tax
 Amusement tax
 Business tax
 Community tax
1.2 Non-tax Revenues

 Fees and charges

 sealing and licensing of weights and measures
 fishery rentals
 other fees collected by the local government for
services rendered (e.g. payment for securing a
barangay clearance).
 Income Source All Provinces All Municipalities All Cities
Local Sources 9,821,846,779 17,128,731,358 62,601,564,387
Tax Revenue 5,574,452,159 10,094,534,420 47,146,044,927
Real Property Tax 4,098,343,164 4,746,313,628 20,954,203,450
Business Tax 719,090,916 4,821,538,436 23,339,458,738
Other Taxes 757,018,079 526,682,356 2,852,382,740
Non-Tax Revenue 4,247,394,620 7,034,196,937 15,455,519,460
Regulatory Fees 218,569,216 1,698,587,896 3,518,088,625
Service/User Charges 974,450,340 847,376,748 2,401,732,047
Receipts from Economic
2,089,856,778 3,467,886,612 4,737,870,170
Enterprise
Toll Fees 0 66,203,367 3,407,879
Other Receipts 964,518,285 954,142,314 4,794,420,739
Shares from National Tax 52,235,133,716 74,790,259,390 49,536,617,307
IRA 50,151,233,330 72,915,125,500 48,794,841,092
Other Shares 2,083,900,386 1,875,133,890 741,776,215
Extraordinary Receipts/Aids 833,178,873 945,906,535 741,372,546
Loans and Borrowings 1,177,518,391 1,277,840,833 2,741,465,406
Inter-Local Transfers 950,432,423 147,962,918 148,072,534
TOTAL INCOME 65,018,110,182 94,290,701,034 115,769,092,179
Local Participation

 Tax measures are adopted by local governing

public officials and bodies (e.g. local chief
executives and legislative councils).
 Citizens can and should intervene and assert
their participation in the formulation and
deliberation of local tax policymaking.
2. Shares from Nat’l Tax
 2.1 Internal Revenue Allotment
 2.2 Other Shares
 Extraordinary Receipts/Aids
 Loans and Borrowings
 Inter Local Transfers
LGU Income by Source, 2008
Income Source All Provinces All Municipalities All Cities
Local Sources 9,821,846,779 17,128,731,358 62,601,564,387
Tax Revenue 5,574,452,159 10,094,534,420 47,146,044,927
Real Property Tax 4,098,343,164 4,746,313,628 20,954,203,450
Business Tax 719,090,916 4,821,538,436 23,339,458,738
Other Taxes 757,018,079 526,682,356 2,852,382,740
Non-Tax Revenue 4,247,394,620 7,034,196,937 15,455,519,460
Regulatory Fees 218,569,216 1,698,587,896 3,518,088,625
Service/User Charges 974,450,340 847,376,748 2,401,732,047
Receipts from Economic
2,089,856,778 3,467,886,612 4,737,870,170
Enterprise
Toll Fees 0 66,203,367 3,407,879
Other Receipts 964,518,285 954,142,314 4,794,420,739
Shares from National Tax 52,235,133,716 74,790,259,390 49,536,617,307
IRA 50,151,233,330 72,915,125,500 48,794,841,092
Other Shares 2,083,900,386 1,875,133,890 741,776,215
Extraordinary Receipts/Aids 833,178,873 945,906,535 741,372,546
Loans and Borrowings 1,177,518,391 1,277,840,833 2,741,465,406
Inter-Local Transfers 950,432,423 147,962,918 148,072,534
TOTAL INCOME 65,018,110,182 94,290,701,034 115,769,092,179
Source: Bureau of Local Govt Finance, DOF
Basis for IRA (1 of 2)

 Constitutional guarantee
 Section 6 of Article X:
 “Local government units shall have a just share,
as determined by law, in the national taxes which
shall be automatically released to them.”
The IRA

 Sales tax, specific tax, contractor’s tax, on

banks and finance companies,
 Fixed taxes on business and occupation, tax
on common carriers, charges tax, miller’s tax
(except that on sugar),
 Percentage tax on cinematographic film
owners, lessors and distributors, certain
mining taxes, occupation fees and rentals,
and water rentals.
IRA Share accdg to LGC

 40% share of national internal revenue

collections of the third preceding year.
 40% share will be divided among LGUs.
Allocated first among the LGUs as follows:
 23 percent for provinces;
 23 percent for cities;
 34 percent for municipalities
 20 percent barangays
LGU Allocation Criteria

 Share criteria for province, city and

municipality:
 Population – 50 percent
 Land area – 25 percent
 Equal sharing -- 25 percent
 Thus, many local governments are wary of
attempts to redraw municipal boundaries
since it will directly affect their revenues.
Factors affecting IRA amts.

 Tax revenue performance of the national

government.
 Effectiveness and efficiency of tax administration,
 Leakages/evasion,
 Certain tax exemptions
 LGUs with larger population size and/or land area
will tend to have a greater share
 More LGUs of same class affects share of each.
 Constitution provides the mandatory and
automatic release of the IRA to the LGUs.
Basis for IRA (2 of 2)

 Constitutional guarantee
 Section 7 of Article IX:
 “Local governments shall be entitled to an
equitable share in the proceeds of the utilization
and development of the national wealth within
their respective areas, in the manner provided by
law, including sharing the same with the
inhabitants by way of direct benefits.”
 Operationalized in Section 290 of the LGC:
Add’l to IRA

 Operationalized in Section 290:

 40% of gross collection derived by the nat’l gov’t
from the preceding fiscal year
 Mining taxes, royalties, forestry and fishery charges, and
such other taxes
 Fees, or charges, including related surcharges, interests,
or fines, and from its share in any co-production
 Joint venture or production sharing agreement in the
utilization and development of the national wealth
within their territorial jurisdiction
Nat’l Wealth Sharing

