UNIT VIII
LOCAL FINANCIAL RESOURCES
Introduction
This unit focuses on the financial resources of local authorities, the
existing revenue and income sources of local governments, and the credit
financing schemes available to local government units. It is divided into two (2)
lessons: revenue raising powers of LGUs and external sources of revenue of
LGUs.
Objectives of the Unit
At the end of this unit, the students should be able to:
 State the constitutional and legal bases of the power of LGUs to
raise revenues;
 Identify the financial resources of local authorities;
 Enumerate clearly the existing revenue and income sources of
local governments; and
 Present succinctly the credit financing schemes available to local
governments to support local development.
Suggested Timeframe:
5 hours
126
Lesson 1. Revenue Raising Powers of
Local Governments
Lesson 1 Objectives
At the end of this lesson, the student should be able to:
1. Identify the statutory enactments and specific constitutional basics of
the power of LGUs to raise revenues; and
2. To enumerate the revenue raising powers of provinces, cities,
municipalities and barangays.
Revenue-raising Powers of Local Governments
Local government units have common sources of income as well as
revenue-raising powers devolved to them by the Local Government Code. All
local governments are empowered to generate and derive income and revenue
from: local taxation, rentals and charges for the use of public property and
resources within their respective local jurisdictions; earnings from local public
enterprises and utilities; permits and licenses for business establishments; and
charges and fees for local government services and activities. They are likewise
entitled to receive shares from internal revenue collection called internal revenue
allotments (IRA) or collections of national taxes and shares from the proceeds of
the utilization, exploitation, and development of the national wealth such as
natural resources, mines and minerals, etc.
They may also receive financial grants, aids and subsidies for
development programs and projects approved by the national government. They
may also obtain loans and credits and solicit financial assistance from foreign
funding institutions and domestic financial organizations or entities.
Constitutional and Legal Bases
of Power of LGUs to Raise Revenues
Discussed in the next page are the internal or local sources of revenue
and income of local government units.
127
The authority and power of local government units to generate financial
resources and to utilize available potential sources of revenue is mandated in the
Constitution. Sec. 5, Article X of the Constitution provides that local
governments shall have the power to create their own sources of revenue and to
levy taxes, fees and charges, proceeds from which accrue exclusively to them. In
conjunction with this constitutional mandate, P.D. No. 231 (Local Tax Code)
and now the Local Government Code, to which the former had been integrated,
stipulates the taxing powers of provinces, cities, municipalities and the
barangays.
Revenue-raising Powers of Provinces
Provincial governments are empowered to impose tax on real property
(lands, buildings, machinery and improvements thereon) by the Real Property
Tax Code and now the Local Government Code.
Under the Local Tax Code or the Local Government Code, provinces are
empowered to levy and collect:

Tax on real property ownership;

Tax on business of printing and publication;

Franchise tax;

Sand and gravel tax;

Occupation tax;

Amusement tax admission;

Tax on peddlers;

