TAXATION

AND
REVENUE
ADMINISTRATION
GROUP 2
BAM 090
PUBLIC FISCAL ADMINISTRATION
Activity
Activity
Promotion of
General Welfare

Economic Reduction of
Growth Social Inequality
Theory and Concept of Taxation
Rhea Grace Areglo and Mark Ibardolaza
 History of Taxation
 EGYPT
• During the various reins of the Egyptian Pharaohs tax collectors were known as scribes.
During one period the scribes imposed a tax on cooking oil. To insure that citizens were
not avoiding the cooking oil tax scribes would audit households to insure that
appropriate amounts of cooking oil were consumed and that citizens were not using
leavings generated by other cooking processes as a substitute for the taxed oil.
 GREECE
• In times of war the Athenians imposed a tax referred to as eisphora. No one was
exempt from the tax which was used to pay for special wartime expenditures. When
additional resources were gained by the war effort the resources were used to refund
the tax. Athenians imposed a monthly poll tax on foreigners, people who did not have
both an Athenian Mother and Father, of one drachma for men and a half drachma for
women. The tax was referred to as metolkion.
 History of Taxation
 ROMAN EMPIRE
• The earliest taxes in Rome were customs duties on imports and exports called
portoria. Caesar Augustus considered by many to be the most brilliant tax strategist
of the Roman Empire. During his reign as "First Citizen" the publicani were virtually
eliminated as tax collectors for the central government. During this period cities
were given the responsibility for collecting taxes. Caesar Augustus instituted an
inheritance tax to provide retirement funds for the military. The tax was 5 percent
on all inheritances except gifts to children and spouses. During the time of Julius
Caesar a 1 percent sales tax was imposed. During the time of Caesar Augustus the
sales tax was 4 percent for slaves and 1 percent for everything else.
Concepts of Taxation

 Definition
 Aspects
 Purposes
Taxation Defined

 Taxation is the process or means by which the

sovereign (independent state), through its law making
body (the legislature), imposes burdens upon subjects
and objects within its jurisdiction for the purpose of
raising revenues to carry out the legitimate objects of
government .
Taxation Defined
 In simple terms, it is the act of levying a tax to
apportion the cost of government among those who,
in some measure, are privileged to enjoy its benefits
and must therefore share its burdens.
Aspects of Taxation

3. Collection (Executive Function) 1. Levying (Legislative Function)

2. Assessment (Executive Function)

Purposes of Taxation
Primary:
 Revenue/Fiscal  The primary purpose of taxation on
the part of the government is to provide funds or
property with which to promote the general welfare
and the protection of its citizens and to enable it to
finance its multifarious activities
 Purposes of Taxation
Secondary:
Regulatory (Sumptuary/Compensatory) While the primary
purpose of taxation is to raise revenue for the support of the
government, taxation is often employed as a devise for
regulation or control (implementation of State's police power)
by means of which certain effects or conditions envisioned by
the government may be achieved such as:
a) Promotion of General Welfare
b) Reduction of Social Inequality
c) Economic Growth
 The 3 Inherent Powers of the State
1. Power of Taxation.
It is the power by which the State raises revenue to defray
the necessary expenses of the government.
2. Police Power.
It is the power of the state for Promoting public welfare by
restraining and regulating the use of liberty and property.
3. Power of Eminent Domain.
It is the power of the State to acquire private property for
Public purpose upon payment of just compensation
 Similarities among the three (3) Inherent powers of the State

1. They are inherent in the state.

2. They exist independently of the constitution although the
conditions for their exercise may be prescribed by the
constitution.
3. Ways by which the State Interfere with Private rights and
property.
4. Legislative in nature and character.
5. Presuppose an equivalent compensation received, directly or
indirectly, by the Persons affected.
 Distinctions among the three (3) Inherent
powers of the State
  Taxation Police power Eminent Domain

-Power to enforce -Power to make and -Power to take private

Nature contributions to raise gov't implement laws for the property for public use with
funds. general welfare. just compensation.

-May be granted to public

Authority -Government only -Government only
service/utility companies

-For the support of the -Promotion of general -The taking of private

Purpose government welfare through regulation property for public use.

-class of individuals. -class of individuals.

-as the owner of personal
Applies to all persons, Applies to all persons,
property.
Persons affected property and excises that property and excises that Only particular property is
may be subject thereto - may be subject thereto -
comprehended
class of individuals. class of individuals.
 Distinctions among the three (3) Inherent
powers of the State
  Taxation Police power Eminent Domain
-Broader in application. -Merely a power to take
-Plenary, comprehensive,
Scope supreme General power to make and private property for public
implement law. use.
-No transfer or title.
-Contribution becomes part There may just be a -There is a transfer of title
Effect of public fund restraint on the injurious to property
use of property.
-No direct and immediate
-In form of Protection and benefit but only such as
may arise from the -Market value of property
Benefits Received benefits received from
maintenance of a healthy taken.
government
economic standard of
society.
-Sufficient to cover cost of
the license and the -No imposition. The owner
Amount of -No limit necessary expenses of is paid equivalent to the fair
imposition police surveillance and value of his property.
regulation.
 Theory and Basis of Taxation

 Lifeblood Theory

 Necessity Theory
 Theory and Basis of Taxation
Lifeblood Theory
 Taxes are what we pay for civilized society. Without
taxes, the government would be paralyzed for lack of
the motive power to activate and operate it.

The government, for its part, is expected to respond in

the form of tangible and intangible benefits intended
to improve the lives of the people and enhance their
moral and material values. ( Commisioner vs. Algue)
 Theory of Taxation
Lifeblood Theory
The power of taxation is essential because the government
can neither exist nor endure without taxation. “Taxes are
the lifeblood of the government and their prompt and
certain availability is an imperious need”(Lifeblood
Doctrine). The government cannot continue to perform its
basic functions of serving and protecting its people
without means to pay its expenses. Consequently, the
state has the right to compel all its citizens and property
within its limits to contribute.
 Theory of Taxation
Necessity Theory
 It is a power emanating from necessity. It is a necessary
burden to preserve the state’s sovereignty and a means to
give the citizenry an army to resist an aggression, a navy to
defend its shores from invasion, a corps of civil servants to
serve, public improvements designed for the enjoyment of
the citizenry and those which come within the state’s
territory, and facilities and protection which a government
is supposed to provide.
( Philippine Guarantee Corporation vs CIR, 13 SCRA 775)
 Basis of Taxation
Benefits Received or Reciprocity Theory
 The basis is the reciprocal duties of protection and support
between the state and its inhabitants. The state collects taxes
from the subjects of taxation in order that it may be able to
perform the functions of government. The citizens, on the
other hand, pay taxes in order that they may be secured in
the enjoyment of the benefits of organized society. This
theory spawned the Doctrine of Symbiotic Relationship which
means, taxes are what we pay for a civilized society.
( Commisioner vs. Algue)
Classification of Taxes
Basic Principle of Sound Tax System
Fiscal Adequacy – sources of
revenue are sufficient to meet
government expenditures

