Public Finance April 2015

Hapter 1
UNDERSTANDING PUBLIC FINANCE

THE ROLE AND SCOPE OF PUBLIC FINANCE
Public Finance is a field of study in economics that deals with the
revenue and expenditure patterns of the government and their various effects on
the economy. It arises from the operations of the public budget.
The basic goal of both the private and public economy is the satisfaction of
human wants since both engaged in the production, distribution and consumption
of goods and services. However, distinction is made in the how financial needs
are made available, what those needs are and the budgetary procedures
practiced.
The Difference between Private and Public Finance
The workings of an economy are geared to solve the problem of choice in a
world where resources are scarce to human wants or desires. The basic goal in
both the private and public economy is the same the satisfaction of human
wants. Public and private economic units are engaged in production, distribution,
and consumption of goods and services.
Private finance relates to the sources and uses of funds of private
individuals to meet their needs and wants.
These are satisfied through
mechanism of the market because their enjoyment is subject to the price they
have to pay. Public finance deals with the sources and uses of funds to meet the
basic human requirement of the general public or the populace.
According to Leveriza (1998),
and private finance.
the following are major distinction between public
A.
Public Finance relates to income generation & allocation to satisfy
the public wants / needs of people or group of people living within the scope of
territorial limits of the state, while Private Finance deals with income
generation & allocation of private wants and needs of individuals.
Private wants are those that can be satisfied through the mechanism of
the market, because their enjoyment can be made subject to price payment. If
an individual consumer wants to satisfy his need for a product or a service, all he
has to do is to pay the stipulated price of that service or product and his need is
already satisfied.
Public wants are those that can not be satisfied through the workings of
the market because its enjoyment is independent of his contribution or payment.
Whether an individual paid for its services to satisfy his want or need, or not, it
can still afford to enjoy it because those are being provided for by the state.
Public wants are classified into Social and Merit wants. Social wants are those
whose satisfactions are subject to the principle of consumer sovereignty, that is,
resources are allocated in response to the effective demand of consumers. Merit
wants are those that are satisfied by the market within the limits of effective
demand. These wants may become merit wants should government budget
provide for its services over and above what is provided for through the market
and paid for by private buyers. Examples are free education, and low-cost
housing.
B.
Both differ in its financial means available to generate resources.
Government generates resources through:
Taxation
Borrowings / Indenture
Sales of assets & services
Printing of money
Private corporations generate resources through:
C.
Issuance of Bonds ( evidence of indebtedness)

Issuance of Stocks (evidence of ownership)
Utilize its income from operation
Sales of its assets
Borrowings / Corporate Financing
Both differ in the budgeting procedures practiced.
Government determines its expenditure needs first and then looks for
possible ways of financing them. Private Corporation determines its income and
additional resources from borrowing, and then proceeds to identifying individual
expenditure items.
The Changing Role of Government
All forms of government establish bureaucracies to administer the
government and deal with the public welfare. There are agencies that collect
taxes, provide for defense, give police protection, administer welfare and social
security programs, operate school systems, and manage public transportation.
The executive branches of government, from the local to the national level,
are empowered to administer laws for the welfare of society. To accomplish this
end, agencies, departments, bureaus, and commissions are set up as part of an
executive branch. These administrative bodies are created by legislative bodies
to carry out a wide variety of functions both on behalf of government and for the
public. These functions include the overseeing of education, traffic control, tax
collecting, and defense, highway and bridge construction, quality control of
consumer goods, slum clearance, and public transportation, among others.
Present day public finance
interdependent functions:
focuses
on
three
separate
Allocation,
Distribution and
Stabilization.
The allocation function is being done through the accepted objective of

budget policy.
but
Allocation Function: The Budgetary System

Sound financial administration is a basic requirement to national
development. Practically, every government decision has financial implications
which influence all sectors of the economy, both public and private. Moreover,
greater demands for government services due to increased population have
deepened the interest of financial administration.
Efficient financial organization requires a budget system for the planning of
balanced expenditures and revenues, and a system of control and audit for
proper custody of funds. This means a controllers office (frequently under the
executive jurisdiction) to check disbursements and an auditors office (frequently
under legislative jurisdiction) to examine the accounts of administrative agencies.
In the Philippines, the Department of Budget and Management, which is
under the direct supervision of the Office of the President, may be considered as
the controllers office and the Commission on Audit (COA) as the auditors office.
The Commission on Audit, however, by virtue of its being a constitutional office,
is not under the legislative jurisdiction or the control of the executive.
The Distribution Function
The provision of public services is bound to produce social and economic
effects.
Hence, the revenue-expenditure process of the government must
consider the distribution aspects. This function relates to determination and
attainment of a proper state of income distribution.
The Stabilization Function
These concerns with maintaining a high level of resource utilization, that is,
full employment of all factors of production and a stable value of money.
Through its budget policy, the stabilization function has increasingly played an
important role in government activities.
EXERCISE
NAME :
______________________________ DATE: ________ SCORE: _______
Test I Multiple Choice.
1)
2)
3)
4)
5)
6)
7)
8)
9)
Finance that relates to income generation & allocation to satisfy the public
wants / needs of people or group of people living within the scope of
territorial limits of the state.
A)
Private Finance
B)
Corporate Finance
C)
Public Finance
D) International Finance
Finance that deals with income generation & allocation of private wants
and needs of individuals.
A)
Private Finance
B)
Corporate Finance
C)
Public Finance
D) International Finance
Agencies that government establish to collect taxes, provide for defense,
give police protection, administer welfare and social security programs,
operate school systems, and manage public transportation.
A)
Departments
B)
Local Government Units
C)
Bureaucracy
D) Regional Coordinating Council
In the Philippines, this office is under the direct supervision of the Office of
the President and may be considered as the controllers office and as the
auditors office.
A)
Commission on Audit
C)
Regional Development Council
B)
Constitutional Commission
D) Department of Budget & Mgt
Wants that are satisfied by the market within the limits of effective
demand.
A)
Personal Wants
B)
Merit Wants
C)
Psychological Wants
D) Social Wants
Wants whose satisfactions are subject to the principle of consumer
sovereignty, that is, resources are allocated in response to the effective
demand of consumers.
A)
Personal Wants
B)
Merit Wants
C)
Psychological Wants
D) Social Wants
The branch of government empowered to administer laws for the welfare
of society.
A)
Executive Branch
B)
Judiciary
C)
Legislative Branch
D) All of the above
An office frequently under the executive jurisdiction tasked to check
disbursements.
A)
Controllers Office
B)
Agencies
C)
Auditors Office
D) bureaus
A function of Public Finance that relates to the determination & attainment
of a proper state of income distribution.
A)
Budgetary Function
B)
C)
Allocation Function
D) The Stabilization Function
10) A function of Public Finance that concerns with maintaining a high level of
resource utilization, that is, full employment of all factors of production and
a stable value of money.
A)
Budgetary Function
B)
C)
Allocation Function
D) The Stabilization Function
Test II
1 -3
4 -7
8 -12
13 -15
Test II
1.
2.
Enumeration.
Distinction between Public & Private Finance
Financial means by which government generate resources.
Financial means by which private corporation generate
resources.
Function of Public Finance
Essay.
What is the role of public finance in the Philippine Economy and how does
it affects the lives of the Filipino People?
Identify examples of government services doing Public Finance functions.
hapter 2
THE DEVELOPMENT OF PUBLIC FINANCE
Two factors stand out in the development of public finance:
Warfare
In the early stage of political development, warfare was almost the
only cause for public expenditures. The expansive and adventurous
exploits of a ruler were expensive such as that he had to get financial
support other than from his personal treasury.
In modern times,
expenditures connected with the preparation, conduct, and aftermath of
war never fail to claim a large portion of public funds.
Growing scope of government activities

The growing scope of governmental functions has similarly
influenced the nature and direction of public finance. Presently, the huge
expenditures of the government, arising from its extensive and intensive
activities in almost all quarters of the economy, have contributed to their
increasing importance in the economys total spending.
The History and Growth.

A.
Revenue
Public finance, especially the tax aspect, can be considered to have first
developed in the course of the fifteenth century in Italian city-republics and in the
German free towns. However, public affairs were then considered as affairs of
the territorial rulers. To govern his estate, the ruler relied on feudal income from
his own lands and a number of rights that went with his lordship, such as tolls,
customs duties, fees for safe conduct of travelers and merchandise, and a wide
variety of fees from communities over which he extended protection.
Tax history for more than 2,500 years has focused on two significant
issues: who pays and what is taxed. For most of human history, taxes were paid
by the poor peasants, slaves, colonists, or conquered peoples to support the
government and the wealthy classes. Taxation as the responsibility of free
citizens is a modern concept that originated with the emergence of constitutional
governments first in England and later in the United States and Western Europe.
In the ancient world to the end of the Roman Empire in the West in about
AD 476, governments owned so much of the wealth within their territories that
taxes were not heavily relied on for revenue. Income from mines, tributes from
ruled peoples, and gifts often required from wealthy citizens made up the
greatest portion of a government's income. Taxes on trade and consumption were
added to meet government needs. Direct taxes such as the modern income tax
were virtually unknown, though Rome had an inheritance tax and a capitalization
tax. The capitalization, or head, tax is one imposed on each individual in a
society. An example is the poll tax, once required of voters in state and local
elections in the United States. In the time of Julius Caesar in the 1st century BC,
Rome instituted a 1 percent sales tax, and in the Roman provinces land was often
subject to taxation.
Taxes of any kind except those imposed by the church had little place in
the rural, feudal system of the Middle Ages. Kings and nobles made their livings
from land held directly or through payments from those who worked the land
(Feudalism). As the social system of the Middle Ages broke up, land became the
primary source of wealth and therefore of taxation. In France the annual taille
was a tax levied on estimated farm income. In England land taxes were first
based on area but later on annual rental value. In the British North American
colonies, the English land tax system was broadened into a property tax whose
base included land, houses, personal property, and the earning capacity of the
individuals who owned the land.
Rebellion against oppressive tax systems played a major role in both the
American and French revolutions. The subsequent establishment of
representative democracies along with the modern ideal of social justice helped
to bring about the reform of tax systems.
The emergence of the modern economic system with all of its varied
sources of income and wealth also led to the more uniform system of taxing
income directly. The first modern income tax was adopted in England in 1799 but
was abolished from 1816 to 1842. In the United States an income tax was used
as a temporary measure during the American Civil War. In 1894 the income tax
was again enacted, but it was later declared unconstitutional, necessitating an
amendment, which was adopted in 1913.
In the Philippines, early Filipino has a monarchial form of government
known as the barangay. Each barangay was a state in itself, composed of
coherent groups, and consisting of 30 to 100 families. The barangays were
independent and governed by rulers called datus or rajahs, who enjoyed the
unconditional loyalty of the people. The relationship between the datu and his
subjects was direct. The subjects paid a tribute, called buiz, from the crops that
they gathered or raised. They also rendered personal services to the ruler by
assisting him with his wars, exploits and various miscellaneous services, such as
cultivating the rulers land. In return, the ruler maintained peace and order and
assisted his subjects in obtaining the necessities of life. Some members of the
barangay, the nobles and the freemen, were exempt from paying tributes and
from rendering services to the ruler except in case of war.
During the Spanish period, Spain imposed tributes or taxes upon Filipinos
for its survival and benefit. A survey of taxes imposed and collected during the
Spanish regime which were in effect prior to the coming of the Americans in 1898
would reveal a fairly comprehensive network of revenue sources. The tariff
duties consisted of (1) specific duties on all imports, (2) surtaxes for harbor
improvements (3) ad valorem taxes on imports (4) consumption taxes on certain
imports, (5) miscellaneous charges and (6) export duties. Internal revenue taxes
were derived from the following sources: (1) industrial taxes (2) Urbana taxes (3)
stamp taxes (4) the sale of certificates of registration (cedilla personals) and (5)
the public domain.
The Americans introduced income taxation in the Philippines.

