QuestionsQuestions (Republic Act No. 11964)
The Act is titled the “Automatic Income Classification of Local Government Units Act.” Its policy is to promote local autonomy by using an equitable and rational system to determine LGU financial capability and fiscal position, and to accelerate economic growth and resource distribution based on community needs.
Annual Regular Income refers to revenues (fees and receipts actually realized) reported yearly on a cash basis by provinces, cities, and municipalities from regular sources, including NTA and other shares in national wealth, but excluding non-recurring receipts such as national aids, grants, financial assistance, loan proceeds, sales of assets, miscellaneous income/receipts and similar items.
Yes. RA 11964 expressly includes National Tax Allotment (NTA) and other shares in national wealth. It also states that shares from national wealth, excise tax on tobacco, incremental collection from VAT under RA 7643, and certain gross income tax paid by businesses in Special Economic Zones under RA 7916 are considered part of Annual Regular Income.
It is the sum of the Annual Regular Income actually obtained by an LGU during the required number of fiscal years preceding the year of general income reclassification, divided by that number of fiscal years as provided in Section 4 (i.e., based on three fiscal years for classification).
Provinces are classified into five classes based on average annual regular income for three (3) fiscal years preceding a general income reclassification: First Class (≥ ₱1.5B), Second Class (≥ ₱900M but < ₱1.5B), Third Class (≥ ₱700M but < ₱900M), Fourth Class (≥ ₱500M but < ₱700M), Fifth Class (< ₱500M).
Cities are classified into five classes based on average annual regular income for three (3) fiscal years: First Class (≥ ₱1.3B), Second Class (≥ ₱1.0B but < ₱1.3B), Third Class (≥ ₱800M but < ₱1.0B), Fourth Class (≥ ₱500M but < ₱800M), Fifth Class (< ₱500M).
Municipalities are classified into five classes based on average annual regular income for three (3) fiscal years: First Class (≥ ₱200M), Second Class (≥ ₱160M but < ₱200M), Third Class (≥ ₱130M but < ₱160M), Fourth Class (≥ ₱90M but < ₱130M), Fifth Class (< ₱90M).
For newly created provinces/municipalities, or conversions (municipality to city; city out of existing municipalities and/or barangays), the Secretary of Finance may classify the LGU using the estimated aggregate net share from regular sources (including estimated NTA under the Local Government Code) during the fiscal year immediately preceding creation, based on estimated regular income from component LGUs/barangays.
The Secretary of Finance, in consultation with NEDA and the concerned LGU leagues, may adjust the income ranges based on the actual growth rate of annual regular income from the last reclassification and undertake regular income reclassification once every three (3) years to keep classifications aligned with economic conditions.
The Secretary of Finance may consider inflation and gross regional domestic product when determining whether an LGU experienced prolonged economic shocks, such as public calamity or national emergency, that may warrant retaining its current income classification.
Upon recommendation of NEDA, the Secretary of Finance shall upgrade the income classification of an LGU if the LGU has shown growth in real per capita locally sourced revenue every year for the past three (3) years.
The first general income reclassification must be made within six (6) months after the effectivity of the Act; thereafter, a general reclassification is done every three (3) years.
Within sixty (60) days from regular income reclassification, the DOF issues a department order containing the schedule of income classification, which certifies the classification of LGUs. The schedule is automatically updated by the BLGF every three (3) years. Non-issuance in succeeding regular classification within the period does not suspend the effects of the automatic income reclassification.
The first income reclassification takes effect on January 1 of the immediately succeeding year following the issuance of the table of income classification by the Secretary of Finance.
If an LGU’s average annual regular income falls below the income range based on the first general income reclassification, it retains its current income class. If its income continues to fall below the range in the next reclassification, it is downgraded. During the first reclassification, no official or employee in the LGU shall suffer diminution of salary and benefits actually receiving at the time of the Act’s effectivity.
Examples include: (1) identifying administrative/statutory aids, financial grants, and assistance; (2) determining LGU capability to undertake development programs and priority projects; (3) serving as basis for total annual or supplemental appropriation for personal services under Section 325(a) of RA 7160; (4) determining number of elective members in certain local legislative bodies; (5) other listed uses such as free patent titles, minimum wage for domestic workers, property insurance compliance implications, and agricultural land reclassification limits.
Such LGUs are exempted from providing additional personal services and may maintain existing personal services prior to reclassification until the next fiscal year (per civil service rules). They also cannot fill vacant positions or fund them in case of personnel transfers, resignation, or deaths until the succeeding fiscal year. Additionally, maintaining status quo after receiving a higher designation does not violate Section 325 of RA 7160.
The DOF (with DBM and consulted LGU leagues) must promulgate IRR within three (3) months; the IRR takes effect 30 days after publication in a newspaper of general circulation. The Act has a separability clause (unconstitutional parts severed, remainder stands). It also includes a repealing clause for inconsistent laws/rules. The Act takes effect 15 days after complete publication in the Official Gazette or in a newspaper of general circulation.