Question & AnswerQ&A (EXECUTIVE ORDER NO. 249)
The purpose of Executive Order No. 249 is to provide a new income classification scheme for provinces, cities, and municipalities in the Philippines and for other related purposes, including determining tax ceilings, financial grants, salary scales, and other local government financial policies.
Provinces and cities, except Manila and Quezon City which remain Special Class cities, are classified into six classes based on their average annual income over the last four years: First Class (30 million pesos or more), Second Class (20 million or more but less than 30 million), Third Class (15 million or more but less than 20 million), Fourth Class (10 million or more but less than 15 million), Fifth Class (5 million or more but less than 10 million), and Sixth Class (less than 5 million pesos).
Municipalities are classified into six classes based on their average annual income over the past four years: First Class (15 million pesos or more), Second Class (10 million or more but less than 15 million), Third Class (5 million or more but less than 10 million), Fourth Class (3 million or more but less than 5 million), Fifth Class (1 million or more but less than 3 million), and Sixth Class (less than 1 million pesos).
The Secretary of Finance shall reclassify all provinces, cities, and municipalities every four consecutive calendar years based on the average annual income during the last four years immediately preceding the reclassification, starting July 1, 1987.
Annual income refers to revenues and receipts realized by local government units from regular sources, including internal revenue and specific tax allotments, but excludes non-recurring receipts such as national aids, grants, loans, and sales of fixed assets.
It serves as the basis for fixing maximum tax ceilings, determining administrative and statutory aids, setting salary scales and allowances, implementing personnel policies, budgeting, and assessing the financial capability for developmental projects.
For first and second class local governments, the maximum annual appropriations for salaries and wages shall not exceed 45% of total annual income from regular sources; for lower than second class, it shall not exceed 55%, excluding salaries for certain public service employees and certain allowances.
Yes, provinces, cities, or municipalities may adjust existing local tax rates, subject to the review and approval of the Secretary of Finance within 60 days from receipt of the ordinance based on reasonableness and financial effects.
No local government official or employee shall suffer any decrease in their basic salary at the time of the effectivity of this Executive Order. Additional appropriations must cover any deficiency to maintain current basic salaries.
The Secretary of Finance has the authority to reclassify local government units every four years, review and recommend revisions to income ranges, issue implementing rules and regulations, and approve local tax ordinances.