Administrative Feasibility – the

law must be capable of
convenient, just and effective
administration

Theoretical Justice or Equality –

the tax must be proportionate
to taxpayer’s ability to pay
Classification of Taxes
The one who is taxed is the person itself. Ex. cedula
(community tax)

Tax on properties. Ex. Real property tax

Tax on privileges. Ex. Income Tax, Business tax

Customs duty refers to the tax imposed on goods

when they are transported across international
borders.
A type of tax where the incidence and
impact of taxation fall on the same
entity.
Ex. Individual Income Tax, Estate Tax,
Property Tax

 A type of tax where the incidence and

impact of taxation does not fall on the
same entity.
Ex Sales Tax, Value Added Tax
a tax that is given as a fixed rate for
each unit of a good or service, rather
than based on its value
Ex. Individual Income Tax, Sales Tax,
VAT
 Ad valorem is a Latin phrase that translates to
“according to the value.” The essential
characteristic of ad valorem tax is that it is
proportional to the value of the underlying
asset.
Ex. Real Estate Tax, Sales Tax
General tax refers to a general levy by a
government that offers no special
benefit to the taxpayer, but only a
support to governmental programs that
benefit all.

a tax levied to fund a

particular government
project or program.
National taxes refer to national internal revenue
taxes imposed and collected by the national
government through the Bureau of Internal
Revenue (BIR)
Ex. Capital Gain’s Tax, Donor’s Tax, IncomeTax

refer to those imposed and collected

by the local government
Ex. Real Property Tax, Business Tax
Progressive tax is the concept that a taxpayer should
pay higher taxes if he earns more income and lower
taxes if he earns less.
Ex. tax low-income taxpayers at 10 percent, middle-
income taxpayers at 15 percent and high-income
taxpayers at 30 percent

tax that imposes a smaller burden (relative

to resources) on those who are wealthier.
Ex. Sales Tax  most consumer goods
A proportional tax, also referred to as a flat tax, is a
tax in which the percentage of tax taken from a
person's income remains the same, regardless of
how much money he or she earns.
Ex. Sales Tax
The Development Requirements
March Faith Arostique & Norimie Tagacay
 SCOPE
a. Capital Formation and Allocation
b. Redistribution of Income and Wealth
c. Economic Stability
 REQUIREMENTS OF
DEVELOPMENT
1.The generation of capital and savings necessary for
economic growth
2. The reduction of inequalities in income and wealth for
social justice and equity.
3. The proper allocation and utilization of resources for a
balanced development.
4.The protection of the “exposed” economy from external
forces so as to attain stability and unimpeded economic
growth.
CAPITAL FORMATION
• The act of increasing the stock of capital in the economy
• It means a situation where the society does not consume
whole of its current income but directs a part of it for making
capital goods like instruments, machines, plants,
equipment’s, transport facilities, finished & semi-finished
good.
• It is the process whereby a part of society’s available
resources are diverted to increase the stock of capital goods
so that the output could be expanded in the future.
CAPITAL FORMATION
• Capital Formation results when the portion of
society’s present income is saved and invested in
order to increase material as well as human capital.

• It consists of both tangible goods like high standard

of education, health, scientific tradition and research.
CAPITAL FORMATION

• It is considered the main key to economic development.

• Taxation, for capital formation should maximize savings,

mobilize them for productive socio-economic investment
and provide where the private sector fails or refuses, the
necessary revenues for social and economic
infrastructures needed for development.
Process of Capital Formation
IMPORTANCE OF CAPITAL
FORMATION
 Increase productivity of various sectors
 Increase in National Income
 Increase Employment
 Break the vicious circle of poverty
 Expansion of Market
 Control Inflation
 Self Sufficiency
 Correct Balance of Trade
 Proper Utilization of Natural Resources
 Technological Progress
 Building-up of social infrastructure
Measures to Increase Capital Formation
1.Saving drives
2.Setting up financial Institutions
3.Public Borrowing
4.Development of Capital Markets
5.Privatization of Financial Institutions
6.Utilization of disguised unemployed workers
7.Foreign Aid
8.Restrictions on Luxury Imports
9.Foreign Earning through exports of physical goods
10.Foreign Remittance
REDISTRIBUTION OF
INCOME AND
WEALTH
- Redistribution refers to rearranging transfer of economic resources
From well off people to befit worse off people through economic
policy shift on an economy-wide basis.

- Redistribution of income and wealth is the transfer of income and

wealth (including physical property) from some individuals to others
by means of a social mechanism such as taxation, charity, welfare,
public services, land reform, fiscal policy, monetary policy, and
confiscation.

- The term typically refers to redistribution on an economy-wide basis

rather than between selected individuals.
REDISTRIBUTION OF
INCOME AND
WEALTH
- Among LDCs, the wide disparity of income and wealth
among social classes is increasingly becoming an
urgent focus of development efforts.

- In the Philippines, it is avowed policy of the state to

reduce this disparity by the principle of social equity.

- Taxation for development requires that the tax system

should narrow the gap of resources and opportunities.
PRACTICE OF
REDISTRIBUTI
ON
• Redistributive policies attempt to take wealth, income, and other
resources from the "haves" and give them to the "havenots",
• Different types of economic system feature varying degrees of
interventionism aimed at redistributing income, depending on
how unequal their initial distributions of income are.
• Free-market capitalist economies tend to feature high degrees of
income redistribution.
• The socialist planned economies do not allow to own private
property and non existence of inequality problem.
FORMS OF
REDISTRIBUTI
ON
• The redistribution of wealth and its practical application are bound to change
with the continuous evolution of social norms, politics, and culture.
• Governmental redistribution of income may include a direct benefit program
involving either cash transfers or the purchase of specific services for an
individual.
• Developed countries income inequality has become a widely popular issue that
has dominated the debate stage for the past few years.
• Redistributing wealth comes from the implementation of a carefully thought
out well described system of taxation.
• The implementation of such a system would aid in achieving the desired social
and economic objective of diminishing social inequality and maximizing social
welfare.
• Progressive system of taxation to achieve a certain level of income
redistribution.
FORMS OF
REDISTRIBUTI
ON
• Progressive-rate income tax policy as redistributive, because some of
the tax revenue goes to social programs such as welfare and
Medicare.
• Other common types of governmental redistribution of income are
subsidies and vouchers.
• Medicare is a government-run health insurance program that covers
people age 65 or older, certain younger people with disabilities.
• Wealth redistribution can be implemented through land reform that
transfers ownership of land from one category of people to another,
or through inheritances taxes or direct wealth tax.
• Economies also implement unemployment benefits as redistribution
measure.
• Legislation of minimum wage fixation program.
MEASURES OF
REDISTRIBUTI
ON
• Redistributive fiscal policies (progressive taxation and transfer
payments),
• Improving access and quality of education,
• Providing better and wider access to health and nutrition,
• Improve access to credit markets through financial inclusion
policies;
• Better access to public goods like the internet, mobile telephones,
clean water and sewerage, electricity, and so forth (through
broader provision of such goods by the government).
• Land reform to ensuring ownership of land as means of livelihood,
• Ownership of housing to poor and destitute,
REDISTRIBUTI
ON
• via direct transfer may ensure social justice but stagnates
growth.
• via improvement in land ownership(land reform) may increase
land productivity and ensure social justice.
• via improving in access and quality of education will upgrade
labor productivity and eventually promotes growth.
• via public finance will increase productivity and growth.

