The document discusses external sources of revenue for Local Government Units (LGUs) in the Philippines. The major external sources discussed are: 1) Internal Revenue Allotment (IRA), which allocates 40% of national tax revenues to LGUs, 2) Shares of national wealth such as mining and forestry revenues, 3) Shares from government agencies and corporations operating in their jurisdictions, and 4) Credit financing options such as loans from domestic banks and bonds. LGUs have increased financing power under the Local Government Code of 1991 to fund infrastructure and services.

1. URBAN PLANNING IN
PHILIPPINE DEVELOPMENT
SETTING
Topic:
EXTERNAL SOURCES OF
LOCAL REVENUE
Jeannifer B. Villanueva
11-MPMG-011
Dean C. Laurente

2. Funding Sources for the Local
Government Units
The enactment of the Local Government
Code in 1991 broadened the authority of
Local Government Units (LGUs) to utilize
available and potential sources of revenue
and strengthen their fiscal position to
enable them to provide adequate services
to their constituents.
Local government revenues are derived
from two major sources: local, or internal,
and external.

3. Financing alternatives for LGU’s
A. Internal
1. Tax revenues
a. RPT
b. Business Tax
2. Non Tax Revenues
a. Receipts from Economic Enterprises
b. Fees and Charges
B. External
1. Internal Revenue Allotment (IRA)
2. Share in National Wealth
3. Local/ Foreign grants and Aid

4. C. Borrowings
1. Direct Loans
a. MDFO (Municipal Development
Fund Office)
b. GFI’s (Govt Financial Institutions)
c. PFI’s (Private Financial
Institutions)
2. Bond Issuance
D. Private Sector Tie Up
1. Build-Operate-Transfer Schemes

5. External Sources of Revenue
1. Internal Revenue Allotment
Philippine Constitution provides that local
governments shall be entitled to a just share in
national taxes (Sec 6, Art VI). At present, local
governments are entitled to 40% of internal
revenue taxes (Sec 284 Local Government Code)
of 3 years ago. Of the current 40%, all provinces
and all cities are entitled to 23% each; all
municipalities, 34%, and all barangays, 20%. For
particular local government units, the sharing is
determined by applying this formula: 50% based
on population, 25% on land area, and 25% on
equal sharing (Sec 285 Local Government Code).

6. 2. Shares of Local Government Units
in the National Wealth
LGUs shall have equitable share in proceeds derived
from utilization and development of national wealth
within their respective areas, including sharing the
same with inhabitants by way of direct benefits (Sec
289 LGC). Sharing is forty percent (40%) of gross
collection derived by 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, or fines, and from its share in any co-
production, joint venture or production sharing
agreement in utilization and development of the
national wealth within their territorial jurisdiction
(Sec. 290 LGC).

7. Share of the Local Governments from any
Government Agency or -Owned and
-Controlled Corporation
In Sec. 291, Local government units shall have a
share based on the preceding fiscal year from
the proceeds derived by any government
agency or government-owned or -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) One percent (1%) of the gross sales or receipts
of the preceding calendar year; or

8. (b) Forty percent (40%) of the mining taxes,
royalties, forestry and fishery charges and such
other taxes, fees or charges, including related
surcharges, interests, or fines the government
agency or government -owned or -controlled
corporation would have paid if it were not
otherwise exempt.
The share shall be distributed in the following
manner:
province -20%, Component municipality / city -45;
and barangay -35%.

9. Credit Financing
As a general policy, any local government
As a general policy, any local government
unit may create indebtedness, and avail of
credit facilities to finance local
infrastructure and other socio-economic
development projects in accordance with
the approved local development plan and
public investment program. A local
government unit may also avail of credit
lines from government or private banks
and lending institutions for the purpose of
stabilizing local finances. (Section 296)

10. Sec 297. LGUs may contract loans, credits, and
other forms of indebtedness w/ any government
or domestic private bank and other lending
institutions to finance the construction,
installation, improvement, expansion, operation,
or maintenance of public facilities, infrastructure
facilities, housing projects, the acquisition of real
property, and the implementation of other capital
investment projects, subject to terms and
conditions as may be agreed upon by LGU and
the lender. Proceeds from such transactions
shall accrue directly to the LGU concerned.

11. An LGU may secure from any government
bank and lending institution short, medium
and long-term loans and advances against
security of real estate or other acceptable
assets for establishment, development, or
expansion of agricultural, industrial,
commercial, house financing projects,
livelihood projects, and other economic
enterprises.
Government financial and other lending
institutions are authorized to grant loans,
credits, and other forms of indebtedness
out of their loanable funds to LGUs for
purposes specified above.

12.  SEC. 298. Deferred-Payment and other
Financial Schemes. - Provincial, city and
municipal governments may likewise
acquire property, plant, machinery,
equipment, and such necessary
accessories under a supplier's credit,
deferred payment plan, or other financial
scheme.

13. Sec. 299. Bonds and Other Long-Term
Securities.
Subject to the rules and regulations of the Central
Bank and Securities and Exchange Commission,
provinces, cities, and municipalities are hereby
authorized to issue bonds, debentures, securities,
collaterals, notes and other obligations to finance
self-liquidating, income-producing development or
livelihood projects pursuant to the priorities
established in the approved local development plan
or the public investment program. The sanggunian
concerned shall, through an ordinance approved by
a majority of all its members, declare and state the
terms and conditions of the bonds and the purpose
for which proposed indebtedness is to be incurred.

14. SEC. 300. Inter-Local Government
Loans, Grants, and Subsidies
Provinces, cities and municipalities may, upon
approval of the majority of all members of
the sanggunian concerned and in amounts not
exceeding their surplus funds, extend loans,
grants, or subsidies to other local government
units under such terms and conditions as may
be agreed upon by the contracting parties. Local
government units may, upon approval of their
respective sanggunian, jointly or severally
contract loans, credits, and other forms of
indebtedness for purposes mutually beneficial to

15. SEC. 301. Loans from Funds Secured by the
National Government from Foreign Sources
The President, or his duly authorized representative,
may, through any government financial or other
lending institution, relend to any province, city,
municipality, or barangay, the proceeds of loans
contracted with foreign financial institutions or other
international funding agencies for the purpose of
financing construction, installation, improvement,
expansion, operation, or maintenance of public
utilities and facilities, infrastructure facilities, or
housing projects, acquisition of real property, and
implementation of other capital investment projects,
subject to terms and conditions as may be agreed
upon by the President and LGU.

16. Proceeds from such loans shall accrue
directly to the local government
concerned.
(b) The President may likewise authorize the
relending to local government units the
proceeds of grants secured from foreign
sources, subject to the provisions of
existing laws and the applicable grant
agreements