QUEZON CITY (PIA) — President Ferdinand R. Marcos, Jr. signed Republic Act No. 11964 or the Automatic Income Classification of Local Government Units Act on October 26, 2023.
This law is designed to enhance revenue for local government units (LGUs) and ensure their fiscal sustainability. It empowers the Department of Finance (DOF) to classify provinces, cities, and municipalities into five income classes based on their financial capabilities.
“This law is a significant milestone that resolves the long-standing issue of outdated LGU income classification for over a decade. It paves the way for a more responsive approach to foster local autonomy and empower LGUs to unleash their full economic potential,” Finance Secretary Benjamin E. Diokno said.
The Secretary of Finance, in consultation with the National Economic and Development Authority (NEDA) and LGU Leagues, can adjust income brackets based on growth rates, aligning with economic conditions. This classification system influences development programs, personnel compensation, and is updated every three years.
The initial reclassification, to be done within six months, takes effect on January 1 of the following year after the classification table’s release. The DOF, in collaboration with the Department of Budget and Management (DBM) and LGU Leagues, will create the law’s implementing rules within three months.
Under this law, the Bureau of Local Government Finance (BLGF) is entrusted with overseeing LGUs’ fiscal decentralization, enhancing policy-making using data-driven insights. BLGF reported substantial fiscal growth in LGUs in 2022, with a significant rise in total operating income attributed to the National Tax Allotment.
Local revenue sources also saw an increase, with BLGF under Secretary Diokno introducing guidelines to enhance local finance and treasury operations. Initiatives included issuing guidelines on local business taxes, fees, charges, and establishing a Competency Framework for Local Treasurers and Assistant Local Treasurers to promote high-quality local treasury services. (DOF/PIA-NCR/Photo by PCO)