The
Philippine Income Tax Law embodied the rates and exemptions of the 1916
United States income tax law. Sales and luxury taxes and license fees were
imposed by the Japanese authorities during the Japanese regime. It is worthwhile
to note that the National Assembly of the Japanese sponsored Philippine Republic
authorized the creation of a central bank which did not actually come into being.
B. Expenditure
The Development of Budgeting in the Philippines
During the early years of American sovereignty, the Philippine Commission
approved the annual budget of the government. A real budgetary system
patterned after the English system, was introduced for the first time in the
Philippines in 1917. Under the Jones Law, the governor general was to submit to
the Philippine Legislature, within 10 days after its regular session, a budget of
receipts and expenditures to be used as the basis of the annual appropriation bill
for the national government. The secretary of finance prepared the budget
based on the estimates of income and expenditures submitted to him by the
different department secretaries. These estimates are, in turn, based on those
submitted by the chiefs of bureaus and offices under each department. After the
budget had been approved by the Governor General and his Cabinet, it was
submitted to the Philippine Legislature.
The present budgetary system of the national government is governed by
the Constitution.
EXERCISE
1)
Tax levied on estimated farm income.

A)
Taille
B)
C)
Land Tax
D)
Capitalization Tax
Personal Property Tax
2)
System where kings and nobles made

directly or through payments from those
A)
Feudalism
B)
C)
Capitalism
D)
their livings from land held

who worked the land.
Industrialism
Barter
3)
Monarchial form of government in the early Philippines.

A)
Hacienda System
B)
Datu System
4)
5)
C)
Barangay
D) Rajah
Tribute subjects in a barangay, pay from the crops that they gathered
or raised.
A)
Taille
B)
Capitalization Tax
C)
Land Tax
D) Buiz
A real budgetary system patterned after the English system was first
introduced in this year.
A)
1920
B)
1898
C)
1917
D) 1918
Test II
1 -2
3 -6
7 12
13 17
18 19
20
Test III
Enumeration.
Factors that gave way to the development of Public Finance
Feudal income from territorial rulers lands and the number of
rights that went with his lordship.
Composition of Tariff duties during the Spanish regime.
Sources of Internal revenue taxes during Spanish regime.
Tax imposed by the Japanese authorities during the Japanese
regime.
Who governed the present budgetary system of the national
government.
Essay.
1. What is the difference of the services extended by the government during

the Aquino, Ramos, Estrada and Arroyo Administration?
hapter 3
THEORIES ON GOVERNMENT SPENDING
THE CONCEPT OF FULL EMPLOYMENT
The United States Congress, in passing the Employment Act of 1946,
committed the federal government to policies designed to achieve full
employment. This was in accordance with the economic theories John Maynard
Keynes developed in his 'General Theory of Employment, Interest and Money'
(1936). Keynes insisted that government could, by manipulating the money
supply and spending policies, achieve a stable level of employment.
The Keynesian recommendations have proved to be flawed. Only by
injecting large amounts of money into the economy can government induce
employment. This works for a time, but it causes inflation. Eventually the inflation
will bring on a recession and high unemployment, as the economy tries to
squeeze out the distortions caused by government spending. By contrast, an
economy freed from excessive government intervention will normally have a high
and stable level of employment.
The concept of full employment refers to a state in which the number of
vacant jobs is always greater than the number of unemployed men.
Consequently, the normal lag between losing one job and finding another will be
very short.
Types of Unemployment.
A.
Frictional Unemployment is a condition in which an
individual can not find a job not because there is no job vacancy
available in the market, but they are unemployed because they are
not qualified for the vacancy at hand. The skill required for a
particular vacant job does not jibe with the skill and qualification
that an applicant has.
B.
Seasonal Unemployment is a condition in which
unemployment is brought about by climatic conditions or change in
fashion that does not afford employment in a particular industry
affected by such seasonal variations in their business activities.
C.
Structural Unemployment is a condition in which
unemployment is a result of slow or no activity in the production of
goods and services.
10
D.
Cyclical Unemployment means lack of work caused by
business cycle changes in the volume of work available.
Public Spending is a key instrument employed by governments of
various countries in mitigating the adverse effects of economic fluctuations one
of which is employment.
The two variants of Public Expenditures are:

1. Short-run public spending policy ( pump-priming )
2. Long-run compensatory spending policy
The above are both intended to cushion the undesirable effects of
economic fluctuations and are both devices designed to attain full employment.
The Concept of Pump-Priming
The basic premise of fiscal policy and public spending is that production
depends upon the total effective demand of goods and services currently
produced (aggregate expenditure on consumption and investment) as long as
there are available unemployed productive resources of every type and output is
highly elastic.
The less the availability of unemployed productive resources, the less
elastic the output is and the greater the tendency for increases in effective
demand will be, will eventually lead to inflation. However, when there are
available unemployed productive resources of every type, an increase in effective
demand tends to increase output, employment and real income. In such a
situation, the primary goal of government spending is to raise aggregate
consumption.
With higher level of government spending, the income of
consumers expands and consequently increases consumption expenditures.
Pump-priming refers to the injection of government funds into the
income stream in sufficient quantities and under proper circumstances in order to
reverse the trend of anticipations and to generate recovery. This emergency tool
is by its nature a temporary device to restart or stimulate the balance in the
economic system during the cyclical downturn, after which the system is
expected to operate under its own power.
Expected results are primary
employment in public works operation as shown in directly hiring of employee for
a government project and secondary employment created in the production of
the necessary materials that goes with the utilization of resources financed by
the government funds.
Deficit Spending means incurring expenditures in excess
Such excess may result from a reduction in tax receipts at a
expenditures remain the same. It indicates an unbalanced budget
proceeds from taxation fall short of budgetary requirements.
11
of revenue.
time when
wherein the
It refers to
government spending on public investment like hospital, highways, bridges and

or subsidy to mass consumption to keep prices of commodities down and all of
these expenditures are financed by borrowing.
Justification for Deficit Financing.
A.
B.
C.
D.
Deficit
Deficit
Deficit
Deficit
Financing
Financing
Financing
Financing
for
for
for
for
Offsetting depression.
compensating inadequacy of private investment
defense expenditure
financing economic development
Somers Principles of Government Expenditures

Professor Somer suggested four principles that could serve as a guide in
handling government expenditures:
1. Principle of Minimum Expenditure
It reiterates the belief on a large school of thought that states, that
government should spend the least it possibly can, consistent with the
protection of its citizenry.
2. Principle of Minimum interference with the Private
Enterprise.
This simply means that services provided by the public works representing
government, should not compete with established private enterprises.
3. Principle of Maximum Employment
One of the aims of government expenditure is to raise the level of
employment as high as possible to achieve maximum social security,
maximum national income, & maximum standard of living.
4. Principle of Maximum Advantage
This proposes that maximum advantage be achieved in all cases as an
implication of government spending and that it shall be spent where the
marginal social utility is the greatest.
12
EXERCISE
NAME :
________________________________ DATE: ________ SCORE: _______

1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
12)
13)
14)
15)
16)
17)
18)
19)
20)
21)
22)
A condition in which an individual can not find a job not because there
is no job vacancy available in the market, but they are unemployed
because they are not qualified for the vacancy at hand.
A)
Cyclical Unemployment
B)
Seasonal Unemployment
C)
Structural Unemployment
D) Frictional Unemployment
A condition in which unemployment is brought about by climatic
conditions or change in fashion that does not afford employment in a
particular industry affected by such seasonal variations in their
business activities
A)
B)
C)
A condition in which unemployment is a result of slow or no activity in
the production of goods and services.
A)
B)
C)
Lack of work caused by business cycle changes in the volume of work
available.
A)
B)
C)
Key instrument employed by governments of various countries in
mitigating the adverse effects of economic fluctuations one of which
is employment.
A)
B)
C)
D) Public Spending
A concept that refers to a state in which the number of vacant jobs is
always greater than the number of unemployed men.
A)
Full Employment
B)
Temporary Employment
C)
Partial Employment
D) Employment
Supply
&
Demand
An act of the US Congress committed to formulate policies to achieve
full employment
A)
Employment Act of 1945
B)
C)
D) Employment Act of 1948
Developed the General Theory of Employment, Interest & Money
13
23)
24)
25)
26)
27)
28)
29)
30)
31)
32)
33)
34)
A)
John Maynard Keynes
B)
US Congress
C)
Jones Law
D) John Dewey
Example of primary employment in an economy
A)
Employment resulting from production of necessary materials
that goes with the utilization of resources financed by
government funds.
B)
Direct hiring of employee in public works operation
Example of Secondary employment in an economy
A)
Employment resulting from production of necessary materials
that goes with the utilization of resources financed by
government funds.
B)
Direct hiring of employee in public works operation
Incurring expenditures in excess of revenue.
A)
Deficit Spending
B)
Government Spending
Refers to the injection of government funds into the income stream in
sufficient quantities and under proper circumstances in order to
reverse the trend of anticipations and to generate recovery.
A)
Pump-priming
B)
Deficit Financing
Test II
1
5
7
-4
-6
-8
-10
11
15
17
-14
-16
-19
20
-25
26
-29
30
-33
34
-35
Test III
Enumeration.
Types of unemployment
Variants of Public Expenditures
According to the Keynesian theory, inflation as a result of
injecting large money into the economy will bring in these
results as the economy tries to squeeze out distortions caused
by government spending.
Factors that could be manipulated to achieve a stable level of
employment according to Keynes.
Justification of Deficit Financing
Expected results of pump-priming that affects employment.
When there are available unemployed productive resources of
every type, an increase in effective demand tends of increase 3
economic variables. What are these economic variables?
Examples of government spending on public investments that
are financed by borrowing.
Principles that could serve as a guide in handling government
expenditures
Give at least one example of each of the principles asked in
question # 1
The level of employment is one of the aims of government
expenditure because of the belief that through it, these 3
economic indicators can be maximized. Give at least 2 of the 3
given.
Essay.
1. How does the government project in your provinces affect the lives
of your relatives who are employed in those projects?
14
hapter 4
THE PRESENT PHILIPPINE BUDGETARY SYSTEM
The present budgetary system of the national government is governed by
the constitution. The contents and procedures in the preparation of the budget
are provided for in the Budget Act of 1937, Commonwealth Act of No. 246 and
the Revised Budget Act of 1954, or the Republic Act No. 992.
Recent developments gave rise to the innovations introduced in P.D. No.
1177, otherwise known as the Budget Reform Decree of 1977. These covers the
Zero-base budget analysis, the Long-term and medium term budgets,
the national resource budget, which are but approaches that have been
developed to achieve a more effective allocation of resources. In short, basically,
the budgeting system in the Philippines follows the performance budgeting
approach.
The Budget and the Budgeting System
A budget is a detailed financial program in which anticipated expenditures
and anticipated revenues (including receipts from borrowings) are itemized and
exactly balanced. A budget is prepared in advance of the fiscal year to which it
applies.
Budgeting, on the other hand, is the process of systematically relating the
expenditure of funds to the accomplishment of planned objectives.
Basically, the budgeting system in the Philippines follows the
performance budgeting approach. The innovations introduced in P.D. No.
1177, otherwise known as the Budget Reform Decree of 1977, such as zero-base
budget analysis, long-term and medium-term budgets, national resource budget,
etc., are the approaches that have been developed to achieve a more effective
allocation of resources.
15
Performance budgeting is a management-oriented system of budgeting