Redistribution through monetary policy will ensure better access

to money market and capital market thereby increasing
investment and growth.
 Redistribution through better healthcare, nutrition, drinking
water, housing will upgrade productivity of human capital
thereby increase growth.

 Redistribution through better provision of public goods like

public transportation, electricity, communication service,
judicial system, defense, law and order and security reduce
cost and promote growth.

 Public policies that potentially have redistributing effects may

facilitate growth by publicly providing for insurances against
risks such as unemployment, disabilities, and old age that
markets cannot (efficiently) provide for.
ALLOCATION OF
RESOURCES
- Tax measures, through exemptions and incentives, should be able
to enhance the efficiency of resource allocation and maximize the
benefits of allocated resources such that only full utilization and
productivity for economic growth is achieved but also balanced
economic and social development.

- Taxation is achieved through Balanced Development.

- Taxation can induce economic efficiency through tax measures.

- Taxation can also penalize underutilized or unutilized resources.

 STABILITY
- A development-oriented tax system must be able to
contend with the instabilities of the “exposed”
economies of developing countries.

- An “exposed economy” is essentially that which is

highly vulnerable to world market developments which
are beyond its control.
Exposed position is generally caused by:

1.The heavy dependence of the local economy on the

export of its agricultural or mineral products as a
source of national income and foreign exchange.

2. dominance of foreign investments in the economy

3. the dependence on foreign sources for manufactured

products, including oil, machinery, foodstuffs and others
not meet by local production.
Taxation should be able to:

1. Shield the economy from the negative impact of

the world market forces in the short-run

2. Promote the diversification of the economy in

the long-run.
- Taxation should employ a system of tariff controls
in order to effectively regulate the flow of export
and imports with a view towards balancing the
foreign exchange requirements and the
competitiveness of some industries.

- The proper incentives and protection of local

industries in order to promote the diversification and
the economic self-reliance of the economy and the
regulation of the economic and financial activities of
the foreign investors.
Philippine Tax System
Gerelyn Geganzo & Migan Ferrariz
 Scope of Presentation
A. The Constitutional Mandate
B. The Major Revenue Agencies
C. Reforms (1972 onwards)
1. Organizational
2. Substantive
The Constitutional Mandate
The 1973 Constitution contains one basic
principle of taxation which embodies the
desired correlation of taxation to
developmental goals and strategies.
 The Major Agencies:

• Bureau of Internal Revenue

(BIR); and

• Bureau of Customs (BOC)

 The Bureau of Internal Revenue (BIR)

The BIR is the premier agency which is in

charge of all matters pertaining to internal
national taxation. It is headed by a
Commissioner of Internal Revenue and assisted
by two Deputy Commissioners. For
administrative purposes, the Bureau of Internal
Revenue is under the executive supervision of
In general, the power and duties of the Bureau
of Internal Revenue are the following:
1. To assess and collect all national internal
revenues, taxes, fees, and charges;
2. To enforce all forfeitures, penalties and fines
connected therewith;
3. To execute judgments in all cases decided in
its favor by the Court of Tax Appeals and
ordinary courts;
4. To give effect and administer the supervisory
and police power conferred to it by law; and

5. To recommend to the Minister of Finance all

needful rules and regulations for the
effective enforcement of the provisions of the
National Internal Revenue Code.
Taxes under the BIR
1. Income Tax
2. Estate and Donor’s Tax
3. Specific Taxes on certain articles
4. Taxes on Business
5. Documentary Stamp Tax
6. Mining Taxes
Taxes under the BIR
7. Miscellaneous Taxes, Fees and Charges
imposed by the Tax Code, namely (a) taxes
on banks, finance companies, and insurance
coompanies; (b) franchise taxes; (c) taxes on
amusement; (d) charges on forest products;
(e) firearm license fees; (f) tobacco inspection
fees; and (g) other taxes imposed and
collected by the BIR.
 The Bureau of Customs (BOC)

The second major revenue-raising agency of

the national government is the Bureau of
Customs, also under the Ministry of Finance.
Under the Tariff and Customs Code, as
amended, the BOC, among others has the
following functions:
Functions of the BOC:
1. Assessment and collection of the lawful
revenues from imported articles and all
other dues, fees, charges, fines and penalties
accruing under the tariff and customs laws;

2. Prevention and suppression of smuggling

and other frauds;
3. Enforcement of the tariff and customs laws
and all other laws, rules and regulations
relating to tariff and customs
administration;

4. Supervision and control over the handling of

foreign mails arriving in the Philippines, for
the purpose of collection of the lawful duty
on dutiable articles thus imported and the
prevention of smuggling thru the medium of
Fees, dues, and charges under the BOC:

1. Each original import or export entry;

2. Each entry for immediate transportation in
bond;
3. Each original internal revenue entry;
4. For each original withdrawal entry from any
bonded warehouse;
Fees, dues, and charges under the BOC:

5. For each bon accepted or received;

6. For each approval of application in respect
to transaction covered by general bond; and
7. For each Certificate made in the routine
administration of the Bureau.
 Reforms since 1972
Organizational Reforms
The very first presidential decree issued
under the New Society (PD No.1)enjoined the
major revenue agencies to gear their efforts
towards developement objectives.
 Personnel reforms were directed towards the
separation of unfit and erring employees from
the service, the adoption of new staffing pattern
with higher salary scales, and the adoption of
an intesified training program. New recruits
were taken in to augment the existing staff and
to enable the personnel system to cope with the
increasing magnitude of its new functions and
responsiblities.
 Reforms since 1972
Substantive Reforms
1. Tax Amnesties
2. Revision of the Tariff and Customs Code
3. Real Property Tax Reforms
4. Measures to increase revenue and improve
tax systems
5. Increase in Revenue Collections
 Tax Reform for Acceleration and Inclusion
(TRAIN) LAW

• LEGISLATIVE STATUS
Republic Act No. 10963 (Tax Reform for
Acceleration and Inclusion or TRAIN Law)
Passed into law on 19 December 2017
 Tax Reform for Acceleration and Inclusion
(TRAIN) LAW
• Correct a number of deficiencies in the tax system to make it simpler, fairer, and more
efficient.
• Corrects the longstanding inequity of the tax system by reducing income taxes for 99
percent of income taxpayers, thereby giving them much-needed relief after 20 years of
non-adjustment.
• It also raises significant revenues to fund the President’s priority infrastructure
programs to reduce poverty incidence from 21.6 percent in 2015 to 14 percent by
2022.
• 70 percent of the incremental revenues of TRAIN will go to infrastructure and the Build,
Build, Build program, while the balance will go to social services programs.
• In TRAIN, Congress passed two-thirds of the needed revenue for 2018 and is
expected to pass the balance in 2018 to help achieve our revenue and deficit targets.
Tax Reform for Acceleration and Inclusion
(TRAIN) LAW
SALIENT PROVISIONS