 Whereas the IRA is shared across all LGUs,

the recipient of the shares on the earnings
from utilization of the national wealth is
directed to LGUs where such national wealth
are located.
Income Sources of Selected LGUs, 2008

Source: Bureau of Local Govt Finance, DOF

LGU Income Gen Capabilities

 Palawan was able to generate as much as PhP

2.734 billion (USD 61 million) income
 Samar was only able to raise PhP 655.552 million
(USD 14.57 million).
 Makati generating PhP 8.47 billion (USD 188
million)
 Guihulngan only yielding PhP 288.133 million
(USD 6.4 million).
 Pantabangan generated income amounting to
more than 20 times that of Lumbaca Unayan.
Percent Distribution of Incomes of Selected LGUs, 2008

Source: Bureau of Local Govt Finance, DOF

Seeing a LGU’s main source

 When one is interested to know which

sources of income an LGU is most dependent
on.
 Makati City and Pantabangan which have a
strong local revenue base with up to 92
percent and 76.8 percent of total incomes,
respectively, are sourced local tax and non-
tax revenues.
Seeing a LGU’s main source

 In contrast, local revenues of Samar and

Lumbaca Unayan are practically nil relative to
its total income.
 They have a staggering 98.95 percent and
96.29 percent of their respective incomes
coming from IRA.
Seeing a LGU’s main source

 Palawan is only 36.78 percent dependent on

IRA
 60% of its income from other shares from
national government
 Source: Malampaya gas exploration and
development in the province has entitled
Palawan to equitable shares in the proceeds
from utilization and development of their
natural resources.
Local Gov’t Budgeting

 1. Preparation
 2. Authorization
 3. Execution
 4. Accountability
1. Budget Preparation

 Involves the formulation of the

 estimates of income; and,
 a budget proposal
▪ submitted by the LCE to the sanggunian for deliberation
and approval. The preparation phase consists of three
major activities by the heads of local departments and
offices.
Preparation Activities

 On or before July 15th of each year, the local

treasurer is required to submit to the LCE a
certified statement containing the following:
15 July

Last
Q1, Q2 Q3, Q4
Year
Actual Actual Estimated
Statement of Income & Expenditures
Preparation Process

I&E Income Proj Unit Budget Exec

Statements & Recomm Proposals Budget
Preparation Process
LCE
on/before
15 Jul

I&E Income Proj Unit Budget Exec

Statements & Recomm Proposals Budget

Treasurer
Preparation Process
LCE
on/before LCE
15 Jul

I&E Income Proj Unit Budget Exec

Statements & Recomm Proposals Budget

LFC:
- PDO
Treasurer - Treasurer
- Budget
Preparation Process
LCE
on/before LCE LCE
15 Jul

I&E Income Proj Unit Budget Exec

Statements & Recomm Proposals Budget

LFC: LGU
- PDO
Treasurer - Treasurer
Unit
- Budget Heads
Preparation Process
LCE Council
on/before LCE LCE on/before
15 Jul 16 Oct

I&E Income Proj Unit Budget Exec

Statements & Recomm Proposals Budget

LFC: LGU
- PDO
Treasurer - Treasurer
Unit LCE
- Budget Heads
LCE’s Duty by 16 Oct

 According to the LGC,

 “failure to submit such budget on the date
prescribed… shall subject the local chief executive
to such criminal and administrative penalties as
provided for under this Code and other applicable
laws.”
2. Budget Authorization

Budget
Docs

From LCE
Budget Authorization

Budget
Docs

From LCE

Study,
scrutinize,
deliberate
Sanggunian
Budget Authorization

Enacted
Budget
Budget
Docs
for FY
From LCE Before year-end
Study,
scrutinize,
deliberate
Sanggunian
Budget Authorization

 Legislative approval is important; the

sanggunian which has power to appropriate
the budget.
 Appropriation refers to
 “an authorization made by ordinance, directing
the payment of goods and services from local
government funds under specified conditions or
for specific purposes.”
3. Budget Execution

 LCE is responsible and accountable for the

execution of the annual budget
 Activities involves…
Enacted Budget

LCE makes
disbursements
Budget Execution

 LCE is responsible and accountable for the

execution of the annual budget
 Activities involves…
Enacted Budget

Pre-identified
–Programs
–Projects
LCE makes –Activities
disbursements
Cash Disbursements

 Impt. control mechanism by LCE

 Power to issue Allotments
▪ Authorizations to departments/offices to incur
obligations of specific amounts to be paid out of local
government funds.
Soc
Wel
Plan
HR
ning
Hea
lth
Trea Eng’
sury Ass g
Allotment oss
or
4. Budget Accountability
 COA and DBM have promulgated rules and
regulations that seek to strengthen accountability
mechanisms in local finance.
 New Government Accounting System (NGAS) - detailed
guidelines for LGUs in accounting for all incomes,
disbursements and budgetary accounts.
 financial reporting system: year-end financial statements
 More importantly, the COA conducts audits of local
government finances and publishes these audit
reports on their website.
Citizen Participation

 LGC mandates:
 Local sectoral representation in the
sanggunian
 Representation of POs and NGOs in local
special bodies:
 Local development council
 Local school board
 Local health board
Citizen Participation

 Citizens can and should intervene and assert

their participation in the formulation and
deliberation of local tax policymaking.
Source

 Alvic Padilla, Understanding Incomes and

Expenditures of Local Government Units,
Philippine Public Transparency Reporting
Project (www.transparencyreporting.net) ,
May 2010