which measures actual or estimated results, in terms of benefits accruing to the
public and their unit costs. Zero-Based Budgeting, on the other hand, is a
process which requires the budget estimates to be evaluated on a zero-base
approach rather on the incremental approach, as was customarily done, where
only new activities and additional outlays have to be justified.
Although performance budgeting was introduced in the Philippines as early
as 1957, the government has not been able to fully implement it. The budget
documents of the past years contained many features which belonged to the line
budget system. The 1978 budget is the first purely performance budget of the
national government.
The national government of the Philippines operated on a legally
established fiscal year. It operated on the fiscal year beginning July 1 and ending
June 30 from 1946 to 1976. The change in the budget year was effected after 30
years through P.D. No. 777, enacted on August 24, 1975. The new budget year
coincides with the calendar year beginning January 1 and ending December 31.
Also, every budget process carries with it the elements of planning, management
and control.
Planning is the process of deciding on the objectives of the government
and organization, on changes in these objectives and the policies that are to
govern the acquisition of disposition of these resources.
Management is the programming of approved goals into specific project
and activities, the design of organizational units to carry out the program, staffing
of these units and the procurement of resources. The management process is
spread over the entire budget cycle. Ideally, it is the link between the goals
made and activities undertaken.
Control is the process of binding operating officials to the policies and
plans set by the organization. Control is predominant during the execution and
accountability stages although the form of budget estimates and appropriations
are often determined by control consideration.
Good budget practice underestimates anticipated receipts to safeguard
against possible decline in revenues during the year. It plans its expenditures to
conform to that under-estimation. The ultimate goal of budgeting is to produce a
financial plan that would achieve increasing development of the country with the
optimum use of its available resources.
If estimated revenue is insufficient to achieve a balanced budget, proposed
revenue measures sufficient to a balanced budget should be included in the
proposed budget.
Balance budgeting works favorably in more developed economies like the
United States, England, and Japan. Its application to the developing countries,
like the Philippines, is expected to experience rough sailing.
The Philippines would find it difficult to use the traditional approach of
balancing the budget. It should be noted that the country is economically poor
because its vast natural resources remain untapped. To develop these resources,
16
there is a need to accelerate capital formation. Its developmental projects

requiring sizable investments can never be implemented if it will continue to rely
mainly on its limited national income.
To accelerate capital formation, there is a need to invite foreign investors
or to borrow money from foreign sources. Undoubtedly, foreign investors will be
wary putting large investments in the country unless a favorable climate for
investment exists. Creating a favorable climate for investment, however, needs
financing and in this particular instance, borrowing from foreign countries is
advisable since funds will be injected into the mainstream of the economy. This
fund will have a multiplier effect on the national income meaning the money
borrowed from abroad will generate a multiplied increase in level with the
countrys income in terms of employment generation, capital formation, etc.,
thereby increasing the capability of the government to generate higher revenue.
Borrowing from outside sources is good for a developing country, provided
that the borrowed money will be used strictly to finance development projects. It
is a better alternative to increase revenue than taxation measures.
If taxes are raised to finance development projects, the purchasing power
of the people is lessened, resulting in a decline in their consumption
expenditures. With low consumption demand, no investors would be willing to
invest since it may not be profitable. As such, investment will go down. With the
decrease in investment, national income will decline. The process would only
lead to the perpetuation of the vicious cycle leading further to the stagnation of
the national economy. If no funds will be injected from outside sources, the
nations economy will certainly remain stagnant and at most depressed.
Public Administrators are prevented from making expenditures that exceed
the national income, they continue to increase the public debt for the purpose of
promoting the economic development of the country. Hence, they are authorized
to prepare an unbalanced budget meaning; they can put up a program in which
expenditures exceed ordinary revenues for development purposes. Thus, they
resort to heavy borrowing, not only when there is an emergency, but also to
support the countrys development efforts.
Concepts of National Budgeting System
The concepts of national budgeting system in the country are as follows:
1)
Concept of Balance.
resources.
Expenditures shall not exceed receipts or
2)
Concept of Fiscal Control. No money shall be paid out of the treasury

except in pursuance of an appropriation. This is covered by a provision
in the countrys constitution. There are other provisions which govern
the budget authorization. The specifics are established by P.D. No.
1177.
3)
Concept of Obligation. This is analogous to private law of obligation

and written contract. An obligation is a legal act of a duly authorized
official or representative which binds the government to an immediate
or future payment from funds of the government for specific purposes.
17
4)
Concept of Appropriation.
An appropriation is a legislature
authorization for a department or agency to obligate the government for
specified purposes.
Appropriations are made for a single fiscal year. However, program

planning and financing must be made on a different time basis.
Types of Budgets
Based on governmental system, there are two types of budgets:
1.
2.
Presidential Budgets
Congressional Budgets
The Presidential budget is based on the principle of separation of

government powers. It is a budget in which initiative and responsibility in the
preparation is vested on the President, while the approval of the fiscal measures
of the government is given to Congress. This system is generally followed in the
presidential form of government. The greatest objection of this type of budget is
the difficulty of locating the responsibility for the success or failure of the
budgetary administration.
The Congressional budget, also known as the Parliamentary budget, is
based on the principle of Cabinet or responsible government. A Parliamentary
government is one where the political power resides in the Parliamentary as a
whole, like that of the government of Great Britain and Italy, Japan and India
among others. In a parliamentary system, the Cabinet is headed by the Premier
or Prime Minister. The members of the Cabinet, normally elected members of the
Parliament, are appointed heads of the different ministries of the government.
Under this system, the initiative in preparing the fiscal plan of the government
rests with the Prime Minister who is responsible for the nations financial policy.
The Parliament merely analyzes, discusses, or criticizes the budget as initiated by
the head of government.
In both government systems, while the legislature can decrease the
proposed budget prepared by the executive, it can not increase it. It is,
therefore, a system in which responsibility can easily be determined, because a
definite body, which is the head of government, is responsible for the making or
the initialization of the budget as well as for its successful operation.
Considering the strengths and weaknesses of the two types of budgets, the
Philippines, based on its own experience, has the presidential budgetary system
in character, form and substance.
ASSIGNMENT
1. Research on the Budgetary System practiced in other countries and
evaluate by contrasting it with the Philippine Budgetary System.
18
hapter 5
THE BUDGET PROCESS
On budget preparation, some experts on fiscal management observe that
Budgets are best prepared under the personal responsibility of the chief
executive and then submitting to the legislature for amendments, approval and
the voting of necessary taxes.
A distinction should be made between budget and budgeting system. The
budgeting system includes the all-comprehensive process as well as the laws,
rules and practices observed by government in planning and carrying out its
financial program.
In the final stage, a budgetary system involves an audit of all fiscal
accounts. The aim of such audit is to determine with what outlays previous
appropriations have been spent.
The preparation of estimates, their
authorization by law, and their audit comprise the cycle to be found in every
efficient budgetary system.
All branches of government, including the legislature, should observe a
common budgetary procedure. As a procedure, the budget comprehends four
definite and consecutive stages as follows:
1)
2)
Budget Preparation
Legislative Authorization
19
3)
4)
Budget Execution
Budget Accountability
Figure 1 shows the flow chart of the budget process.

Stage 1
Involves the various steps in preparing the budget estimates

and framing the financial plan
Stage 2
The legislative authorization of the plan
Stage 3
The carrying out of the plan as authorized
Stage 4
The accounting and audit & review of the financial operation.
If the legislature disapproves the proposed budget, it goes back to the executive
who prepared it. Also, in budget accountability, if it is the end of the program,
the cycle for the particular program will be terminated at that point.
In the case of the national government of the Philippines, the legislature being
referred is the Congress and the executive is the countrys President.
The Budget system may consist of three elements:

1.
Financial Plan
2.
Procedure for formulating a budget system
3.
Governmental authority responsible for its successful operation.
LEGEND :
START
TERMINAL BOX
BUDGET
PREPARATION
OPERATION BOX
LEGISLATIVE
AUTHORIZATIO
N
APPROVE?
DECISION BOX
NO
FLOW DIRECTION
(A)
20
YES
BUDGET
EXECUTION
VETO?
STOP
YES
(A)
BUDGET
ACCOUNTABILITY
YES
END OF PROGRAM
NO ( A )
Figure 1. Flow chart of Budget Process
IN THE NATIONAL GOVERNMENT
WITHIN THE DEPARTMENT/AGENCY
1. BUDGET PREPARATION
(PREPARATION OF BUDGET
ESTIMATES)
A. DEPARTMENT OF
BUDGET & MANAGEMENT
1. PLANNING: ESTABLISHING
B. DEPARTMENTS/AGENCIES
PERFORMANCE OBJECTIVES WITHIN

SPECIFIED GUIDES & LIMITS.
2. ESTIMATING: DETERMINING AMOUNT
OF PERSONNEL, MATE-RIALS, SERVICES,
& FACILITIES REQUIRED TO PAY FOR
THEM.
3. REVIEWING: ASCERTAINING THAT
BASIC OBJECTIVES, RESOURCES
REQUIREMENTS AND PESO AMOUNTS
ARE ACCURATE AND CONFORMS TO
OVER-ALL GUIDES & LIMITS.
2. BUDGET AUTHORIZATION
(LEGISLATIVE AUTHORIZATION OF
THE BUDGET)
3. BUDGET EXECUTION
(ALLOTMENT OF APPROPRIATIONS &
INCURRENCE OF OBLIGATIONS)
4. BUDGET ACCOUNTABILITY
(REPORTING ON ACTUAL
PERFORMANCE VS. PLANS )
FIGURE 2. THE BUDGET PROCESS AS APPLIED IN THE PHIL.
The Budget Preparation
21
The Constitution provides: No money shall be paid out of the Treasury

except in pursuance of an appropriation made by law.
The Budget power is vested on the President of the Philippines. He is
entrusted by the Constitution with the task of preparing the national budget
based on existing and proposed revenue measures and submitting it to the
congress within thirty days from the opening of each regular session.
According to Leveriza (998), the following are the steps outlined for budget
preparation:
First, the budget is not intended to establish priorities only, rather the
budget, is intended to look at the priorities and to translate these priorities into
operational terms, in terms of pesos and centavos, capital outlays, equipment
purchased, supplies and materials, and in terms of the nuts & bolts of financial
execution. The starting point is the need for the improvement of the quality of
life of the worker or the common tao.
Second, in the formulation of the budget, the matter of sectoral
presentation should be considered as an improvement.
The traditional
presentations are used by agencies, a particular bureau or office. The new
approach attempts to arrive at some type of further review so that the budget of
more than one department is reviewed as part of an overall sectoral
presentation.
Third, budgeting shall be on a regional level in order to be responsive to
regional development strategies, to differentiate in regional implementation,
regional needs and requirements.
Fourth, there is a need for the long-term planning in order to provide for
government services that will be necessitated by the increase in population.
As practiced in the Philippines, budget preparation has two phases: the
budget policy formulation phase & the preparation of estimates, review
& consolidation into the budget document for submission to Congress.
The starting point of the budget policy formulation is the Presidents
pronouncement of the principal budget thrust for the budget year. This is
followed by the estimates of government revenues and establishments of the
levels of expenditures, the determination of budgetary priorities and activities
into budgetary estimates.
The preparation of budget estimates involves all departments and
agencies of the national government, including local government units and
government-owned and controlled corporations.
All estimates of expenditures
are incorporated in the agency budget estimates, whether these are directly
supported by the General Fund in the form of regular appropriations, supported
from foreign or domestic borrowings, or funded by the department and/or agency
income.
Under the administrative system (in the Philippines), the executive power
is vested on the countrys President. He shall have control of the executive
22
departments, bureaus and offices.