Rental fee for the use of log ponds; and

Annual tax on delivery trucks or vans.
Revenue-raising Powers of Municipalities
Municipal governments are vested under the Real Property Tax Code,
Local Tax Code and the Local Government Code taxing powers, endowed with
revenue sources and are authorized to impose and collect taxes on:
 Real property (at the same rate as provincial governments are
allowed to levy);
128
 Manufacturers, importers, or producers of any article of
commerce of whatever kind or nature, including brewers,
distillers, rectifiers, repackers, and compounders of liquor,
distilled spirits and/or wine;
 All exporters;
 Retailers, independent wholesalers and distributors;
 Cafes, cafeterias, ice cream and other refreshment parlors,
restaurants, soda fountain bars, carinderias, and food caterers;
 All business establishments principally rendering or offering to
offer services;
 Amusement devices;
 Amusement places where the customers actively participate
without making bets or wages;
 The business of dealers in fermented liquor, distilled spirits
and/or wine;
 Tobacco dealers;
 Boarding and boarding houses;
 Pawnshops, money shops, lending investors, finance and
investment companies, insurance companies and banks;
 Hotels and motels;
 Real estate dealers;
 Golf links;
 Fishponds, fishpens, or fish breeding grounds;
 Private cemeteries and memorial parks;
 Billboards, signboards, and advertisements;
 Business of generating privately-owned public markets; and
 Operators and owners of rice and corn mills engaged mainly in
the milling of rice and corn belonging to other persons.
Municipalities are also empowered to impose and collect the following
fees and charges:
 Market and slaughterhouse fees;
 Registration fee on large cattle;
129
 Cart and sledge registration fee;
 Fees for circus or menageries parades and other parades using
banners, floats, or musical instruments, except civic and military
parades and religious processions;
 Mayor’s permit fee for the operation of a business establishment;
 Marriage fee;
 Registration fee on the status of persons;
 Police clearance fee;
 Secretary’s fee;
 Fee for the impounding and/or sale of stray animals, including
cost of fee;
 Burial permit fee and fees for the exhumation and removal of
cadaver;
 Dog license fee;
 Bicycle permit fee;
 Fishery rental;
 Fee for licensing and sealing weights and measures; and
 Community tax (formerly residence tax).
Component cities and highly urbanized cities are empowered to impose
and collect taxes, fees and charges that provincial and municipal governments
may levy and collect.
Revenue-raising Powers of Barangays
The lowest level of government in the Philippines has limited specific
powers and revenue sources. The Local Government Code allows barangays to
impose the following taxes, fees and charges:
 Tax on stores or retailers with fixed business establishments and
with gross sales or receipts of P50,000 or less in the case of cities
and P30,000 or less in the case of municipalities;
 Fees or charges for services rendered in connection with the
regulation or use of barangay-owned properties or service
facilities;
130
 Fee for clearance issued by the barangay for the location and
operation of a business or activity within the barangay’s
jurisdiction;
 Fees and charges on commercial breeding of fighting cocks,
operation of cockpits and cockfights;
 Fees and charges on signboards and billboards and outdoor
advertisements; and
 Fee on the operation of a place of recreation that charges
admission fee.
Activity
Find out how the revenue raising powers of LGUs can be enhanced. Get
the suggestions of local government executives on this matter.
Present the results of your study in the class.
Lesson 2. External Sources of Revenue
Local Governments
131
Lesson 2 Objectives
At the end of this lesson, the student should be able to:
1. Identify external sources of revenue of local governments; and
2. Appreciate credit financing as a means of increasing the financial
capability of local units.
External Sources of Revenue
of Local Governments
In addition to the local sources, local governments also have external
sources of revenue and income. These sources are created and administered by
the national government or by an agency or institution outside of the local
governments’ administrative jurisdiction or responsibility. These sources are
more or less pre-determined and amounts of which are beyond the capacity of
local governments to determine or change (Padilla, p. 88).
These external sources are called internal revenue allotments. These are
the shares of local governments from total internal revenue or national tax
collections.
Internal revenue allotments (or IRA) constitute the biggest external
source of revenue of local governments. They refer to the shares of local
government units from “internal revenue collection or collection of taxes
imposed and administered by, and proceeds from which accrue substantially to,
the central government” (Padilla, p.88).
Under P.D. No. 144, as amended, local government units has been
allotted a total share of 20 per cent from the total annual internal revenue
collection. The share of 10% for barangays has been deducted from the 20 per
cent of the remaining total amount, 30 per cent would go to the provinces, 45
per cent to the municipalities and 25 per cent to the cities. The share of each
province, city or municipality has been computed on the basis of three weighted
factors: population, 70 per cent; land area, 20 per cent; and equal sharing, 10 per
cent.
Under the Local Government Code, the IRA for local governments have
increased from 20 to 40 per cent of the total internal revenue collection. The 40
132
per cent allotment sharing is to be implemented on a staggered basis: 30 per cent
in the first year of effectivity of the Local Government Code in 1992, 35 per
cent in 1993, and 40 per cent in the third year and in the succeeding years (Secs.
284-288, new LGC).
In accordance with the modified sharing scheme, the provinces will get
23 per cent, the municipalities, 34 per cent, cities, 23 per cent, and barangays, 20
per cent. In the distribution of these shares, the following criteria and rates are
applied: population, 50 per cent; land area, 25 per cent; and equal sharing, 25
per cent (Ibid.).
The national government also gives financial assistance to local
governments in the form of grants-in-aid for special development projects. Local
government units may also finance their development projects through loans
from banking institutions and from foreign grants.
Credit Financing as a Means of Increasing
the Financial Capability of Local Units
Credit financing is one of the alternative schemes to support the
development of local areas. Several lines of credit are open to local governments
under the Local Government Code (Secs. 297-302). Various types of loans are
offered by government financing institutions like the Development Bank of the
Philippines, Land Bank of the Philippines, and the Government Service
Insurance System. Even the domestic private banks finance local development
projects.
Projects that may be funded by loans from the government financing
institutions and private banks include, but not limited to, the establishment of a
power plant, setting up of a handicraft business, construction of a public market
or a slaughterhouse, installation of waterworks or irrigation and undertaking a
government housing project (Ibid.). The following credit financing facilities are
also available to local governments:

Adoption of deferred payment plans or under a supplier’s credit to
enable local governments to acquire property, plant, machinery, and
heavy equipment and accessories (Sec. 298, LGC);

Issuance of bonds or other long-term securities to finance incomegenerating projects (IGPs) subject to the rules and regulations of the
133
Central Bank and the Securities and Exchange Commission by local
governments;


Entering of local governments into loan agreements between and
among themselves for certain purposes, like the repair of government
properties damaged by a natural calamity or other purposes
commonly beneficial to them (Sec. 300, LGC);

Relending to local governments of proceeds from loans obtained by
the national government from foreign sources (Sec. 301, LGC); and

Entering into contracts with the private sector for the financing of
self-liquidating projects (Sec. 302, LGC).
Cut here
Assessment Questions
Fill in each blank carefully with the correct word or phrase. Review your
answers before tearing off the pages on which this exercise is written and submit
it to your tutor for evaluation.
1. Section 5, Article X of the _______________ grants local governments the
power to create their own sources of revenue and to levy taxes, charges,
proceeds from which accrue exclusively to them.
2. Local governments may receive financial grants, aids and subsidies for
development programs and projects approved by the _______________
government.
3. Provinces are empowered to impose tax on real property by the
______________ and the Local Government Code.
4. In addition to local sources, local governments also have external sources of
revenue or income. These external sources are called _________________.
5. The ______________ constitute the biggest source of revenue of local units.
6-7 Under the Local Government Code, the IRA for local governments have
been increased from 20 per cent to (6) ________ per cent. In accordance
134
with this modified scheme, the sharing scheme is as follows: provinces, 23
per cent; municipalities, (7) ________ per cent; cities, 23 per cent; and
barangays, 20 per cent.
8-10 In the distribution of the shares of local units, the following criteria and
rates are applied: population, (8) ________ per cent; (9) ____________, 25
per cent; and (10) _____________, 25 per cent.
Unit Summary
This unit focused on the general subject of financial resources, both
internal and external, of local government units. Specifically, it discussed the
revenue-raising powers and external sources of revenue powers of local
governments. It also dealt with the credit financing schemes available to local
units.