1. LOWERED AND SIMPLIFIED PERSONAL INCOME TAXES

2. SIMPLIFIED TAX FOR SMALL AND MICRO SELF-
EMPLOYED AND PROFESSIONAL (SEPS) TAXPAYERS
3. UNCONDITIONAL CASH TRANSFERS
4. SIMPLIFIED ESTATE AND DONOR’S TAXES
5. EXPANDED THE VALUE-ADDED TAX (VAT) BASE
6. ADJUSTED OIL EXCISE TAXES
7. ADJUSTED AUTOMOBILE EXCISE TAXES
Tax Reform for Acceleration and Inclusion
(TRAIN) LAW
SALIENT PROVISIONS

8. INTRODUCED EXCISE TAX ON SWEETENED BEVERAGES

OTHER TAXES
Mining excise tax 
Tobacco excise tax
Cosmetic excise tax
Documentary stamp tax
Foreign currency deposit unit (FCDU)
Capital gains of non-traded stock
Stock transaction tax
Tax Reform for Acceleration and Inclusion
(TRAIN) LAW
VAT-
EXEMPT
MEDICINES
PANTAWID
PASADA EDUCATION
PROGRAM

TRAIN LAW
SOCIAL
HEALTH
MITIGATING
CARE
MEASURES

INFRASTRUCTURES
Tax Reform for Acceleration and Inclusion
(TRAIN) LAW
 Tax Reform for Acceleration and Inclusion
(TRAIN) LAW
BIR lays down the law for online sellers

• Whether you have a physical store or not, as long as you earn an income within the Philippines, you
are subject to taxes and filing requirements. Yes, even for online businesses: in 2013, BIR issued 
Revenue Memorandum Circular (RMC) 55-2013 covering taxpayers’ obligations for online business
transactions.
• The circular confirms that the BIR sees no distinction on whether a business’ operations are physical or
online — for both cases, the tax treatment for the sale of goods or services shall be equally applied. 
• For online sellers (not freelancers providing a service), RMC 55-2013 recognizes these common types
of online business transactions:
• Online shopping or online retailing – when online sellers sell goods or services through an
ecommerce portal or virtual shops.
• Online intermediary services – where an intermediary receives a commission or incentives for
successfully generating sales for a principal seller.
Tax Reform for Acceleration and Inclusion
(TRAIN) LAW
Your online business tax obligations
The taxes you’re obliged to pay varies on a case-by-case basis. Online sellers should
expect to pay the following categories of taxes on their sales, depending on the income
they’re pulling in. 

a) Income taxes
• earns more than ₱250,000 but not more than ₱3 million a year in sales -
The government gives you 2 options for your income tax bill.
1. pay a flat 8% tax from your annual gross sales over ₱250,000
2. follow the tax prescription based on the graduated income tax  (0% to 35%) as
prescribed by Tax Reform for Acceleration and Inclusion Act (TRAIN).
 
• If your income is under ₱250,000, good news: the TRAIN law exempts you from paying taxes
 (you are still required to register your business, though). 
Tax Reform for Acceleration and Inclusion
(TRAIN) LAW
b) Quarterly Percentage Tax

• Online sellers whose annual gross sales do not exceed ₱3

million, and are therefore exempt from value-added tax (VAT)
under the tax laws, must pay a percentage tax every quarter, on
top of the income tax.
 
• The regular percentage tax is 3% of gross sales or receipts earned
in that quarter. The CREATE Law, however, lowers this to 1%
from 2020 to 2023 to compensate for business losses during the
COVID-19 pandemic.
Tax Reform for Acceleration and Inclusion
(TRAIN) LAW
c) Value Added Tax (VAT)

• Online sellers whose annual gross sales go over ₱3 million must pay VAT
 representing 12% of the gross selling price of goods sold.

• These are just very simple explanations of the types of tax that freelancers
or self-employed and sidelining online sellers must expect to pay. These
can only give you an idea of your tax bill, but not the complete picture.

• As we said earlier, you will need to consult a tax specialist to get a better
idea of your online sales tax obligations, based on the particulars of your
business. 
Top Individual Tax Payers in Iloilo City as of
June 2022
Top Non-Individual Tax Payers in Iloilo City
as of June 2022
Top Corporate Taxpayers in the
Philippines
 Constitutional Limitation
Provisions that are said to be the limitations to the Taxing
Powers are as follows:
1. Due Process of Law
2. Equal Protection of Law
3. Freedom of the Speech and the Press
4. Non-Infringement of Religious Freedom
5. Non-Impairment of Contracts
6. Non-Imprisonment of Debt
 Constitutional Limitation
8. Origin of Appropriations, Revenues and Tariff Bills
9. Uniformity, Equitability, and Progressivity of Taxation
10. Delegation of Legislative Authority to Fix Tariff Rates, Import,
Export Quotas, etc.
11. Tax Exemptions of Properties
12. Voting Requirement
13. Non-Impairment of Jurisdiction of Supreme Court
 Constitutional Limitation
Provisions that are said to be NOT limitations to the Taxing Powers are
as follows:
1. Constitutional requirement on the subject and title of bills
2. Power of the President to veto to any particular item/s in
appropriation
3. No money shall be paid out of the Treasury except appropriation
made by the law
4. Appropriation of public money for the benefit of the religious
systems
5. Allotment to Local Governments
Local Fiscal Administration
Jenny Vie Kagaoan & Zarah Magno
 Scope of Presentation
I. Nature and Scope
II.Legal Basis for Local Fiscal Administration
Fiscal Administration
 is the act of managing incoming and
outgoing monetary transactions and
budgets for governments, education
institutions, non-profit organization,
and other public service entities.
I. Nature & Scope
LOCAL FISCAL ADMINISTRATION
 refers to systems, structures, processes, officials, and personnel and the policy environment
governing intergovernmental, and inter-local fiscal relations, affecting among others:
 the giving and receipt of allotments and grants from the National Government
(NG) to local government units (LGUs);
 allotments sharing between LGUs;
 Sharing of taxing powers between the national government (NG) and LGUs, and
among LGUs
 Policy on tax rates and structures;
 Revenue and expenditure planning;
 Revenue utilization & expenditure allocation; monitoring & approval budgets, tax
ordinances & other fiscal measures;
 Policy on borrowing and borrowing instruments; and
 Appointment & supervision of local fiscal officers.
 The broad definition comprehends five major elements as the
scope of Local Fiscal administration. These are:
 System
 Structure
 Processes
 Official/personnel
 Policy environment governing inter-governmental and inter-
local fiscal relation

In public administration, Local Fiscal Administration is

commonly referred to as the formulation, implementation, and
evaluation of local fiscal policies by local governments.
Local Government Finances
• Fiscal relations between national and local government centre on
the following major areas of fiscal administration;
 allotment of internal revenue shares;
 Shares of local government in national wealth exploitation;
 Shares of earnings of gov’t agencies or gov’t-owned or
controlled corporations (GOCCs) engaged in the utilization &
development of national wealth;
 Local government borrowing; and
 Review of local gov’t budgets.
Aspects of Local Fiscal Administration