executed.
He shall ensure that the laws be faithfully
The President, with the assistance of the members of the Cabinet who are
the heads of departments, is primarily responsible for the program of
government. As such, the President sets forth program and policy decisions for
the preparation of the national budget. On this basis, the Department of Budget
& Management issues the Budget Call. This is a procedural guideline for the
preparation and submission of the budgetary estimates. It also prescribes fiscal
policies, standard methods, procedures, budget thrusts and priorities, and
schedule of budget hearings.
With the policy decisions of the President, the departments of the national
government prepare supplementary policies and guides in preparing the detailed
requirements and estimates of the department and the various bureaus and
offices placed under its administrative umbrella.
Here, the responsibility of the Department of Budget and Management is
to coordinate the executive and legislative activities. It is responsible for the
articulation of the Presidents national policy guidelines in the proposed
legislation.
Among the detailed requirements of the departments in the preparation of
the budget are as follows:
1. Identification of priority activities for each budgetary program &
projects.
2. Identification of work measurement units or output indicators.
3. Quantification in financial terms of physical resources requirements.
4. Preparation of estimates in prescribed budget formats.
The budget estimates of the department and agencies are then submitted
to the DBM (Department of Budget & Management) in accordance with a
time schedule prepared by it for its review and consolidation.
The DBM, as mandated by law, reviews all estimates submitted by the
different departments based on their estimated revenues, the soundness of the
proposals, and their conformance to the policy adapted by the President. At this
stage, it conducts budget hearings.
After the reviews, the DBM consolidates the approved estimates, develops
numerous analysis and statements. It then recommends actions to the President
who makes the final decisions as to the content of the Presidents Budget.
The approved estimates, collated by the DBM, are then forwarded by the
President to Congress as appropriation requests. This is submitted with detailed
line-item reviews of agency proposals.
Regional budgeting of agency and administration and of agency budgeting
has been directed by the President under LOI Nos. 447 and 448.
23
Starting 1978, P.D. No. 1177 provides that the budget of the national
government shall be prepared on the basis of budgetary proposals of the
different regional offices of the national government agencies.
These proposals are discussed by the Regional Development Councils on a
regional basis before submission to the departments and/or agencies central
offices. The Central Offices, in turn, review and finalize the proposals and submit
these to the DBM, which conducts technical budget hearings.
The 1978 national budget maybe considered
performance budget of the national government.
as
the
first
purely
From the DBM the proposals go to the President for approval, and are then
submitted to the Congress where they are discussed, and are finally enacted as
the General Appropriations Law.
How Congress discusses and finally approves the national budget into Law
is discussed in Budget Authorization.
Budget Authorization
The second phase of the budget process is Budget Authorization. It is the
legislative authorization of the budget. The legislative consideration of the
appropriations law is governed by Section 22 of Article VII of the Constitution.
This phase involves a detailed review of the budget proposals in
accordance with the Rules of the Congress. The review will be made by the
standing committees of the congress with jurisdiction in the particular field of
legislation and their eventual inclusion in the appropriations bill to be sponsored
by the Committee on Appropriations of the House of Representatives and the
Committee on Finance of the Senate.
In conformity with the constitutional mandate, the legislative powers of the
government are vested in the Congress which shall consist of a Senate and a
House of Representatives, except to the extent reserved to the people by the
provision of initiative and referendum.
The President is responsible to Congress for the program of government.
His principal duty is to formulate the guidelines of national policies in accordance
with the Constitution.
These policies will be carried out by the President, who shall be elected by
the direct vote of the people, for a term of six years. The Presidents approval is
not required before a bill passed by Congress becomes a law.
After the legislative action on the Presidents Budget Message, the DBM
prepares the following related documents:
1. Appropriations Law setting forth authorized appropriations by departments or
agencies;
24
2. National Governments Program of Expenditures showing approved programs

and projects of departments and agencies, description of activities, target
activities in terms of work units, unit costs, number of man-years, rate of
production, etc.;
3. Itemized of Personal Services listing of authorized itemized positions and their
corresponding classifications and authorized salaries;
4. Salary Tables;
5. Budget in Brief; and
6. Special Analysis
The budget is presented as a General Appropriation Bill in congress. If
considered desirable, the Committee on Appropriation of the House of
Representatives holds formal hearings on the proposed budget. These hearings
enable department and agency heads and other officials to defend their
respective appropriation requests and to furnish such information as the
Committee may need.
Under the present legislative system, the Congress can lower but not raise
the appropriations bills and can not pass an appropriation bill without the
National Treasurer certifying to the availability of funds or without revenue
measures in the bill itself.
Upon its approval by Congress, it is sent to the President for approval or
veto within thirty days after he receives it. If the President does not act on the
bill within this period, it shall automatically become a law without his signature.
Thus, the law becomes the legislative authorization for the departments and
agencies to execute their respective budgets.
Unlike in some foreign governments, the legislative authorizations in the
Philippines are made directly to the administrative agencies. However, the DBM
controls the release of funds to the departments and agencies.
Budget Execution
The third phase of the budget process is the Budget Execution, which
covers the operational phase of budgeting. It is concerned with control of
releases, allotment of the appropriations and incurrence of obligations.
At this stage, fixed plans for the use of appropriated funds are adopted and
budgetary controls put in force to direct and limit the spending of funds according
to plans. Control over expenditures is exercised by the President. In this
function, he is assisted by the DBM, as provided by the law. It is at this point that
budgeting serves as one of the principal tools of management.
It should be pointed out; however, that control over expenditures is
exercised by the Commission on Audit, as a constitutional mandate.
25
Budget is a system of management control. However, it can not serve as a

standard of control unless it reflects plans. Although a budget implements
program, it is actually a program itself. It encompasses also the entire program
of an organization with all other programs reflected in it.
If the budget is, therefore, to serve its purpose of control, it should be
flexible. It should be adjusted and revised whenever there is a change in the
basic conditions upon which it has been predicted.
The elements of control should be observed. If the change in conditions
upon which the budget was developed is such that operations are materially
affected, the amount of adverse effect can be measured and remedial action
taken to cushion the effect of the flaw. The budget, therefore, must be revised so
that it reflects the extension projection of current conditions and future
operations.
Plans and programs envisioned during the preparation step are now given
effect as modified by the action of Congress. To secure planned performance
through the sound use of the resources, the DBM releases the funds in
accordance with the agencys approved work and financial plan. As a result,
unauthorized, unplanned, and excessive expenditures are avoided.
During the budget execution phase, the following activities are undertaken:
1.
The Department of Budget & Management prepares the program of
expenditure and obligation ceilings of departments/agencies observing
current fiscal policies and guidelines.
2.
The DBM notifies agencies of obligation ceilings. From receipt of
obligation ceiling from the DBM, department/agencies allocate ceiling to
each budgetary program/project.
3.
Agencies prepared & submit work and financial plans to the DBM on
the basis of activity in terms of work units, resources in physical terms and
financial requirements.
4.
Submit other required documents necessary for advice and
allotment such as Equipment Procurement Program, Justifications for Key
Budgetary Inclusions (KBIs) or special budget, if necessary, etc. The DBM
reviews work and financial plans of departments/agencies.
5.
The DBM releases Comprehensive Advice of Allotment and the
corresponding Cash Disbursement Ceiling.
6.
The DBM approves modification in the original Work and Financial
Plan.
The fourth phase of the budget process is budget accountability. In the
exercise of the executive power, the President controls all the executive
departments, bureaus and offices. The President is immediately and legally
accountable to Congress for the program of government, responsible to Congress
for all he does in more important issues, like the National Budget.
26
Budget accountability concerns the reporting of actual performance

against planned performance. More specifically, it consists of the preparation
and submission of the following requirements:
a. Financial and physical reports of operations. It is the periodic
reporting by the agencies of performance under their approved budgets.
b. Actual cash disbursement & unpaid obligations.
It serves as
basis for management review of government activities and the fiscal and
policy implications thereof from the standpoint of department/agency
management, of the DBM and the President.
c. Actions of the Commission on Audit. Such actions assure the
fidelity of officials and employees in regard to their handling of
government receipts and expenditures.
While the emphasis in the action of the Commission on Audit is on the
legality of actions taken during the budget execution, management review is
concerned primarily with programs and performances. Thus, the techniques of
budget accountability are those concerned with reporting and interpreting
meaning and significance of data reported. Through periodic reports, each
official entrusted with public funds can account to the government not only his
management of the funds but also for the effectiveness of the program under his
jurisdiction.
Through a process of critical self-appraisal, government executives can
redirect budgetary efforts whenever such action is necessary.
In the final analysis, budget accountability affords the President and the
Members of the Cabinet, as well as the Congress, a means of evaluating progress
and determining the future directions of government activities.
The fourth phase of the budget process, that is accountability, is spread
through the various stages of the budget process, starting with the budget
preparation up to the budget accountability itself.
Exercise
ASSIGNMENT
Divide the class into groups. Let each group report on the following :
1. Compare the budget process of a private corporation and the government.
2. Give insight as to the effectiveness of each process.
27
hapter 6
NATIONAL GOVERNMENT BUDGETING
Budget Process in the National Government
Since most budget activities tend to recur annually, they become part of
the Budget Process, which is a cycle of sequential and interrelated budget
activities regularly recurring within a specified time frame called the fiscal year.
In the Philippines, the fiscal year coincides with the calendar year.
The Budget process is complex not only because new government
activities are complex in themselves but also because new fiscal objectives are
established each year requiring several fiscal years to work out properly.
28
Presidential Decree No. 1177, revises the budget process to institutionalize

the budgetary innovations developed by the national government since
September 21, 1972.
It requires the following:
1.
The formulation of the budget that supports the national development plan
and reflects the objectives and strategies of the Plan;
2.
The preparation of the budget within the context of the total resources of
the government, including revenues and receipts, expenditures and
borrowings of national and local government units, including governmentowned and controlled corporations;
3.
The preparation of the annual budget as an integral part of a long-term plan

and long-term budget program;
4.
The specification of multi-year requirements in each stage of the budget

process;
5. The preparation of the budget at the regional level, consolidation and review
at the departmental level, taking into consideration the goals, plans and
requirements of the regional offices in the interest of full government
response to local thinking and initiative; and
6. The implementation and timing of major development projects which may
affect the infrastructure program, debt ceilings, domestics credit, Balance of
International Payments (BOP), and the determination of expenditure levels to
ensure the observance of established fiscal, monetary, international payment
and other constraints.
The Budget Process, as applied in the national government of the
Philippines, consists of four major steps:
1.
Budget Preparation
3.
Budget Execution
2.
4.
General Provisions as provided for in the Local Government Code of the

