THE PHILIPPINE LOCAL GOVERNMENT CODE OF 1991
AND THE NEW DEVELOPMENT IN LOCAL FISCAL ADMINISTRATION
     
      The implementation of the New Local Government Code went into high gear in 1993. However, with devolved functions and responsibilities of national government to the local government nits, many problems arose particularly their efforts on local fiscal condition.
      Book II of the Local Government Code of 1991, otherwise known as Republic Act 7160 contains the Local Taxation and Fiscal Matters. It is provided in the new code that the local government units are now invested with an increase power to tax, thereby empowering them with a wider capacity to raise their own revenues within their respective territorial jurisdiction. Before the enactment of this code and the previous one, the Local Government Code of 1983, the authority of taxation of local government units is limited.
      The following are legal provisions covering Local Taxation and Fiscal Matters under R.A. 7160 or Local Government of 1991
     
      1. Section 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 of this Code and consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the local government units.
      2. Section 197 – Scope of Real Property Taxation – It shall govern the administration, appraisal, assessment, levy and collection of real property tax.
      3. Section 271 – Distribution of Proceeds – The proceeds of the basic real property tax, including interest and proceeds from the use, lease or disposition, sale or redemption of property acquired at a public auction by the province or city or municipality within the Metropolitan Manila Area shall be distributed as follows:

1. In the case of provinces:
      a. Province – 35% shall accrue to the general fund of the city.
      b. Municipality – 40% of the general fund of the municipality where the property is located.
      c. Barangay – 25% shall accrue to the Barangay where the property is located.

2. In the case of cities:
      a. City – 70% shall accrue to the general fund of the city.
      b. 30 % shall be distributed among the component barangays of the cities where the property is located in the following manner:
      - 50% shall accrue to the Barangay where the property is located.
      - 50% shall accrue to all component barangays of the city.

3. In the case of municipality within the Metropolitan Manila Area:
      a. Metropolitan Manila Authority – 35% shall accrue to the general fund of the municipality where the property is located.
      b. Municipality – 35% shall be distributed among the component barangays of the municipality where the property is located.
      c. Barangays – 30% shall be distributed among the component barangays of the municipality where the property is located in the following manner:
      - 50% shall accrue to the Barangay where the property is located.
      - 50% shall be distributed equally to all component barangays of the municipality.
      The share of each Barangay shall be released, without need of any further action, directly to the Barangay treasurer on a quarterly basis within five (5) days after the end of each quarter.

4. Section 272 – Application of Proceeds of the Additional One Percent SEF Tax – The proceeds of other additional 1% tax on real property accruing to the Special Education Fund shall be automatically released to the local school boards. In the case or provinces, the proceeds shall be divided equally between the provincial and municipal boards. The proceeds shall be allocated for the operation and maintenance of public schools, construction and repair of school buildings, facilities and equipment, educational research, purchase of books and periodicals, and sports development as determined and approved by the Local School Board.

5. 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. Provinces – 23% b. Cities – 23% c. Municipalities – 34% d. Barangay – 20%
      However, the share of each province, city and municipality shall be determined on the basis of the following formula:
      a. Population - 50%
      b. Land Area - 25%
      c. Equal Sharing - 25%
      Furthermore, the share of each barangay with a population of not less than 100 inhabitants shall not be less than P80,000.00 per annum chargeable against the 20% share of the barangay from the internal revenue allotment and the balance to be allocated on the basis of the following formula:
a. On the first year of effectivity of this Code:
      1. Population - 40%
      2. Equal Sharing - 60%
b. On the second year:
      1. Population - 50%
      2. Equal Sharing - 50%
c. On the third year and thereafter:
      1. Population - 60%
      2. Equal Sharing - 40%

6. Section 286 – Automatic Release of Shares – The share of each local government unit shall be released, without need of further action, directly to provincial, city, municipal or barangay treasurer on a quarterly basis within five (5) days after the end of each quarter.

7. Section 287 – Local Development Projects – Each local government unit shall appropriate in its annual budget no less than 20% of its Annual Internal Revenue Allotment for development projects. Copies of the development plan of the local government units shall be furnished to the Department of Interior and Local Government.

8. Section 289 – Share in the Proceeds from the Development and Utilization of the National Wealth – Local government units shall have an equitable share in the proceeds derived from the utilization and development of the national wealth within their respective areas, including sharing the same with the inhabitants by way of direct benefits.

9. Section 290 – Amount of Share of Local Government Units – Local government units shall, in addition to the internal revenue allotment, have a share of 40% of the gross collection derived by the national government from the preceding fiscal year from mining taxes, royalties, forestry and fishery charges and such other taxes, fees or charges including related surcharges, interests of fines, and from its share in any co-production sharing agreement in the utilization and development of the national wealth within territorial jurisdiction.