1. The fiscal relations between the national government and its

agencies, on the one hand, and the LGUs on the other, which
we may call vertical financial relations. This is also referred
to in the literature as central-local fiscal relations, with the
Internal Revenue Allotments (IRA) (renamed as the National
Tax Allocation (NTA) at its core; and

2. The fiscal relations among LGUs themselves, which may be

referred to as the inter-local fiscal relations.
 Scope
The conduct and management of the financial affairs, transactions, and
operations of provinces, cities, municipalities and barangays, and shall
provide the organization for local administration in the local governments.
The definitions of local fiscal administration enumerated the areas covered.
However, it is helpful to specify once more the scope of the field according to
their functional categories, w/c fall into the main traditional divisions of:
A. Revenue Generations:
• All aspects of local taxation;
• Borrowing and its management;
• Operation of public enterprises;
• Revenue enhancement measures;
• Revenue planning, forecasting and accounting;
Scope
B. Revenue Allocation and Utilization
• Budgeting system & process, including the linkage of planning and
budgeting, expenditure planning, expenditure allocation and
expenditure monitoring;
• Accounting and auditing of expenditures;

C. Other Aspects
• Property and supply management;
• Internal control which cut across all fiscal functions; and
• Other related matters, like the central grant and allotment system,
organization for local fiscal administration, and computerization of
fiscal operations/systems.
 Fundamental Principles
SEC 305-Local government financial affairs, transactions, and operations shall be
governed by the fundamental principles set forth hereunder;
(a) No money shall be paid out of the treasury except in pursuance of a lawful appropriation or other
specific statutory authority.
(b) Local government funds and monies shall be spent solely for public purposes.
(c) Local Revenue is obtainable only from sources expressly authorized by law and collection thereof
shall at all times be acknowledged properly.
(d) All monies officially received by a public officer in any capacity or upon any occasion shall be
accounted for as government funds, except as may otherwise be specifically provided by law or
competent authority.
(e) Trust funds shall not be paid out of the treasury except in fulfillment of the purpose for which the trust
was created or fund received.
(f) Every officer of the government whose duties permit or require the possession or custody of
government funds shall be properly bonded and such officer shall be accountable and responsible for said
funds and for the safekeeping thereof in conformity with the provisions of law.
(g) Local governments shall formulate sound financial plans and the local budgets shall, by and large, be
 Fundamental Principles
SEC 305-Local government financial affairs, transactions, and operations shall be
governed by the fundamental principles set forth hereunder;
(h) Local budget plans and goals shall, as far as practicable, be harmonized with national development
plans, goals, and strategies in order to optimize the utilization of resources and to avoid duplication in the
use of fiscal and physical resources; .
(i) Local budgets shall operationalize approved local development plansshall, to the greatest extent, be
shared by all those exercising authority over the financial affairs, transactions and operations of the local
governments.
(j) Local government units shall ensure that their respective budgets incorporate the requirements of their
component units and provide for equitable allocation of resources among these component units;
(k) National planning shall be based on local planning to ensure that the needs and aspirations of the
people as articulated by the local government units in their respective local development plans are
considered in the formulation of budgets of national line agencies or offices;
(l) Fiscal responsibility shall, to the greatest extent, be shared by all those exercising authority over the
financial affairs, transactions and operations of the local governments .
(m) The local government unit shall endeavor to have a balanced budget in each fiscal year of operation.
II. Legal Basis for Local Fiscal
Administration
1987 Philippine Constitution
Section 2, Article X
“The territorial & political subdivisions shall enjoy local
Autonomy”
Number of Provinces, Cities, and Municipalities
(As of June 30, 2022)

Source: https://www.dilg.gov.ph/PDF_File/factsfigures/dilg-facts-figures-
2022106_776fd731c1.pdf
National Tax Allotment (NTA)
Section 6, Article X of the 1987 Philippine Constitution provides that, “local
government units LGUs shall have a just share, as determined by law, in the
national taxes which shall be automatically released to them.”
Section 284 of the Local Government Code of 1991 (Republic Act RA No. 7160
provides that LGUs shall have a forty percent (40%) share in the national
internal revenue taxes (NIRT) based on the collection of the third fiscal year
preceding the current fiscal year.
However, the Supreme Court (SC) En Banc, in its 10 April 2019 Resolution in
the case of “Congressman Hermilando I. Mandanas, et al. vs. Executive
Secretary Paquito N. Ochoa, Jr., et al.” (Mandanas-Garcia Case), declared as
unconstitutional the phrase “internal revenue” appearing in pertinent sections
of RA No. 7160, and ordered the Secretaries of Finance and Budget and
Management and Commissioners of Internal Revenue and Customs, and the
National Treasurer to include all collections of national taxes in the
computation of the base of the just share of the LGUs according to the ratio
provided in the LGC starting FY 2022.
General Appropriations Act (GAA), the nomenclature in lieu of the term “Internal
Revenue Allotment” (IRA) shall be “National Tax Allotment” (NTA) consistent with the
SC Decision on the MandanasGarcia Case.
Sections 18 and 286 of RA No. 7160 and Articles 383 and 390 of its Implementing Rules
and Regulations specify that the share of LGUs shall be automatically and directly released
to the provincial, city, municipal or barangay treasurer without need of any further action,
and shall not be subject to any lien or holdback that may be imposed by the National
Government.
RA No. 9358, appropriating a supplemental budget for FY 2006, provides, in part, the
following:
That the IRA [NTA] is considered automatically appropriated and that future local
government share in the national taxes shall be automatically appropriated (Section 4); and
That the amounts appropriated in the said law, to include shares of LGUs in IRA (NTA)
and other shares therein), shall be released by the DBM in accordance with budgeting
laws, rules and regulations (Section 5).
 2022 National Tax Allocation Computation
Pursuant to Section 285 of the same law, the share of the LGUs in the
NTA shall be allocated in the following manner:

No. of LGUs (as 2022 NTA Share %

LGUs
of 2020) (in billion) Allocation
Provinces 82 220.58 23%
Cities 146 220.58 23%
Municipalities 1488 326.07 34%
Barangays 41,933 191.81 20%
Total 43,649 959.04 100%

Source: Department of Budget and Management (DBM), 2022 GAA

 2022 National Tax Allocation

Source: https://www.dbm.gov.ph/index.php/programs-projects/national-tax-allotment-nta
 2022 National Tax Allocation
Formula on the Distribution of shares for provinces, cities and municipalities

Factor Percentage Document Source

Philippine
Census of Population as declared
Statistics
Population 50% official for all purposes through a
Authority
Presidential Proclamation
(PSA)
Lands
Official and Validated Master List
Land Area 25% Management
of Land Area
Bureau
Equal Sharing 25%

Total 100%

Source: https://www.dbm.gov.ph/index.php/programs-projects/national-tax-allotment-nta
 2022 National Tax Allocation
Formula on the Distribution of shares for Barangays

Factor Percentage
Population 60%
Equal Sharing 40%
Total 100%

Each Barangay with a population of not less than one hundred (100)
inhabitants shall receive a minimum of Php80,000 per year

Source: https://www.dbm.gov.ph/index.php/programs-projects/national-tax-allotment-nta
 2022 National Tax Allocation
Uses of Fund
• Pursuant to Section 17 (g) of RA No. 7160, the NTA and other local
resources shall first cover the cost of providing the services and facilities
enumerated under Section 17 (b) thereof, particularly those devolved by the
National Government, before applying the same for other purposes. 