Philippines
Constitutional Policies on the Budget
(1)
(2)
All appropriations, revenue or tariff bills, bills authorizing increase of the

public debt, bills of local application, and private bills shall originate
exclusively in the House of Representatives but the Senate may propose or
concur with amendments.
The Congress may not increase the appropriations recommended by the
President for the operation of the Government as specified in the budget.
The form, content and manner of preparation of the budget shall be
prescribed by law.
29
(3)
(4)
(5)
(6)
(7)
(8)
(9)
No provision or enactment shall be embraced in the general appropriations

bill unless it relates specifically to some particular appropriation to which it
relates.
The procedures in approving appropriations for the Congress shall strictly
follow the procedure for approving appropriations for other departments
and agencies.
A special appropriations bill shall specify the purpose for which it is
intended, and shall be supported by funds actually available as certified by
the National Treasurer or to be raised by a corresponding revenue proposal
therein.
No law shall be passed authorizing any transfer of appropriations.
However, the President, the President of the Senate, the Speaker of the
House of Representatives, the Chief Justice of the Supreme Court and the
heads of Constitutional Commissions may, by law, be authorized to
augment any item in the general appropriations laws for their respective
offices from savings in other items of their respective appropriations.
Discretionary funds appropriated for particular official shall be disbursed
only for public purposes to be supported by appropriate vouchers and
subject to such guidelines as may be prescribed by law.
If, by the end of any fiscal year, the Congress shall have failed to pass the
general appropriations bill for the ensuing fiscal year, the general
appropriations law for the preceding fiscal year shall be deemed reenacted
and shall remain in force and effect until the general appropriations bill is
passed by the Congress.
Fiscal autonomy shall be enjoyed by the Judiciary, Constitutional
Commissions, Office of the Ombudsman, Local Government and
Commission on Human Rights.
Definition of Terms
(1)
(2)
(3)
(4)
(5)
(6)
(7)
"Appropriation" refers to an authorization made by law or other

legislative enactment, directing payment out of government funds under
specified conditions or for specified purposes.
"Allotment" refers to an authorization issued by the Department of the
Budget to an agency, which allows it to incur obligation for specified
amounts contained in a legislative appropriation.
"Budget" refers to a financial plan required to be prepared pursuant to
Section 16 (1), Article VIII of the Constitution, reflective of national
objectives, strategies and programs.
"Current operating expenditures" refers to appropriations for the
purchase of goods and services for current consumption or for benefits
expected to terminate within the fiscal year.
"Capital outlay" or "capital expenditures" refers to an appropriation
for the purchase of goods and services, the benefits of which extend
beyond the fiscal year and which add to the assets of the Government,
including investments in the capital of government-owned or controlled
corporations and their subsidiaries.
"Continuing appropriation" refers to an appropriation available to
support obligations for a specified purpose or project, even when these
obligations are incurred beyond the budget year.
"Expected result" means service, product, or benefit that will accrue to
the public, estimated in terms of performance measures or targets.
30
(8)
(9)
(10)
(11)
(12)
(13)
"Fiscal year" refers to the period beginning with the first day of January
and ending with the thirty-first day of December of each calendar year.
The "Government" means the National Government, including the
Executive, the Legislative and the Judicial Branches, and the Constitutional
Commissions.
"Department and agency" and "department or agency" include all
departments, bureaus, offices, boards, commissions, courts, tribunals,
councils, authorities, administrations, centers, institutes, state colleges
and universities, and all other establishments and instrumentalities of the
National Government as defined in the preceding paragraph.
"Obligation" refers to an amount committed to be paid by the
Government for any lawful act made by an authorized officer for and in
behalf of the Government.
"Program" refers to the functions and activities necessary for the
performance of a major purpose for which a government agency is
established.
"Project" means a component of a program covering a homogenous
group of activities those results in the accomplishment of an identifiable
output.
It is declared in the policy of the State to formulate and implement a

national budget that is an instrument of national development, reflective of
national objectives, strategies and plans. The budget shall be supportive of and
consistent with the socio-economic development plan and shall be oriented
towards the achievement of explicit objectives and expected results, to ensure
that funds are utilized and operations are conducted effectively, economically
and efficiently. The national budget shall be formulated within the context of a
regionalized government structure and borrowings of all levels of government
and of government-owned or controlled corporations. The budget shall likewise
be prepared within the context of the national long-term plan and of a long-term
budget program.
The budget shall be formulated as an instrument for the attainment of
national development goals and as part of the planning-programming-budgeting
continuum. Levels of revenue, expenditure and debt shall be established in
relation to macro-economic targets of growth, employment levels, and price level
change, and shall be developed consistent with domestic and foreign debt,
domestic credit and balance of payments objectives for the budget period. The
aggregate magnitudes of the budget shall be determined in close consultation
among the planning and fiscal agencies of government. Budgetary priorities shall
be those specified in the approved national plans, keeping in mind the capability
and performance of the implementing agencies concerned. Agency budget
proposals shall explicitly state linkage to approved agency plans.
The finances of government shall be analyzed and determined as the
aggregate of revenue, expenditure and debt of all units of government, including
the national government and its agencies and instrumentalities, local
government units and government-owned or controlled corporations. The
national government budget shall be evolved within the framework of the total
impact of government activity on the national economy. The budgets of
government corporations and local governments shall be consistent in form and
timing with that of the national government, to facilitate comprehensive
evaluation.
31
The budgets of national government agencies shall take into full and
explicit consideration the goals, plans and requirements of their respective
regional offices, in the interest of full government response to local thinking and
initiative. The budget preparation process shall originate at regional and local
levels, and shall be consolidated and reviewed by the central offices of the
various national agencies. The regional development strategies and plans,
including physical framework and resource-use plans, shall be considered in the
preparation of the budget.
The annual budgets of the national government shall be prepared as an
integral part of a long-term budget picture. The long-term economic and physical
framework plans of government, multi-year requirements of approved programs
and projects, organizational and personnel development strategies, and other
commitments entered into or otherwise assumed by government shall be
specified in the budget process.
The development process requires the implementation of major
development projects of such size as to significantly affect the infrastructure
program, debt ceilings, the balance of payments, domestic credit, and
government expenditure levels. The budget process shall formally consider the
timing of major national projects, in order to ensure the observance of
established fiscal, monetary, international payments, and other constraints.
The analysis of agency operating performance, the evaluation of
performance, the evaluation of performance relative to costs incurred and the
review of agency operating systems and procedures are inherent parts of the
budget process. Agencies shall therefore design and implement (1) management
information systems yielding both performance and financial information which
will adequately monitor and control budget implementation, and (2)
improvements in operating systems, procedures and practices, so as to ensure
that the targets approved in budget authorization are in fact attained at minimum
cost.
The extent of personnel services expenditures relative to the total budget
and the number of agencies and personnel in government call for an effective
national compensation and position classification policy. The Constitutional
principle of a single compensation scheme for the government and its
instrumentalities is one of the bases of the government budget process.
Budget Preparation
The President shall, in accordance with Section 22 (1), article VII of the
Constitution, submit within thirty (30) days from the opening of each regular
session of the Congress as the basis for the preparation of the General
Appropriations Act, a national government budget estimated receipts based on
existing and proposed revenue measures, and of estimated expenditures.
The President shall include in the budget submission the proposed
expenditure level of the Legislative and Judicial Branches and of Constitutional
bodies, which shall have undergone the same process of evaluation and which
shall have been subject to the same budgetary policies and standards applicable
to agencies in the Executive Branch.
32
The President may transmit to the Congress from time to time, such
proposed supplemental or deficiency appropriations as are, in his judgment, (1)
necessary on account of laws that were enacted after the transmission of the
Budget, or (2) otherwise needed in the public interest.
The budget proposal of the President shall include current operating
expenditures and capital outlays. It shall comprise such funds as may be
necessary for the operation of the programs, projects and activities of the various
departments and agencies. The proposed General Appropriations Act and other
Appropriations Acts necessary to cover the budget proposals shall be submitted
to the Congress to accompany the President's budget submission.
The budget shall be presented to the Congress in such form and content as
may be approved by the President and may include the following:
(1)
(2)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
A budget message setting forth in brief the government's budgetary

thrusts for the budget year, including their impact on development goals,
monetary and fiscal objectives, and generally on the implications of the
revenue, expenditure and debt-proposals; and
Summary financial statements setting forth:
Estimated expenditures and proposed appropriations necessary for the
support of the Government for the ensuing fiscal year, including those
financed from operating revenues and from domestic and foreign
borrowings;
Estimated receipts during the ensuing fiscal year under laws existing at the
time the budget is transmitted and under the revenue proposals, if any,
forming part of the year's financing program;
Actual appropriations, expenditures, and receipts during the last
completed fiscal year;
Estimated expenditures and receipts and actual or proposed appropriations
during the fiscal year in progress;
Statements of the condition of the National Treasury at the end of the last
completed fiscal year, the estimated condition of the Treasury at the end of
the fiscal year in progress and the estimated condition of the Treasury at
the end of the ensuing fiscal year, taking into account the adoption of
financial proposals contained in the budget and showing, at the same time,
the unencumbered and un-obligated cash resources;
Essential facts regarding the bonded and other long-term obligations and
indebtedness of the Government, both domestic and foreign, including
identification of recipients of loan proceeds; and
Such other financial statements and data as are deemed necessary
or desirable in order to make known in reasonable detail the financial
condition of the government.
Budget Levels. The ordinary income of government shall be used

primarily to provide appropriations for current operations, except in case of a
national emergency or serious financial stress, the existence of which has been
duly proclaimed by the President.
The level of aggregate revenue expenditure and debt shall be jointly
recommended to the President by the Department of Budget and Management,
the Department of Finance, the National Economic and Development Authority
33
and the Central Bank of the Philippines, acting within the Development Budget
Coordination Committee of the National Economic and Development Authority.
No appropriations for current operations and capital outlays of the
Government shall be proposed unless the amount involved is covered by the
ordinary income, or unless it is supported by a proposal creating additional
sources of funds or revenue, including those generated from domestic and
foreign borrowings, sufficient to cover the same. Likewise, no appropriation for
any expenditure, the amount of which is not covered by the estimated income
from the existing sources of revenue or available current surplus, may be
proposed, unless it is supported by a proposal creating an additional source of
funds sufficient to cover the same.
Proposals creating additional sources of funds shall be prepared in the form
of revenue bills.
The provisions of this section shall not be construed as
impairing in any way the power of the Congress to enact revenue and
appropriation bills, nor the authority of the President to propose special revenue
and appropriation bills after the submission of the budget.
Budget Estimates.
Each head of department, office or agency of the
National Government, including the Legislative and Judicial Branches, and
including government owned or controlled corporations, shall submit his request
for appropriations to the Department of Budget in accordance with the budget
calendar, format, and such rules and regulations as may be issued in
implementation of this Decree.
The budget estimates of agencies shall include the following information:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Objectives, functions, activities, programs and projects showing the

general character and relative importance of the work to be accomplished
or the services to be rendered, and the principal elements of cost involved;
Linkage of the work and financial proposals to approved development
plans;
Estimated current operating expenditures and capital outlays, with
comparative data for the preceding and current budget years;
Identification by region, pursuant to policies on the regionalization of
government operations;
Financial sources, reflecting all revenues, proceeds of foreign and domestic
borrowings, and other sources, particularly those which accrue to the
General Funds;
Contingent liabilities, including national government guarantees of
obligations of government-owned or controlled corporations and their
subsidiaries;
Brief description of the major thrusts and priority programs and projects for
the budget year, results expected for each budgetary program and project,
the nature of work to be performed, estimated costs per unit of work
measurement, including the various objects of expenditure for each
project;
Organization charts and staffing patterns indicating the list of existing and
proposed positions with corresponding salaries, and proposals for position
classification and salary changes, duly supported by adequate justification.
34
Regional Budget. The Budgets of national government agencies shall be

