Relevant Provisions of the 1991 Local

Government Code (LGC)

• The Local Government Code (LGC) of 1991 introduced a paradigm shift in
relations between the national government and local government units by declaring
it the policy of the State "that the territorial and political subdivisions of the State
shall enjoy genuine and meaningful local autonomy to enable them to attain their
fullest development as self-reliant communities and make them more effective
partners in the attainment of national goals. Toward this end, the State shall provide
for a more responsive and accountable local government structure instituted
through a system of decentralization whereby local government units shall be given
more powers, authority, responsibilities, and resources.
 Devolving responsibilities and resources

1. Local Taxes and Fees

2. Internal Revenue Allotment
3. Grants, Loans
Local Taxes and Fees
 Power to create Sources of Revenue.
• SEC. 129. Power to Create Sources of Revenue. - Each local government
unit shall exercise its power to create its own sources of revenue and to
levy taxes, fees, and charges subject to the provisions herein, consistent with
the basic policy of local autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local government units.
Following political subdivisions have the power
to tax:
• 1.) Province - It is the largest unit in the political structure of the Philippines.
It consists in varying numbers of municipalities and, in some cases, of
component cities.
• 2.) City -There are three classes of cities in the Philippines: the highly-
urbanized, the independent component cities which are independent of the
province, and the component cities which are part of the provinces where
they are located and subject to their administrative supervision.
Following political subdivisions have the power
to tax:
• 3.) Municipality- It is a political corporate body which is endowed with the facilities
of a municipal corporation, exercised by and through the municipal government in
conformity with law. It is a subsidiary of the province which consists of a number
of barangays within its territorial boundaries, one of which is the seat of
government found at the town proper.
• 4.) Barangay- The smallest political unit into which cities and municipalities in the
Philippines are divided. It is the basic unit of the Philippine political system. It
consists of less than 1,000 inhabitants residing within the territorial limit of a city or
municipality and administered by a set of elective officials, headed by a barangay
chairman.
 CONSTITUTION AUTHORIZES
CREATION OF SOURCES OF REVENUE
AND LEVY TAXES
• Section 5. Each local government unit 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.
 SEC. 130. Fundamental Principles.
The following fundamental principles shall govern the exercise of the taxing and other
revenue-raising powers of local government units: chanrobles virtual law library
A. Taxation shall be uniform in each local government unit;
B. Taxes, fees, charges and other impositions shall:
1. be equitable and based as far as practicable on the taxpayer's ability to pay;
2. be levied and collected only for public purposes;
3. not be unjust, excessive, oppressive, or confiscatory;
4. not be contrary to law, public policy, national economic policy, or in restraint of trade;
 SEC. 130. Fundamental Principles.
C. The collection of local taxes, fees, charges and other impositions
shall in no case be let to any private person;
D. The revenue collected pursuant to the provisions of this Code shall
inure solely to the benefit of, and be subject to disposition by, the
local government unit levying the tax, fee, charge or other imposition
unless otherwise specifically provided herein; and,
E. Each local government unit shall, as far as practicable, evolve a
progressive system of taxation.
 SEC. 130. Fundamental Principles.
C. Through (IRA), the LGUs were to receive 40 percent of the internal
revenue taxes collected by the NG. The IRA is to be released automatically
and directly to the LGUs. The LGUs are mandated by the LGC to spend
no less than 20 percent of the IRA for development projects. LGUs are
enjoined to submit their local development plans to the DILG.
Internal Revenue
Allotment (IRA)
 Internal Revenue Allotment (IRA)
• To carry out their new responsibilities, the LGUs were given an increased
share of NG revenues. Through the Internal Revenue Allotment (IRA), the
LGUs were to receive 40 percent of the internal revenue taxes collected by
the NG. The IRA is to be released automatically and directly to the LGUs.
The LGUs are mandated by the LGC to spend no less than 20 percent of
the IRA for development projects. LGUs are enjoined to submit their local
development plans to the DILG.
 SECTION 284. Allotment of Internal Revenue Taxes. – Local government
units shall have a share in the national internal revenue taxes based on the
collection of the third fiscal year preceding the current fiscal year as follows:

• (a) On the first year of the effectivity of this Code, thirty percent (30%);
• (b) On the second year, thirty-five percent (35%); and
• (c) On the third year and thereafter, forty percent (40%).
 Exception
• In the event that the national government incurs an unmanageable public sector
deficit, the President of the Philippines is herby authorized, upon the
recommendation of Secretary of Finance, Secretary of Interior and Local
Government and Secretary of Budget and Management, and subject to consultation
with the presiding officers of both Houses of Congress and the presidents of the
liga, to make the necessary adjustments in the internal revenue allotment of local
government units but in no case shall the allotment be less than thirty percent (30%)
of the collection of national internal revenue taxes of the third fiscal year preceding
the current fiscal year:
 Exception to the Exception
• Provided In the first year of the effectivity of this Code, the local
government units shall, in addition to the thirty percent (30%) internal
revenue allotment which shall include the cost of devolved functions for
essential public services, be entitled to receive the amount equivalent to the
cost of devolved personal services.
• Under the 1991 Local Government Code, the Internal Revenue
Allotment (IRA) scheme was established. At least 40% of the
country’s internal revenue income has been allocated to the LGUs in
the following manner:

• (a) Provinces - Twenty-three percent (23%);

• (b) Cities - Twenty-three percent (23%);
• (c) Municipalities - Thirty-four percent (34%); and
• (d) Barangays - Twenty percent (20%)
 • The revenue share of each province, city and municipality is determined on
the basis of the following formula:

• (a) Population - Fifty percent (50%);

• (b) Land Area - Twenty-five percent (25%); and
• (c) Equal sharing - Twenty-five percent (25%)
 • The revenue share of each province, city and municipality is determined on
the basis of the following formula:

• (a) Population - Fifty percent (50%);

• (b) Land Area - Twenty-five percent (25%); and
• (c) Equal sharing - Twenty-five percent (25%)
• SECTION 286. Automatic Release of Shares. – (a) The
share of each local government unit shall be released,
without need of any further action, directly to the
provincial, city, municipal or barangay treasurer, as the
case may be, on a quarterly basis within five (5) days after
the end of each quarter, and which shall not be subject to
any lien or holdback that may be imposed by the national
government for whatever purpose.
Grants, Loans
 Sec 23
• In Section 23, LGUs were allowed to accept donations directly from donors,
without prior approval of the National Government. They are required only
to report this to both houses of Congress and the President.
 Grants, Loans
• LGUs in the Philippines were also authorized to seek grants and contract
loans, credits, and other forms of indebtedness with any domestic private
bank and other lending institutions. Borrowed funds can be used to finance
the construction, installation, improvement, expansion, operation, or
maintenance of public facilities, infrastructure facilities, housing projects, the
acquisition of real property, and the implementation of other capital
investment projects.
 Facilitating resource mobilization
• To facilitate resource mobilization, the Local Government Academy in Manila
offers a regular training program on Resource Mobilization, Financial
Management and Analysis for Local Governance. In addition, the Academy
with support from other countries like Canadian and Spanish governments
developed a Resource Finder Handbook which presents a comprehensive
directory of available financial and technical assistance to local governments.
• One of these sources of financial assistance is the Priority Development
Assistance Fund, a lump-sum appropriation in the annual General Appropriations
Act to fund the priority development programs and projects of Local Government
Units.
 Rationalizing Spending
• The Local Government Code emphasized that the financial affairs, transactions,
and operations of local government units shall be governed by the same
fundamental principles of the national government budgeting, accounting and
auditing rules and regulations. The local budget is approved through a local
ordinance and provincial governments submit their budget to the
national Department of Budget and Management for approval. Moreover, to
avoid spending too much on salaries and administrative costs, the Code further
provides that LGUs shall appropriate in their annual budget no less than twenty
percent (20%) of the annual IRA for development projects.