• Section 287 of RA No. 7160 and Article 383 (b) of its IRR direct
the LGUs to set aside no less than twenty percent (20%) of their NTA to
fund development projects as identified in the LGUs’ development
plans. The appropriation and utilization of said no less than 20% of
the NTA, which is commonly known as 20% Development Fund, shall be
governed by DBM - Department of Finance - Department of the
Interior and Local Government Joint Memorandum Circular No. 1 dated
November 4, 2020.
Source: https://www.dbm.gov.ph/index.php/programs-projects/national-tax-allotment-nta
Total Population, Household Population,
: Number of Households,
by Region, Province, and Highly Urbanized City: Philippines, 2020

Total
Region, Province, and Highly Urbanized City
Population
Region VI (Western Visayas) 7,954,723
Aklan 615,475
Antique 612,974
Capiz 804,952
Guimaras 187,842
Iloilo 2,051,899
City of Iloilo 457,626
Negros Occidental 1 2,623,172
City of Bacolod 1 600,783
Source:
Philippine Statistics Authority, 2020 Census of Population and Housing
 :

Source: https://lmb.gov.ph/index.php/transparency-seal/reports/statistical-report#1st-semester-cy-2022
 LOCAL GOVERNMENT CODE OF 1991
SEC. 289. Share in the Proceeds from the Development and Utilization of the
National Wealth. - Local government units shall have an equitable share in the
proceeds derived from the utilization and development of the national wealth
within their respective areas, including sharing the same with the inhabitants by
way of direct benefits.

SEC. 290. Amount of Share of Local Government Units. - Local government

units shall, in addition to the internal revenue allotment, have a share of forty
percent (40%) of the gross collection derived by the national government from the
preceding fiscal year from 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.
 Four (4) types of national wealth with the corresponding
collecting agency:
Particulars Collecting Agency
Forest Charges Department of Environment
and Natural Resources
(DENR) – OSEC
Royalties from Mineral DENR- Mines and Geo-
Reservation Sciences Bureau
Energy Production Resources Department of Energy

Mining Taxes Bureau of Internal Revenue

Source: https://www.dbm.gov.ph/index.php/programs-projects/shares-in-the-utilization-and-
development-of-national-wealth
 Distribution of Shares
The manner of allocation is provided by Section 292 of RA No. 7160 and
Article 389 of IRR of RA No. 7160.

Natural Resources are Located in the

Province
Province 20%
Component City or
45%
Municipality
Barangay 35%

Source: https://www.dbm.gov.ph/index.php/programs-projects/shares-in-the-utilization-and-
development-of-national-wealth
 Distribution of Shares
The manner of allocation is provided by Section 292 of RA No. 7160 and
Article 389 of IRR of RA No. 7160.

Natural Resources are Located in Two (2) or More LGUs

Population 70%
Land Area 30%

Source: https://www.dbm.gov.ph/index.php/programs-projects/shares-in-the-utilization-and-
development-of-national-wealth
 Distribution of Shares
The manner of allocation is provided by Section 292 of RA No. 7160 and
Article 389 of IRR of RA No. 7160.