prepared taking into full and careful consideration the opportunities and
requirements specific to the various regions of the country. Where they are
organized, regional offices shall originate agency budget proposals, in accordance
with approved priorities and guidelines.
Agencies which are not regionalized shall nonetheless estimate the
amounts planned to be spent for each region of the country.
The Secretary shall identify by region the expenditure programs of the
national government agencies in the national government budget, and release
funds to national government agencies in accordance with the approved regional
distribution of expenditures, specifying the region of destination.
Departments and agencies shall sub-allot in full and without the imposition
of reserves, the approved budget allocation of their various regional offices,
except as may be authorized by the Secretary, in case realignment of
expenditures prove to be necessary in the course of budget execution. The
Secretary shall issue the rules and regulations needed to implement the
provisions of this section.
Budget Evaluation. Agency proposals shall be reviewed on the basis of
their own merits and not on the basis of a given percentage or peso increase or
decrease from a prior year's budget level, or other similar rule of thumb that is
not based on specific justification. Proposed activities, whether new or ongoing,
shall be evaluated using a zero-base approach and on the basis of (1) relationship
with the approved development plan, (2) agency capability as demonstrated by
past performance, (3) complemental role with related activities of other agencies,
and (4) other similar criteria. The realization of savings in a given budget year
and the consequent non-utilization of funds appropriated or released to a given
agency shall not be a negative factor in the budget evaluation for a subsequent
year.
The budgetary implications of foreign-assisted projects shall be explicitly
considered at the time of project design and financing negotiation. The project
study shall specify the cash flow requirements of the project, among others, for
(1) payment of principal and interest, (2) peso component of capital costs and
project preparation, (3) infrastructure and support facilities needed to be directly
financed by government, (4) operating and other expenditures which will be
ultimately required for General Fund support when the project is implemented,
and (5) peso requirements needed as counterpart. The concurrence of the
Department of Budget and Management shall be obtained with respect to peso
requirements and implication on expenditure ceilings.
The budgets of coordinating agencies, councils, task forces, authorities,
committees, or other similar bodies shall be limited to and used to fund only such
planning, coordinating and monitoring functions as are assigned to it. Funds for
implementation shall be budgeted and released to the line implementing
agencies concerned; provided, that the budgets of coordinating bodies may
include a lump-sum for purposes related to their assigned functions, which lumpsum shall be sub-allotted to implementing agencies and not used by the agency
for its own operations: provided, further, that funds budgeted for a given agency
falling within the jurisdiction of a coordinating body, may be subject to release
35
upon approval by the coordinating agency of such release or of the agency's work
program.
The internal operating budgets of government-owned or controlled
corporations and of chartered institutions shall be approved by their respective
governing boards in accordance with a budget calendar and format as may be
approved by the President: Provided, that such budgets shall be subject to review
and approval as part of the budget process in cases where national government
budgetary support is needed, in terms of (a) capital or equity inputs, (b)
operating contributions to support specific activities undertaken by the institution
as part of its regular functions, and (c) guarantee of the national government for
obligations or contracts entered into by the corporations: provided, further, that
the submission of interim financial statements may be required by the Secretary.
All units of government, including government-owned or controlled
corporations, shall pay income taxes, customs duties and other taxes and fees as
are imposed under revenue law: provided, that organizations otherwise exempted
by law for the payment of such taxes/duties may ask for a subsidy from the
General Fund in the exact amount of taxes/duties due: Provided, further, that a
procedure shall be established by the Secretary of Finance and the Secretary of
the Budget, whereby such subsidies shall automatically be considered as both
revenue and expenditure of the General Fund.
Appropriations for personal services shall be considered as included in the
amount specified for each budgetary program and project of each department,
Bureau, office or agency, and shall not be itemized. The itemization of personal
services shall be prepared by the Secretary for consideration and approval of the
President as provided in Section 23 hereof: Provided, That itemization of personal
services shall be prepared for all agencies of the Legislative, Executive and
Judicial Branches and the Constitutional bodies, except as may be otherwise
approved by the President for positions concerned with national security matters.
No legislative proposal which, if enacted, would authorized subsequent
appropriations, shall be transmitted to the President by any bureau or agency
without the prior approval of the Head of the Department concerned or by the
Chairman or Chief Executive Officer of a Cabinet level body which coordinates the
multi-sectoral formulation and implementation of a particular program of
expenditure involving one or more departments. No legislative proposal involving
the appropriation of funds shall be transmitted to the Congress without the
approval of the President.
The General Appropriations Act shall be presented in the form of budgetary
programs and projects for each agency of the government, with the
corresponding appropriations for each program and project, including statutory
provisions of specific agency or general applicability. The General Appropriations
Act shall not contain any itemization of personal services, which shall be
prepared by the Secretary after enactment of the General Appropriations Act, for
consideration and approval of the President.
The Congress shall in no case increase the appropriation of any project or
program of any department, bureau, agency or office of the Government over the
36
amount submitted by the President in his budget proposal. In case of any

reduction in the proposed appropriation for a project or program, a corresponding
reduction shall be made in the total appropriation of the department, office or
agency concerned and in the total of the General Appropriations Bill.
Prohibition Against Enactment of Additional Special
The Congress shall not add special provisions in the budget earmarking the
use of appropriations for specific programs or activities nor shall it increase the
amounts specified in special provisions beyond those proposed by the President.
All expenditures for (1) personnel retirement premiums, government
service insurance, and other similar fixed expenditures, (2) principal and interest
on public debt, (3) national government guarantees of obligations which are
drawn upon, are automatically appropriated: provided, that no obligations shall
be incurred or payments made from funds thus automatically appropriated
except as issued in the form of regular budgetary allotments.
All appropriation proposals shall be included and considered in the budget
preparation process. After the President shall have submitted the Budget, no
supplemental appropriation measure supported from existing revenue measures
shall be passed by the Congress. However, supplemental or deficiency
appropriations involving the creation of new offices, programs or activities may
be enacted if accompanied and supported by new revenue sources.
Unexpended balances of appropriations authorized in the General
Appropriation Act shall revert to the un-appropriated surplus of the General Fund
at the end of the fiscal year and shall not thereafter be available for expenditure
except by subsequent legislative enactment: Provided, that appropriations for
capital outlays shall remain valid until fully spent or reverted: provided, further,
that continuing appropriations for current operating expenditures may be
specifically recommended and approved as such in support of projects whose
effective implementation calls for multi-year expenditure commitments: provided,
finally, that the President may authorize the use of savings realized by an agency
during given year to meet non-recurring expenditures in a subsequent year.
The balances of continuing appropriations shall be reviewed as part of the
annual budget preparation process and the preparation process and the President
may approve upon recommendation of the Secretary, the reversion of funds no
longer needed in connection with the activities funded by said continuing
appropriations.
Expenditures funded by foreign and domestic borrowings shall be included
within the expenditure program of the agency concerned. Loan proceeds,
whether in cash or in kind, shall not be used without the corresponding release of
funds through a Special Budget as herein provided.
Government agencies, particularly government-owned or controlled
corporations, shall periodically report to the Secretary of Finance and the
Secretary of Budget on the status of obligations they have entered into and which
are the subject of government guarantees.
37
It shall be unlawful for any person to make any unauthorized revision of

any figure, text or provision in the General Appropriations Act and in the other
budget documents during or in the process of the printing. Any unauthorized
change made either by addition, modification or deletion, shall be null and void.
Persons, who, in violation of the provision of the law, make any
unauthorized revision in the budget documents, shall be criminally liable for
falsification of legislative documents under the Revised Penal Code. When the
offender is a government official or employee, he shall, in addition to criminal
prosecution, be dismissed from the service.
Budget Execution
All moneys appropriated for functions, activities, projects and programs
shall be available solely for the specific purposes for which these are
appropriated.
Authorized appropriations shall be allotted in accordance with the
procedure outlined hereunder:
(1)
(2)
(3)
(4)
(5)
(6)
Appropriations authorized for any Department or agency of the

Government may be made available for expenditure when the head of
each Department or agency submits to the Secretary a request for
allotment of funds showing the estimated amounts needed for each
function, activity or purpose for which the funds are to be expended during
the applicable allotment period. The form and the time of submission of
the request for allotment showing the proposed quarterly allotments of the
whole authorized appropriation for the department or agency, shall be
prescribed by the Secretary.
In the administration of the allotment system herein provided, each
calendar year shall be divided into four quarterly allotment periods
beginning, respectively, on the first day of January, April, July and October.
In any case where the quarterly allotment period is found to be impractical
or otherwise undesirable, the Secretary may prescribe a different period
suited to the circumstances.
Request for allotment shall be approved by the Secretary who shall ensure
that expenditures are covered by appropriations both as to amount and
purpose and who shall consider the probable needs of the department or
agency for the remainder of the fiscal year or period for which the
appropriation was made.
At the end of every quarter, each department or agency shall report to the
Secretary the current status of its appropriations, the cumulative
allotments, obligations incurred or liquidated, total disbursements,
unliquidated obligations and unexpended balances and the results of
expended appropriations.
Releases of funds appropriated for a given agency may be made to its
regional offices if dictated by the need and urgency of regional activities.
The Secretary shall have authority to modify or amend any allotment
previously issued. In case he shall find at any time that the probable
receipts from taxes or other sources of any fund will be less than
anticipated and that as a consequence the amount available for the
remainder of the term of the appropriations or for any allotment period will
be less than the amount estimated or allotted therefore, he shall, with the
38
(7)
approval of the President and after notice to the department or agency

concerned, reduce the amount or amounts allotted so as to conform to the
targeted budgetary goals.
The Secretary shall maintain a control record showing quarterly by funds,
accounts, and other suitable classifications, the amounts appropriated; the
estimated revenues, the actual revenues or receipts, the amounts allotted
and available for expenditures, the un-liquidated obligations, actual
balances on hand, and the unencumbered balance of the allotments for
each department or agency of the Government.
The Secretary of Budget shall recommend to the President the year's

program of expenditure for each agency of the government on the basis of
authorized appropriations. The approved expenditure program shall constitute
the basis for fund release during the fiscal period, subject to such policies, rules
and regulations as may be approved by the President.
Expenditures from lump-sum appropriations authorized for any purpose or
for any department, office or agency in any annual General Appropriations Act or
other Act and from any fund of the National Government, shall be made in
accordance with a special budget to be approved by the President, which shall
include but shall not be limited to the number of each kind of position, the
designations, and the annual salary proposed for which an appropriation is
intended. This provision shall be applicable to all revolving funds, receipts which
are automatically made available for expenditure for certain specific purposes,
aids and donations for carrying out certain activities, or deposits made to cover
to cost of special services to be rendered to private parties. Unless otherwise
expressly provided by law, when any Board, head of department, chief of bureau
or office, or any other official, is authorized to appropriate, allot, distribute or
spend any lump-sum appropriation or special, bond, trust, and other funds, such
authority shall be subject to the provisions of this section.
In case of any lump-sum appropriation for salaries and wages of temporary and
emergency laborers and employees, including contractual personnel, provided in
any General Appropriation Act or other Acts, the expenditure of such
appropriation shall be limited to the employment of persons paid by the month,
by the day, or by the hour.
An operational cash budget shall be implemented to ensure the availability
of cash resources for priority development projects and to establish a sound basis
for determining the level, type and timing of public borrowings. The procedure,
formal, accounts, and other details necessary for the execution, monitoring and
control aspects of the system shall be determined jointly by the Secretary of
Finance, the Secretary of the Budget and the Chairman of the Commission on
Audit.
The Secretary may establish reserves against appropriations to provide for
contingencies and emergencies which may arise later in the calendar year and
which would otherwise require deficiency appropriations.
The establishment of appropriation reserves shall not necessarily mean
that such portion of the appropriation will not be made available for expenditure.
Should conditions change during the fiscal year justifying the use of the reserve,
necessary adjustments may be made by the Secretary when requested by the
department, official or agency concerned.
39
Except as otherwise provided in the General Appropriations Act and

