New Income Brackets for the Reclassification of Provinces, Cities and Municipalities

July 29, 2005 DOF DEPARTMENT ORDER NO. 020-05 ( Declared Repealed by D.O. 29-16) TO : All Regional Directors of the Bureau of Local Government Finance, this Department; Provincial Governors, City Mayors, and Municipal Mayors; Members of Provincial, City and Municipal Sanggunian; Provincial, City and Municipal Treasurers; and All Others Concerned SUBJECT : Prescribing the New Income Brackets for the Reclassification of Provinces, Cities and Municipalities and Amending For the Purpose Department Order No. 32-01, dated November 20, 2001, of this Department RATIONALE The income classification of Provinces, Cities and Municipalities serves, among other purposes, as basis for the determination of the financial capability of Local Government Units (LGUs) to provide in full or in part the funding requirements of developmental projects and other priority needs in their locality. Thus, in the preparation of project studies and proposals, the income class of LGUs is used as a factor in the allocation of national or other financial grants. Likewise, the income classification of LGUs is used to determine the maximum amount expendable for salaries and wages, as well as the salary scales and rates of allowances, per diems, and other emoluments that local government officials and personnel may be entitled to; the number of sanggunian members and the implementation of personnel policies on promotions, transfers, details or secondments and related matters at the local government level. Considering, therefore, the marked increase in the Internal Revenue Allotment (IRA) shares of LGUs and the corresponding improvements in their tax collection performance, as reflected in the Aggregate Statements of Income and Expenses (SIEs) for CY 2000-2003 in the Annual Financial Reports of the Commission on Audit, the income reclassification of all Provinces, Cities and Municipalities shall be based on the revised income brackets herein provided. The revised income brackets on the average were adjusted upward to net-out the impact of IRA increases on the income of LGUs for the past four (4) years, i.e., CY 2000-2003. In effect, this scheme will anchor the income reclassification on the own-sourced revenue efforts of LGUs, thus, promoting greater local fiscal sustainability. SECTION 1. Definition of Terms . (a) The term " annual income " shall refer to revenue and receipts realized by Provinces, Cities and Municipalities from the regular sources of the Local General Fund, inclusive of the IRA and other shares provided for in Sections 284, 290 and 291 of the Local Government Code of 1991 or R.A. 7160, exclusive, however, of non-recurring receipts such as national aids, grants, financial assistance, loan proceeds, sales of assets, and others. (b) The term " average annual income " shall refer to the sum of the "annual income", as herein defined, actually obtained by a Province, City or Municipality during the required number of consecutive calendar years immediately preceding the general classification of LGUs, divided by such number of calendar years as may be certified to by the Commission on Audit for the purpose of reclassification. SECTION 2. Classification of Provinces, Cities and Municipalities . As provided for under Sections 1 and 2 of Executive Order No. 249, dated July 25, 1987, Provinces, Cities and Municipalities, except Manila and Quezon City which shall remain as Special Class cities, shall be divided into six (6) main classes according to the average annual income actually realized during the last four (4) calendar years immediately preceding the year of reclassification. On the basis of the Financial Statements of LGUs for CY 2000-2003 of the Commission on Audit, the income brackets of Provinces, Cities and Municipalities which shall be the basis of their reclassification are ranged, as follows: I. PROVINCES . Class Average Annual Income 1st P350M or more 2nd P280M or more but less than P350M 3rd P210M or more but less than P280M 4th P140M or more but less than P210M 5th P70M or more but less than P140M 6th Below P70M II. CITIES Class Average Annual Income 1st P300M or more 2nd P240M or more but less than P300M 3rd P180M or more but less than P240M 4th P120M or more but less than P180M 5th P60M or more but less than P120M 6th Below P60M III. MUNICIPALITIES Class Average Annual Income 1st P50M or more 2nd P40M or more but less than P50M 3rd P30M or more but less than P40M 4th P20M or more but less than P30M 5th P10M or more but less than P20M 6th Below P10M Accordingly, the Bureau of Local Government Finance is hereby directed to reclassify Provinces, Cities (except Manila and Quezon City) and Municipalities in accordance with the foregoing income brackets and, for the purpose, issue appropriate circulars. HEDCAS SECTION 3. Period of General Reclassification of Provinces, Cities, and Municipalities . a.) Upon the effectivity of the reclassification of Provinces, Cities and Municipalities pursuant to the provisions of this Order and Section 3 of the aforementioned Executive Order No. 249, the general reclassification of LGUs shall be made once every four (4) consecutive years. b.) However, any newly converted/created/merged Province, City or Municipality, which has been in existence for a period of less than four (4) full calendar years of the general reclassification of LGUs as herein provided, shall be tentatively classified on the basis of its average annual income actually realized during the last four (4) calendar years immediately preceding the year of classification. SECTION 4. Adjustment of Income Classification . As provided for under Section 3 of Executive Order No. 249, an adjustment of the income classification of any Province, City or Municipality shall not be made oftener than once every four (4) consecutive years, except in cases of diminishing revenues, which upon the occurrence thereof, this Department may order at any time the downward adjustment of the income classification of the LGU concerned in accordance with the income brackets herein prescribed. SECTION 5. Repealing Clause . Department Order No. 24-97, dated March 26, 1997, and all other Orders, Circulars or issuances of this Department which are inconsistent with, contrary to or not in accordance with the provisions of this Order are hereby repealed and/or modified accordingly. The Regional Directors of the Bureau of Local Government Finance of this Department and the District Treasurers of Metro Manila are hereby directed to disseminate copies hereof to the Provincial, City and Municipal Treasurers within their respective jurisdiction. All Provincial, City and Municipal Treasurers, in turn, are hereby directed to provide the local chief executives and members of the sanggunian of their respective stations with sufficient copies of this Order, for their proper information and guidance. This Order shall take effect immediately. (SGD.) MARGARITO B. TEVES Secretary