10. Section 291 – Share of the Local Government from any National Government Agency or Owned and Controlled Corporation – Local government units shall have a share on the preceding fiscal year from the proceeds derived by any government agency or government-owned and controlled corporation engaged in the utilization and development of the national wealth based on the following formula whichever will produce a higher share for the local government unit.
a. 1% of the gross sales or receipts of the preceding calendar year.
      b. 40% of the mining taxes, royalties, forestry and fishery charges and such other taxes,, fees or charges, including related surcharges, interest or fines the government agency or government-owned and controlled corporation.

11. Section 292 – Allocation of Shares – The share in the preceding Section shall be distributed in the following manner: a. Where the natural resources are allocated in the provinces: 1. Provinces - 20% 2. Component City/Municipality - 45% 3. Barangay - 35% Provided, however, that where the natural resources are allocated in two (2) or more provinces, or in two (2) or more component cities or municipalities, or in two (2) or more barangays, their respective shares shall be computed on the basis of :
1. Population - 70%
      2. Land Area - 30%
      b. Where the natural resources are located in highly urbanized or independent component city:
      1. City - 85%
      2. Barangay - 35%

12. Section 295 – Scope of Credit Financing – It shall govern the power of local government units to create indebtedness and to enter into credit and other financial transactions.
      13. Section 308 – Local Funds – Every local government unit shall maintain a General Fund which shall be used to account for such monies and resources as may be received by and disbursed from the local treasury. The General fund shall consists of monies and resources of the local government which are available for the payment of expenditures, obligations or purposes not specifically declared by law as accruing and chargeable to, or payable from, an other fund.
      14. Section 309 – Special Fund – There shall be maintained in every provincial, city or municipal treasury the following special funds:

      a. Special Education Fund – shall consist of the respective shares of the provinces, cities, municipalities and barangays in the proceeds of the additional tax on real property.
      b. Trust Funds – shall consist of private and public monies which have officially come into the possession of the local government or of a local government official as trustee, agent or administrator, or which have been received as a guaranty for the fulfillment of some obligation. A Trust Fund shall only be used for specific purpose for which it was created or for which it came into possession of the local government unit.

      15. Section 313 – Special Account to be Maintained in the General Fund – Local government units shall maintain special accounts in the general fund for the following:
a. Public utilities and other economic enterprises.
      b. Loans, interest, bond issues, and other contributions for specific purposes.
      c. Development projects funded from the share of the local government unit concerned in the internal revenue allotment and such other special accounts, which may be created by law or ordinance.

LOCAL GOVERNMENT BUDGETS
      The budget process in the local government budgeting consist of five (5) district phases.

They are:
      1. Budget Preparation – It involves both income and expenditures estimation. It also involves the formulation of the financial plans of the local government as the mechanism through which the local development plans may be operationalized.
      2. Budget Authorization – It is the stage during which the executive budget is submitted by the Local Chief Executive to the Local Sanggunian for authorization. The Local Sanggunian is expected to, among others examine the budget with regard to its conformity with local development plan and the local government policy.
      3. Budget Review – It involves the review of the executive budget as to its compliance with budgetary requirements, general limitations, and other provisions of law.

Review Channels:
      a. To the Department of Budget and Management through the Regional Coordination Staff in the case of highly urbanized cities and municipalities within the Metro Manila Area.
      b. To DBMS through the respective Regional Offices in the case of provinces, highly urbanized cities, and independent component cities outside the Metro Manila Area.
      c. To Sangguniang Panlalawigan in the case of component cities and municipalities.
      d. To the Sangguniang Panglungsod/Bayan through the city/municipal budget officers in the case of barangays.
      4. Budget Execution – It involves the implementation of the budget for the performance of functions/projects/activities to accomplish the local government goals and objectives. It is at this stage estimated incomes are actually received and funds are disbursed or obligated for the purposes in the appropriation ordinance.
      5. Budget Accountability – It involves the accurate recording and reporting of incomes and expenditure and the evaluation of attainment of the goals, objectives, targets, functions, projects and activities vis-à-vis the execution of the approved budget.

BARANGAY FUNDS:
      All incomes of the barangay for whatever source shall accrue to its general fund and shall, at the option of barangay concerned, be kept as trust I the custody of the city or municipal treasurer or be deposited in a bank, preferably government-owned, situated in or nearest to its area of jurisdiction. Such funds shall be disbursed in accordance with provisions of this Code. Ten percent (10%) of the general fund of the barangay shall set-aside for the Sangguniang Kabataan (SK).