Question & AnswerQ&A (Republic Act No. 11964)
The short title of Republic Act No. 11964 is the 'Automatic Income Classification of Local Government Units Act'.
The policy of the State is to provide a more responsive approach to promote local autonomy and enable local government units to realize their full economic potential through an equitable and rational system of income classification.
Annual Regular Income includes revenues from regular sources reported yearly on a cash basis by LGUs, including the National Tax Allotment and other shares of national wealth but excludes non-recurring receipts. Average Annual Regular Income is the average of the annual regular income for three fiscal years preceding the general income reclassification.
Provinces are classified into five classes based on their average annual regular income for three fiscal years: First Class (₱1.5 billion or more), Second Class (₱900 million to less than ₱1.5 billion), Third Class (₱700 million to less than ₱900 million), Fourth Class (₱500 million to less than ₱700 million), and Fifth Class (less than ₱500 million).
Cities are classified into five classes based on average annual regular income: First Class (₱1.3 billion or more), Second Class (₱1 billion to less than ₱1.3 billion), Third Class (₱800 million to less than ₱1 billion), Fourth Class (₱500 million to less than ₱800 million), and Fifth Class (less than ₱500 million).
Municipalities are classified into five classes based on average annual regular income: First Class (₱200 million or more), Second Class (₱160 million to less than ₱200 million), Third Class (₱130 million to less than ₱160 million), Fourth Class (₱90 million to less than ₱130 million), and Fifth Class (less than ₱90 million).
The Secretary of Finance, in consultation with the National Economic and Development Authority (NEDA) and the concerned LGU leagues, has the authority to adjust income ranges based on actual income growth rates and undertake income reclassification every three years.
The first general income reclassification shall be made within six months after the Act’s effectivity and every three years thereafter. DOF issues schedules of income classification, which are automatically updated every three years by the Bureau of Local Government Finance.
Income classification is used for identifying administrative and statutory aids, determining financial capability for development, appropriations for personal services, salary adjustments, the creation of new LGUs, Sangguniang members determination, issuance of free patent titles, minimum wage setting for domestic workers, and other legal/regulatory uses.
Such LGUs are exempt from providing additional personal services and may maintain existing personnel until the next fiscal year. They should not fill vacancies caused by personnel changes until then and are not considered in violation of personal services limitations if they maintain status quo.
It takes effect on January 1 of the year immediately following the issuance of the income classification schedule by the Secretary of Finance.
An LGU falling below the income range retains its current income class during the first reclassification. If it continues to fall below the range in the next reclassification, it shall be downgraded accordingly. No diminution of salary or benefits shall occur at the time of effectivity of the Act.
The DOF, in coordination with the Department of Budget and Management and consultation with LGU Leagues, shall promulgate implementing rules and regulations within three months from the Act’s effectivity, which shall take effect 30 days after publication in a newspaper of general circulation.
The remainder of the Act or provisions not affected shall remain in force and effect, as per the separability clause.
Any law, presidential decree or issuance, executive order, letter of instruction, rule or regulation inconsistent with this Act are repealed or modified accordingly.