whenever in his judgment the public interest so requires, the President, upon
notice to the head of office concerned, is authorized to suspend or otherwise stop
further expenditure of funds allotted for any agency, or any other expenditure
authorized in the General Appropriations Act, except for personal services
appropriations used for permanent officials and employees.
Except as otherwise provided in the General Appropriations Act, any
savings in the regular appropriations authorized in the General Appropriations Act
for programs and projects of any department, office or agency, may, with the
approval of the President, be used to cover a deficit in any other item of the
regular appropriations: provided, that the creation of new positions or increase of
salaries shall not be allowed to be funded from budgetary savings except when
specifically authorized by law: provided, further, that whenever authorized
positions are transferred from one program or project to another within the same
department, office or agency, the corresponding amounts appropriated for
personal services are also deemed transferred, without, however increasing the
total outlay for personal services of the department, office or agency concerned.
No funds shall be disbursed, and no expenditures or obligations chargeable
against any authorized allotment shall be incurred or authorized in any
department, office or agency without first securing the certification of its Chief
Accountant or head of accounting unit as to the availability of funds and the
allotment to which the expenditure or obligation may be properly charged.
No obligation shall be certified to accounts payable unless the obligation is
founded on a valid claim that is properly supported by sufficient evidence and
unless there is proper authority for its incurrence. Any certification for a nonexistent or fictitious obligation and/or creditor shall be considered void. The
certifying official shall be dismissed from the service, without prejudice to
criminal prosecution under the provisions of the Revised Penal Code. Any
payment made under such certification shall be illegal and every official
authorizing or making such payment, or taking part therein or receiving such
payment, shall be jointly and severally liable to the government for the full
amount so paid or received.
Heads of departments, bureaus, offices and agencies shall not incur nor
authorize the incurrence of expenditures or obligations in excess of allotments
released by the Secretary for their respective departments, offices and agencies.
Parties responsible for the incurrence of overdrafts shall be held personally liable
therefore.
When under authority of law, a function or an activity is transferred or
assigned from one agency to another, the balances of appropriations which are
determined by the head of such department to be available and necessary to
finance or discharge the function or activity so transferred or assigned may, with
the approval of the President, be transferred to and be made available for use by
the agency to which said function or activity is transferred or assigned for the
purpose for which said funds were originally available. Balances so transferred
shall be credited to any applicable existing appropriation account or to new
appropriation accounts which are hereby authorized to be established, and shall
40
be merged with any fund already in the applicable existing or newly established
appropriation account or accounts and thereafter accounted for as one fund.
The funding requirements of agencies reorganized in accordance with
approved reorganization plans or reorganized pursuant to law enacted after the
approval of the General Appropriations Act, are deemed appropriated and shall
be available for expenditure as soon as the reorganization plans are approved.
The Secretary of Budget is hereby authorized to make necessary adjustments in
the appropriations to carry out the provisions of this section. The department
head concerned with the approval of the Secretary of Budget, is hereby
authorized to make necessary salary adjustments resulting from final selection of
personnel to fill the positions in the staffing patterns of reorganized agencies, to
make necessary salary adjustments resulting from new appointments,
promotions or salary increases, subject to the provisions of Presidential Decree
No. 985.
Every expenditure or obligation authorized or incurred in violation of the
provisions of this Code or of the general and special provisions contained in the
annual General or other Appropriations Act shall be void. Every payment made in
violation of said provisions shall be illegal and every official or employee
authorizing or making such payment, or taking part therein, and every person
receiving such payment shall be jointly and severally liable to the Government for
the full amount so paid or received.
Any official or employee of the Government knowingly incurring any
obligation, or authorizing any expenditure in violation of the provisions herein, or
taking part therein, shall be dismissed from the service, after due notice and
hearing by the duly authorized appointing official. If the appointing official is
other than the President and should he fail to remove such official or employee,
the President may exercise the power of removal.
No person shall be appointed as budget officer in any department, bureau,
office or agency unless he meets the qualification and training requirements
established by the Budget Commission as prerequisite to appointment, in
addition to other qualification requirements prescribed by the Civil Service
Commission for the position.
The President, through the Secretary shall evaluate on a continuing basis
the quantitative and qualitative measures of agency performance as reflected in
the units of work measurement and other indicators of agency performance,
including the standard and actual costs per unit of work.
The Secretary of Budget shall determine accounting and other items of
information, financial or otherwise, needed to monitor budget performance and
to assess effectiveness of agencies operations and shall prescribe the forms,
schedule of submission, and other components of reporting systems, including
the maintenance of subsidiary and other recording which will enable agencies to
accomplish and submit said information requirements: provided, that the
Commission on Audit shall, in coordination with the Secretary of Budget, issue
41
rules and regulations that may be applicable when the reporting requirements
affect accounting functions of agencies: provided, further, that the applicable
rules and regulations shall be issued by the Commission on Audit within a period
of thirty (30) days after the Department of Budget and Management prescribes
the reporting requirements.
Monitoring of Expenditures. Expenditures of national government
agencies shall be recorded so as to identify expenditures as classified into such
categories as may be determined by the Department of Budget and
Management, including but not limited to the following: (1) agency incurring the
obligation, (2) program, project and activity, (3) object of expenditure, including
personal services, operating and maintenance expenditures, equipment, and
capital outlays, (4) region or locality of use, (5) economic or functional
classification of the expenditure, (6) obligational authority and cash transactions
arising from fund releases, and such other classifications as may be necessary for
the budget process. The Secretary of Budget shall determine the data and
information requirements thus needed and the Commission on Audit shall
formulate the accounting rules and regulations, including changes in the Chart of
Accounts and the general or subsidiary accounting records, as may be necessary
to generate the desired data and information. The Chief Accountants of agencies
and where necessary, accountants of regional offices, shall submit the data
needed by the Department of Budget and Management in accordance with such
rules and regulations as it may formulate.
The Department of Budget and Management shall develop standard costs
for duly approved units of work measurement for each agency's budgetary
projects or activities. These standard costs shall be compared with actual unit
costs and utilized in the evaluation of agency budgetary performance.
The Secretary of Budget shall conduct a continuing review of the
budgetary program and project structure of each department, office or agency,
the result of which shall be the basis for modifying or amending such structure for
incorporation in the President's budget proposals to the Congress.
The heads of departments, bureaus, offices or agencies of the government
shall submit a semi-annual report of their accomplishments, both work and
financial results, in accordance with such content and format as may be
prescribed by the Secretary. These reports shall be designed and use for the
purpose of monitoring the efficiency and effectiveness with which budgeted
funds are being utilized, and generally for verifying the attainment of goals
established in the budget process.
Failure on the part of agency heads, chief accountants, budget officers,
cashiers, disbursing officers, administrative and personnel officers, and
responsible officers of departments, bureaus, offices and agencies to submit trial
balances, work and financial plans, special Budgets, reports of operation and
income, plans, special budgets, reports of operation and income, current agency
plantilla of personnel and such other reports as may be necessary and required
by the Department of Budget shall automatically cause the suspension of
payment of their salaries until they have complied with the requirements of the
Department of Budget. No appropriation authorized in the General Appropriations
Act shall be made available to pay the salary of any official or employee who
42
violates the provisions of this section, in addition to any disciplinary action that
may be instituted against such erring official or employee.
hapter 7
LOCAL GOVERNMENT BUDGETING
Source: Local Government Code
Local Government Budgeting shall cover the budgeting operations of provinces,
cities, municipalities, and barangays.
Fundamental Principles. The following fundamental principles shall govern
local government budgeting:
(a) National planning shall be based on local planning to ensure that the needs
and aspirations of the people as well as those of the LGUs shall be
considered in the formulation of budgets of NGAs;
(b) Local budget plans and goals shall, as far as practicable, be harmonized
with national development goals and strategies in order to optimize the
utilization of resources and to avoid duplication in the use of fiscal and
physical resources;
(c) LGUs shall formulate sound financial plans, and local budgets shall be
based on functions, activities, and projects, in terms of expected results;
(d) LGUs shall ensure that their respective budgets incorporate the
requirements of their component LGUs and provide for equitable allocation
of resources among these LGUs;
(e) Local government
development plans;
budgets
shall
43
operationalize
approved
local
(f) No money shall be paid out of the local treasury except in pursuance of an
appropriations ordinance or law;
(g) LGUs shall endeavor to have a balanced budget in each fiscal year of
operation;
(h) Local government funds and monies shall be spent solely for public
purposes;
(i) Trust funds in the local treasury shall not be paid out except in fulfillment
of the purpose for which the trust was created or the funds received;
(j) Fiscal responsibility shall be shared by all those exercising authority over
financial affairs, transactions, and operations of LGUs;
(k) Local revenue is generated only from sources expressly authorized by law
or ordinance, and collection thereof shall at all times be acknowledged
properly;
(l) All monies officially received by a local government officer in any capacity
or on any occasion shall be accounted for as local funds, unless otherwise
provided by law; and
(m)
Every officer of LGU whose duties permit or require the possession
or custody of local funds shall be properly bonded, and such officer shall be
accountable and responsible for said funds and for the safekeeping thereof
in conformity with the provisions of law.
Definition of Terms
(a)
Annual Budget refers to a financial plan embodying the estimates of

income and expenditures for one (1) fiscal year;
(b)
Appropriation refers to an authorization made by the ordinance directing

the payment of goods and services from local government funds under
specified conditions or for specific purposes;
(c)
Budget Document refers to the instruments used by the local chief

executive to present a comprehensive financial plan to the sanggunian
concerned;
(d)
Capital Outlay refers to appropriation for the purchase of goods and

services, the benefits of which extend beyond the fiscal year and which
add to the assets of the LGU concerned, including investments in public
utilities such as public markets and slaughterhouses;
(e)
Continuing Appropriation refers to an appropriation available to support

obligation for a specified purpose or project, such as those for the
construction of physical structures or for the acquisition of real property or
equipment, even when these obligations are incurred beyond the budget
year;
(f)
Current Operating Expenditures refer to appropriations for the

purchase of goods and services for the conduct of normal local
44
government operations within the fiscal year, including goods and services
that will be used or consumed during the budget year;
(g)
Expected Results refer to services, products, or benefits that will accrue

to the public, estimated in terms of performance, measures, or physical
targets;
(h)
Fund refers to a sum of money or other assets convertible to cash, set

aside for the purpose of carrying out specific activities or attaining certain
objectives in accordance with special regulations, restrictions, or
limitations and constitutes an independent fiscal and accounting entity;
(i)
Income refers to all revenues and receipts collected or received forming

the gross accretions of funds of the LGU;
(j)
Obligations refer to an amount committed to be paid by the LGU for any

lawful act made by an accountable officer for and in behalf of the LGU
concerned;
(k)
Personal Services refer to appropriations for the payment of salaries,

wages, and other compensation of temporary, contractual, and casual
employees of the LGU;
(l)
Receipts refer to income realized from the operations and activities of the
LGU or are received by the LGU in the exercise of its corporate functions,
consisting of charges for services rendered, conveniences furnished, or the
price of a commodity sold, as well as loans, contributions or aids from
other entities, except provisional advances for budgetary purposes;
(m)
Revenues refer to income derived from the regular system of taxation

enforced under the authority of law or ordinance and as such, accrue more
or less regularly every year.
Composition. Local government budgets shall primarily consist of two
(2) parts:
(a)
(b)
The estimates of income; and

