Bureau of Local Government Finance Opinion

April 7, 2011 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Honorable Rey T. Uy City Mayor Office of the City Mayor Tagum City Sir : This refers to your letter dated July 5, 2010 addressed to HIS EXCELLENCY BENIGNO SIMEON C. AQUINO III, President of the Philippines, referred by the Presidential Action Center to the Chief of Staff of the Secretary of the Department of the Interior and Local Government on October 11, 2010, and was which referred to this Bureau for comment and/or appropriate action under 2nd Indorsement dated February 15, 2011. At the outset we appreciate your effort of providing valuable inputs to improve governance at the local level. However, please be informed that the Bureau's comments are limited only to those issues falling squarely under our jurisdiction such as updating of tax ordinances and operation of economic enterprises by Local Government Units (LGUs). On the Updating of Local Tax Ordinance or Revenue Measures We agree with your observation that some LGUs have failed to exercise or opted not to exercise the authority to adjust their tax rates which is provided under Section 191 of the Code, quoted as follows: "SEC. 191. Authority of Local Government Units to Adjust Rates of Taxes. Local government units shall have the authority to adjust the tax rates as prescribed herein not oftener than once every five (5) years, but in no case shall such adjustment exceed ten percent (10%) of the rates fixed under this Code." HDAaIS Please take note that the above-quoted provision is not mandatory, although the LGUs through their respective local sanggunians have been given the authority to adjust their tax rates, the adjustment of which is limited to only once every five (5) years but should not exceed ten percent (10%) of the rates fixed under the LGC. While it is discretionary for the LGUs to update their local ordinances, the Department of Finance (DOF) through this Bureau together with the other national oversight agencies on decentralization have been continually advocating and assisting local government units in updating their local tax ordinances to increase their revenues from local sources. It may be informed that the following are the past and present initiatives of the national government in encouraging LGUs to update their Local Tax Ordinance: 1. Implementation and completion of the Local Government Finance and Development Project (LOGOFIND) by this Bureau which was able to provide direct technical and financial assistance to hundreds of LGUs in updating their local tax ordinances. 2. Issuance of the following Joint Memorandum Circulars by DOF and DILG: a. JMC 2010-001. Enjoining All Provinces, Cities and the Municipality of Pateros, Metro Manila to Prepare the Schedule of Market Values (SMVs) of Real Property and to Conduct the General Revision of Property Assessments in their Respective Jurisdictions b. JMC 2010-002. Guidelines in the Imposition of an "Additional Ad Valorem Tax on Idle Lands" and Other Related Provisions of the Local Government Code (LGC) of 1991, by Provinces, Cities and Municipality Within Metro Manila Area 3. Creation of the Performance Challenge Fund for Local Government Units (PC Fund) to be managed by the Department of the Interior and Local Government (DILG) and Department of Budget and Management (DBM),that shall recognize good governance performance particularly in the adoption of "good housekeeping" governance areas in planning, budgeting, revenue mobilization, financial management and budget execution, procurement, and resource mobilization. The PC Fund which is an incentive fund to LGUs in the form of counterpart funding for high-impact capital investment projects requires participating LGUs to have an updated revenue code every five years and an updated schedule of market values every three years. On the Operation of Local Economic Enterprises (LEE) Again, we agree with your observation that local economic enterprises have become the "employment agencies" of LGUs. This has become the common practice of some LGUs because Sec. 325 of the LGC excluded the salaries, wages, representation and transportation allowances of officials and employees of public utilities and economic enterprises owned, operated and maintained by LGUs as quoted below to wit: ETHIDa "SECTION 325. General Limitations. The use of the provincial, city, and municipal funds shall be subject to the following limitations: (a) The total appropriations, whether annual or supplemental, for personal services of a local government unit for one (1) fiscal year shall not exceed forty-five percent (45%) in the case of first to third class provinces, cities, and municipalities, and fifty-five percent (55%) in the case of fourth class or lower, of the total annual income from regular sources realized in the next preceding fiscal year. The appropriations for salaries, wages, representation and transportation allowances of officials and employees of the public utilities and economic enterprises owned, operated, and maintained by the local government unit concerned shall not be included in the annual budget or in the computation of the maximum amount for personal services. The appropriations for the personal services of such economic enterprises shall be charged to their respective budgets; xxx xxx xxx." To address the many issues on the operation of local economic enterprises operated by local government units, a Joint Memorandum Circular is being proposed to be issued by DBM, DOF, DILG and COA entitled "Guidelines for the Establishment and Operation of Local Economic Enterprise". The said guidelines will address the above-mentioned problems, among others. We hope that this will help clarify some of the concerns raised in your letter. CSEHIa Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA, CESO III Executive Director