Natural Resources are Located in a Highly-Urbanized

or Independent Component City
City 65%
Barangay 35%

Source: https://www.dbm.gov.ph/index.php/programs-projects/shares-in-the-utilization-and-development-of-national-wealth
 LOCAL GOVERNMENT CODE OF 1991
SEC. 291. Share of the Local Governments from any Government Agency or -
Owned and -Controlled Corporation. - Local government units shall have a
share based on the preceding fiscal year from the proceeds derived by any
government agency or government-owned or -controlled corporation engaged in
the utilization and development of the national wealth based on the following
formula whichever will produce a higher share for the local government unit:
(a) One percent (1%) of the gross sales or receipts of the preceding
calendar year; or
(b) Forty percent (40%) of the mining taxes, royalties, forestry and fishery
charges and such other taxes, fees or charges, including related surcharges,
interests, or fines the government agency or government -owned or –controlled
corporation would have paid if it were not otherwise exempt.
 DEPARTMENT OF BUDGET AND MANAGEMENT
Local Budget Memorandum no. 82, 2.2.4
In addition to the NTA, some LGUs are entitled to the following Special Shares in the
Proceeds of National Taxes:
• Share in the proceeds from the utilization and development of national wealth
within their territorial jurisdiction pursuant to Sections 289 to 291 of RA No.
7160;
• Excise tax on Virginia Tobacco cigarettes pursuant to RA No. 7171;
• Excise tax on Burley and Native Tobacco products pursuant to RA No. 8240, as
amended by RA NO. 10351 (Sin Tax Reform Law)
• Gross income taxes paid by all businesses and enterprises within the
ECOZONES pursuant to RA No. 7922, as amended by RA No. 9400;
• Value-added Tax pursuant to RA No. 7643;
• Value-added Tax in lieu of Franchise Tax pursuant to RA Nos. 7953 and 8407;
and
• Share in Fire Code Fees pursuant to RA No. 9514.
Powers in Pursuance of Local Fiscal Administration
1. General Welfare Clause (Sec.16, RA 7160)
Every local government unit shall exercise the powers expressly granted,
those necessarily implied therefrom, as well as powers necessary,
appropriate, or incidental for its efficient and effective governance, and those
which are essential to the promotion of the general welfare. Within their
respective territorial jurisdictions, local government units shall ensure and
support, among other things, the preservation and enrichment of culture,
promote health and safety, enhance the right of the people to a balanced
ecology, encourage and support the development of appropriate and self-
reliant scientific and technological capabilities, improve public morals,
enhance economic prosperity and social justice, promote full employment
among their residents, maintain peace and order, and preserve the comfort
and convenience of their inhabitants.
Powers in Pursuance of Local Fiscal Administration
2. Power to Generate and Apply Resources (Sec.18, RA 7160)
Local government units shall have the power and authority to establish an
organization that shall be responsible for the efficient and effective implementation of
their development plans, program objectives and priorities; to create their own sources
of revenues and to levy taxes, fees, and charges which shall accrue exclusively for their
use and disposition and which shall be retained by them; to have a just share in
national taxes which shall be automatically and directly released to them without need
of any further action; to have an equitable share in the proceeds from the utilization
and development of the national wealth and resources within their respective territorial
jurisdictions including sharing the same with the inhabitants by way of direct benefits;
to acquire, develop, lease, encumber, alienate, or otherwise dispose of real or personal
property held by them in their proprietary capacity and to apply their resources and
assets for productive, developmental, or welfare purposes, in the exercise or
furtherance of their governmental or proprietary powers and functions and thereby
ensure their development into self-reliant communities and active participants in the
attainment of national goals.
Powers in Pursuance of Local Fiscal Administration
3. Reclassification of Lands (Sec. 20, RA 7160)
(a) A city or municipality may, through an ordinance passed by the
sanggunian after conducting public hearings for the purpose, authorize the
reclassification of agricultural lands and provide for the manner of their
utilization or disposition in the following cases:
(1) when the land ceases to be economically feasible and sound for
agricultural purposes as determined by the Department of Agriculture or
(2) where the land shall have substantially greater economic value for r
residential, commercial, or industrial purposes, as determined by the
sanggunian concerned:
Powers in Pursuance of Local Fiscal Administration
Provided, That such reclassification shall be limited to the following
percentage of the total agricultural land area at the time of the passage of the
ordinance:
(1) For highly urbanized and independent component cities, fifteen
percent (15%);
(2) For component cities and first to the third class municipalities, ten
percent (10%); and
(3) For fourth to sixth class municipalities, five percent (5%):
Provided, further, That agricultural lands distributed to agrarian reform
beneficiaries pursuant to Republic Act Numbered Sixty-six hundred fifty-seven
(R.A. No. 6657).  otherwise known as “The Comprehensive Agrarian Reform
Law”, shall not be affected by the said reclassification and the conversion of
such lands into other purposes shall be governed by Section 65 of said Act.
Powers in Pursuance of Local Fiscal Administration
4. Closure and opening of roads (Sec. 21, RA 7160)
• a) A local government unit may, pursuant to an ordinance, permanently or temporarily close or
open any local road, alley, park, or square falling within its jurisdiction:
• (b) No such way or place or any part thereof shall be permanently closed without making
provisions for the maintenance of public safety therein. A property thus permanently withdrawn
from public use may be used or conveyed for any purpose for which other real property belonging
to the local government unit concerned may be lawfully used or conveyed:
• (c) Any national or local road, alley, park, or square may be temporarily closed during an actual
emergency, or fiesta celebrations, public rallies, agricultural or industrial fairs, or an undertaking
of public works and highways, telecommunications, and waterworks projects, the duration of
which shall be specified by the local chief executive concerned in a written order:
• (d) Any city, municipality, or barangay may, by a duly enacted ordinance, temporarily close and
regulate the use of any local street, road, thoroughfare, or any other public place where shopping
malls, Sunday, flea or night markets, or shopping areas may be established and where goods,
merchandise, foodstuffs, commodities, or articles of commerce may be sold and dispensed to the
general public.
Powers in Pursuance of Local Fiscal Administration
5. Corporate Powers(Sec. 22, RA 7160)
(a) Every local government unit, as a corporation, shall have the following powers:
• (1) To have continuous succession in its corporate name;
• (2) To sue and be sued;
• (3) To have and use a corporate seal;
• (4) To acquire and convey real or personal property;
• (5) To enter into contracts; and
• (6) To exercise such other powers as are granted to corporations, subject to the limitations
provided in this Code and other laws.
Powers in Pursuance of Local Fiscal Administration
6. Authority to Negotiate and Secure grants (Sec. 23, RA 7160)
• Local chief executives may, upon authority of the sanggunian, negotiate and secure
financial grants or donations in kind, in support of the basic services or facilities
enumerated under Section 17 hereof, from local and foreign assistance agencies without
necessity of securing clearance or approval therefor from any department, agency, or
office of the National Government or from any higher local government unit: Provided,
That projects financed by such grants or assistance with national security implications
shall be approved by the national agency concerned: Provided, further, That when such
national agency fails to act on the request for approval within thirty (30) days from receipt
thereof, the same shall be deemed approved.
• The local chief executive shall, within thirty (30) days upon signing of such grant
agreement or deed of donation, report the nature, amount, and terms of such assistance to
both Houses of Congress and the President.
Powers in Pursuance of Local Fiscal Administration
7. Liability for Damages (Sec. 24, RA 7160)
• Local government units and their officials are not exempt from liability for
death or injury to persons or damage to property.
 Other Laws and Government Issuance
1. The Department of Finance (DOF) - is the government’s
steward of sound fiscal policy. It formulates revenue
policies that will ensure funding of critical government
programs that promote welfare among our people and
accelerate economic growth and stability.

2. The Department of Budget and Management (DBM) -

created under Executive Order No. 25 dated April 25,
1936, is mandated under this Order and by subsequent
issuances to promote the sound, efficient and effective
management and utilization of government resources (i.e.,
technological, manpower, physical and financial) as
instrument in the achievement of national socioeconomic
and political development goals.
 Other Laws and Government Issuance
3. Commission on Audit (COA)
 Examine, audit and settle all accounts pertaining to the revenue and
receipts of, and expenditures or uses of funds and property owned or
held in trust by, or pertaining to, the government.
 Promulgate accounting and auditing rules and regulations including
those for the prevention and disallowance of irregular, unnecessary,
excessive, extravagant or unconscionable expenditures, or uses of
government funds and properties.
 Submit annual reports to the President and the Congress on the financial
condition and operation of the government.
 Recommend measures to improve the efficiency and effectiveness of
government operations.
 Keep the general accounts of government and preserve the vouchers and
supporting papers pertaining thereto.
 Decide any case brought before it within 60 days.
 Performs such other duties and functions as may be provided by law.
 Other Laws and Government Issuance
4. Department of Interior and Local Government (DILG)
• Assist the President in the exercise of general supervision over local governments;
• Advise the President in the promulgation of policies, rules, regulations and other issuances
on the general supervision over local governments and on public order and safety;
• Establish and prescribe rules, regulations and other issuances implementing laws on public
order and safety, the general supervision over local governments and the promotion of
local autonomy and community empowerment and monitor compliance thereof;
• Provide assistance towards legislation regarding local governments, law enforcement and
public safety; 
Establish and prescribe plans, policies, programs and projects to promote peace and order,
ensure public safety and further strengthen the administrative, technical and fiscal
capabilities of local government offices and personnel;
• Formulate plans, policies and programs which will meet local emergencies arising from
natural and man-made disasters; 
Establish a system of coordination and cooperation among the citizenry, local executives
and the Department, to ensure effective and efficient delivery of basic services to the
public;
• Organize, train and equip primarily for the performance of police functions, a police force
that is national in scope and civilian in character.
Other Laws and Government Issuance
5. Office of the President
• The President of the Philippines
has general supervisory power
over the local government units,
as provided by Section 4 of the
1987 Constitution. As such, the
OP still issues from time to time
executive and administrative
orders that affect local
government units.
 Assessment
of
Local Fiscal Performance
Kaye Dayandayan
 Introduction
 Developments in the Philippine local government have been
sweeping the area of fiscal administration.
 Laws and decrees have been implemented to further
recognize and strengthen the role of LGU or local
government as an administrative vehicle for national
development and to serve as the instrumentalities of the
central government in carrying out fiscal functions and other
affairs.
 For instance, the 1973 Constitution that each local
government unit shall have the power to create its own
sources of revenue and to levy taxes, subject to such
limitations as may be provided by the law.
 Introduction
 Presidential Decree 144 - revised the system of
national internal revenue allotments to remedy the
lopsided distribution of funds among the local
government units.
 PD 231 as amended by PD 426 - provided local
governments adequate sources of revenue to make
them viable, self-sufficient and effective instrument of
national government.
 PD 464 improved real property tax administration
 PD 436 – increased tax on lubricating oils and other
petroleum products, and grants to provinces, cities,
 Some Issues and Problems
 However, these developments according to the
study of Dr. Bahl, have impediments.
Despite the efforts to empower local governments,
Dr. Bahl observed that the country has not moved
towards fiscal decentralization for the past decade.
To support this view, he cited that the local
government accounted for expenditures of 20% of
the amount which the central government has
spent. However, this dropped down 10% as
shown in the table 5.
 Some Issues and Problems
 Thus, it is said that if the ratio of local
expenditures from own sources to central
expenditures is charted, the decline would be from
9% in 1969 to 7% in 1979.
Therefore, it was observed that there is much
centralization.
 In addition, while the promulgation of Local
Government Code in 1991 set forth a strong basis
for decentralized local governance in the
Philippines, implementation challenges and political
 Some Issues and Problems
For instance, National Capital Region is prioritized over
other regions which contribute to major disparities and
imbalances.
Persistent armed conflicts in several parts of the
country between insurgent forces and the national
government resulted in the prioritization of national
unity and security over regional autonomy.
Moreover, the comprehensive review of the Local
Government Code by the government of the Philippines
and Asian Development Bank (ADB) in 2015 revealed
that there is a need to strengthen the framework for
Assessment of Local Fiscal Performance
 Public Revenue
 The local government revenues have been increasing but their
share in the national government allotments were decreasing.
 This entails that local governments can be less dependent
should the national government provide proper incentives to
them in order to generate their own sources of revenues.
 In terms of revenue classifications, it is noted that the bulk of
government revenues are non tax revenues (as shown in Table
5a). As to the distribution and trend of local revenues, there is
an average distribution of 9.9% although the figures show for
1980, the rate increased to 8.8% from 7.7% in 1979. The high
rate of 15.1% in 1972 was figured to be high (See Table 5b).
 Public Revenue
 The per capita revenue also has an upward trend increasing as
high as 104 compared to 36 in 1972. The average growth
compared to national income is 2.29% (See Table 5c)
 By level of government the public revenue of local government
has an average growth of 18.8% compared to the national
government’s which is 25.8% (See Table 5d)
 However, one criticism to the IRA allocation is the fact that it
fails to achieve significant equalization across LGUs.
 LGUs, despite having the highest own-source revenue
generation potential, relatively wealthy, densely populated
areas continue to receive a higher share of IRA than their
poorer and less economically dynamic counterparts.
 Public Expenditures
 In terms of spending, there has been relatively little growth in
per person expenditures by the local government in the
Philippines. (as shown in Table 6).
 The reasons cited for this are as follows:
1. centralization of government finances such that the national
goal of promoting local economic development can hardly
be achieved.
2. There are lack of incentives to local government to increase
their revenues.
3. There is a need for strengthening the fiscal management
capability of the local government level at the central
government level.
Analysis of the Expenditures of the Local
Government by Classification
 Social Improvement
 It is observed that the expenditures for this purpose have not
been active because the figures indicated that they only
accounted for less than 15%.
 Combining both the expenditures of social and economic
improvement will amount to only 31% which is less than 1/3 of
the outlays of the local government.
 This confirms the finding of Dr. Roy Bahl that because of the
unitary form of government, the central government still has
the task of improving the socio-economic life of the people.
 Debt Service
 In terms of debt service or loan repayment expenditures, it
can be easily figured that the Philippine local governments are
not availing of the credit facilities that could be made
available to them. The reason cited for these are:
1. The local government even with limited sources of revenue
could still incur surpluses on the previous year’s operations.
The surpluses are meant to be accumulated to a satisfactory
level so they could be sufficient to finance local development
programs.
2. Despite their being corporate bodies, credit facilities are
highly restricted in terms of the integrity of loan repayments
or the capability to service such.
 Debt Service
 Dr. Roy Bahl also observed that in the latest (1980), the total amount of
loans outstanding to the local government is equivalent to about 2% of
the aggregate local government revenue. The decline of the total amount
of loan for the past 10 years may be due to:
1. Local government officials have no experience in the preparation of
feasibility studies;
2. The lenders, who are not specialized themselves, have no skills in
dealing with the problems of local governments;
3. The process of acquiring loans is time consuming and tedious
4. The terms for lending in are very conservative;
5. The interest rates are high; and
6. There are conservative government officials who have the aversion to be
in debt.
 Revenue Service
 As to the revenue service, the cost of generating revenue is
quite high compared to the cost of generating for the national
government.
 In the BIR, the cost of collection is only 1% of the total
collection whereas the local governments as a whole incur an
average cost of collection of 9%.
 This could be attributed to some deficiencies in administrative
capability in local government for the collection of revenues,
e.g. lack of coordination, lack of trained personnel, and also
lack of financial planning.
 Adjudication and Protective Service
 There is no significant change in the rate of expenditures for
adjudication purposes.
 With regard to Protective Services, however, there is a noted
decrease in 1975 which was due mainly to integration of the
National Police sometime in 1974-1975.
 Capital Outlays and other Expenses
 Capital outlays are significantly contributing to the capital
formation.
 It is proven that capital formation is the main problem of the
Philippines and other less developed countries (LDCs), thus,
increasing efforts in capital outlays is in accordance with the
government thrust in infrastructure projects that are expected
to give long term benefits.
 Overall, despite the increasing actual shares of local
expenditures on all levels of government, local government
outlays in general is in the direction of generating more
revenues in the long run.
 Conclusion
Based on the problems and issues presented, it is very
important to consider the following proposal to further
strengthen the local fiscal capabilities.
1. Fiscal planning should be the basis for preparation of the
budget.
2. Local government officials should be good fiscal managers.
3. Local fiscal autonomy should be strengthened.
4. Local government should avail credit financing schemes and
other credit facilities.
5. Local government units should share revenues and
allotments from the National Government and increase their
coordination capabilities.
Activity
• Taxation could be exercise by the following except one. Which one?

a. Judiciary
b. Legislative
c. Local government unit
d. President of the Philippines, in certain cases.
Activity
• Who makes revenue regulations?

a. Secretary of Finance
b. Commissioner of BIR
c. Board of Accountancy
d. House of Reperesentatives
Activity
• Andy, married, donated a land commonly owned by him and her
spouse worth P500,000 to her friend Joan. Only Andy signed the deed
of donation. Joan assumed P200,000 unpaid mortgage on the
property. How much is the donor’s tax due?

a. P6,000
b. P90,000 500k - 200k = 300k x 30% = 90,000
c. P1,000
d. P45,000
In this world nothing can
be said certain,
except death and taxes.

-Benjamin Franklin
 GROUP 2

Group Leader: Gerelyn Geganzo

Members: Rhea Grace Areglo

March Faith Arostique
Kaye Dayandayan
Migan Ferrariz
Mark Virgil Ibardolaza
Jenny Vie Kagaoan
Zarah Magno
Noremie Tagacay