The total appropriations covering the current operating expenditures
and capital outlays.
The budget document shall contain:

(a) A budget message of the local chief executive setting forth in brief the
significance of the executive budget, particularly in relation to the
approved local development plan;
(b) A brief summary of the functions, projects, and activities to be
accomplished in pursuit of the goals and objectives of the LGU for the
ensuing fiscal year, specifically the delivery of basic services or facilities
enumerated in Rule V of these Rules.
(c) Summary of financial statements setting forth:
(1) The actual income and expenditures during the immediately
preceding year;
(2) The actual income and expenditure of the first two (2) quarters and
the estimates of income and expenditure for the last two (2)
quarters of the current fiscal year;
45
(3) The estimates of income for the ensuing fiscal year from ordinances
and laws existing at the time the proposed budget is transmitted,
together with other revenue-raising proposals;
(4) The estimated expenditures necessary to carry out the functions,
projects, and activities of the LGU for the ensuing fiscal year;
(5) All essential facts regarding the bonded and other long-term
obligations and indebtedness of the LGU, if any;
(6) Summary statement of all statutory and contractual obligations due;
and
(7) Such other financial statements and data as are deemed necessary
or desirable in order to disclose in all practicable detail the financial
condition of the LGU.
For purposes of budget preparation, DBM and other appropriate NGAs and
GOCCs concerned, shall provide LGUs, not later than the fifteenth (15th) day of
June of each year, information as to their allocation of, and shares from, the
utilization and development of national wealth, if any, for the budget year.
LDCs shall submit to the local finance committee a copy of the local
development plan and annual investment program prepared and approved during
the fiscal year before the calendar for budget preparation in accordance with
applicable laws, specifying therein projects proposed for inclusion in the local
government budget as well as in the budgets of NGAs or GOCCs concerned.
The local finance committee shall use the plan to ensure that projects
proposed for local funding are included in the budget. NGAs and GOCCs shall
provide LGUs all necessary information on projects already funded in their
respective budgets. Such information shall include specifically, among other
things: name of project, location, sources, and levels of funding for said projects.
The same information must be made available to the local finance committee
concerned within the first quarter of the year to avoid duplications in funding
project proposals.
On or before the fifteenth (15th) day of July of each year, local treasurers
shall submit to their respective local chief executives a certified statement,
covering the income and expenditures of the preceding fiscal year, the actual
income and expenditures of the first two (2) quarters of the current year and the
estimated income and expenditures for the last two (2) quarters of the current
year. All statements of income and expenditures referred to above shall be jointly
certified by the local treasurer and the local accountant.
Local Finance Committee. There shall be created in every province,
city, or municipality a local finance committee to be composed of the local
planning and development coordinator, the local budget officer, and the local
treasurer. The committee shall:
(a)
Determine the income reasonably projected as collectible for the ensuing
fiscal year;
(b)
Recommend appropriate tax and other revenue measures or borrowing
which may be required to support the budget;
46
(c)
(d)
(e)
(f)
(g)
(h)
Recommend to the local chief executive concerned the level of annual

expenditures and ceilings of spending for economic, social, and general
services based on the approved local development plans;
Recommend to the local chief executive concerned the proper allocation of
expenditures for each development activity between current operating
expenditures and capital outlays;
Recommend to the local chief executive concerned the amount to be
allocated for capital outlay under each development activity or
infrastructure project;
Assist the sangguniang panlalawigan in the review and evaluation of the
budget of component cities and municipalities in the case of the provincial
finance committee, the barangay budgets in the case of the city or the
municipal finance committee, and recommend appropriate action thereon;
Assist the sanggunian concerned in the analysis and review of annual
regular and supplemental budgets of the respective LGUs to determine
compliance with statutory and administrative requirements; and
Conduct semi-annual review and general examination of costs and
accomplishments against performance standards applied in undertaking
development projects, and prepare a report thereon. A copy of the report
shall be furnished the local chief executive and the sanggunian concerned,
and shall be posted in conspicuous and publicly accessible places in the
provinces, cities, municipalities, and barangays.
Each head of office or department shall submit a budget proposal for his
office or department to the local chief executive on or before the fifteenth (15th)
day of July of each year.
The budget proposal of each office or department shall be categorized
under economic, social, or general services. Each service shall be covered by the
budget of at least one (1) office or department of the LGU.
The basic services and facilities shall be funded from the share of LGUs in
the proceeds of national taxes and other local revenues, and funding support
from the National Government, its instrumentalities and GOCCs which are tasked
by law to establish and maintain such services or facilities. Any fund or resource
available for the use of LGUs shall first be allocated for the provision of basic
services or facilities enumerated in Rule V of these Rules before applying the
same for other purposes, unless otherwise provided in these Rules.
The budget proposal shall be prepared in accordance with such policy and
program guidelines as the local chief executive may issue in conformity with the
local development plan, the budgetary ceilings prescribed by the local finance
committee, and the budgetary requirements and limitations prescribed under this
Rule.
The budget proposal of offices or departments shall be divided into two (2)
parts:
o
o
Current Operating Expenditures; and

Capital Outlays.
The budget proposal shall contain the following information:
47
Objectives, functions, and projects showing the general

character and relative importance of the work to be accomplished or
the services to be rendered, and the costs thereof;
Organizational charts and staffing patterns indicating
the list of plantilla positions with their corresponding salaries, and
proposals for reclassification of positions and salary changes, as well
as the creation of new positions with their proposed salary grade,
duly supported by proper justification;
Brief description of the functions, projects, and

activities for the ensuing fiscal year, expected results for each
function, project, and activity, and the nature of work to be
performed, including the objects of expenditure for each function,
project, and activity;
Relation of the work and financial proposals to

approved local development plans;
Estimated current operating expenditures and capital
outlays with comparative date for the last two (2) preceding fiscal
years, and current and ensuing fiscal years; and
Accomplishment reports for the last two (2) preceding
and the current fiscal years.
The budget proposal of the sanggunian shall be
submitted in the same manner and within the same period as those
of the other offices or departments in the LGU.
Preparation of the Executive Budget. Upon receipt of the statement

of incomes and expenditures from the local treasurer, the budget proposals of the
heads of offices or departments, and the estimates of income and budgetary
ceilings from the local finance committee, the local chief executive shall prepare
the executive budget for the ensuing fiscal year.
The local chief executive shall submit the executive budget to the
sanggunian concerned not later than the sixteenth (16th) day of October of the
current fiscal year. If the local chief executive fails to submit the budget within
the prescribed date, he shall be subject to such criminal and administrative
penalties as provided under these Rules and other applicable laws.
On or before the end of the current fiscal year, the sanggunian concerned
shall enact, through an ordinance, the annual budget of the LGU for the ensuing
fiscal year on the basis of the estimates of income and expenditures submitted
by the local chief executive.
In case the sanggunian concerned fails to pass the ordinance authorizing
the annual appropriations at the beginning of the ensuing fiscal year, the
ordinance authorizing the appropriations of the preceding year shall be deemed
reenacted. The sanggunian shall continue to hold sessions without additional
remuneration for its members until the ordinance authorizing the annual
appropriations is approved, and no other business may be taken up during such
sessions. If the sanggunian still fails to enact such ordinance after ninety (90)
days from the beginning of the fiscal year, the reenacted budget shall remain in
48
force and effect until such time that the ordinance authorizing the annual
appropriations is approved by the sanggunian concerned. Only the annual
appropriations for salaries and wages of existing positions, statutory and
contractual obligations, and essential operating expenses authorized in the
annual and supplemental budgets for the preceding year shall be deemed
reenacted and disbursement of funds shall be in accordance therewith.
In the implementation of the reenacted budget, the local treasurer
concerned shall exclude from estimates of income for the preceding year those
realized from non-recurring sources, like national aids, proceeds from loans, sale
of assets, prior year adjustments, and other analogous sources of income.
National aids shall not include the IRA of LGUs and their shares in the utilization
and development of national wealth.
No ordinance authorizing supplemental appropriations shall be passed in
place of annual appropriations.
In case the revised income estimates be less than the aggregate reenacted
appropriations, the local treasurer concerned shall accordingly advise the
sanggunian concerned which shall, within ten (10) days from receipt of such
advice, make necessary adjustments or reductions. The revised appropriations
authorized by the sanggunian concerned shall then be the basis for
disbursements.
The local sanggunian may not increase the proposed amount in the
executive budget nor include new items except to provide for statutory and
contractual obligations but in no case shall it exceed the total appropriations in
the executive budget.
The local chief executive may veto any ordinance of the sangguniang
panlalawigan, sangguniang panlungsod, or sangguniang bayan on the ground
that it is ultra vires or prejudicial to the public welfare, stating his reasons
therefore in writing.
The local chief executive, except the punong barangay, shall exercise the
power to veto any particular item or items of an appropriations ordinance, or an
ordinance or resolution adopting a local development plan and public investment
program, or an ordinance directing the payment of money or creating liability. In
such cases, the veto shall not affect the item or items which are not objected to.
The vetoed item or items shall not take effect unless the sanggunian overrides
the veto in the manner provided in Rule XVII of these Rules; otherwise, the item
or items in the appropriations ordinance of the previous year corresponding to
those vetoed, if any, shall be deemed reenacted.
Effectivity of Budgets.
(a)
The ordinance enacting the annual budget shall take effect at the
beginning of the ensuing calendar year.
(b) Supplemental budget shall take effect upon its approval or on the date
fixed in the ordinance.
The local chief executive shall be primarily responsible for the execution
and accountability for the annual and supplemental budgets.
49
Changes in the Annual Budget. Changes in the annual budget may be

done through supplemental budgets. No ordinance providing for a supplemental
budget shall be enacted except for the following:
(a)
When supported by funds actually available as certified by the local
treasurer; or by new revenue sources;
Funds actually available refers to the amount of money actually collected
as certified by the local treasurer during a given fiscal year which is over and
above the realized estimated income of that year. An appropriation ordinance
providing for the supplemental budget sourced out of funds actually available
shall be enacted only once during the fiscal year.
(b)
In times of public calamity by way of budgetary realignment to set
aside appropriations for the purchase of supplies and materials or the payment of
services which are exceptionally urgent or absolutely indispensable to prevent
imminent danger to, or loss of, life or property, in the jurisdiction of the LGU or in
other areas declared in a state of calamity by the President. Such ordinance shall
clearly indicate the sources of funds available for appropriations, as certified
under oath jointly by the local treasurer and the local accountant and attested by
the local chief executive, and the various items of appropriations affected, and
the reasons for the change.
Reversion of Unexpected Balances of Appropriations; Continuing
Appropriations
(a)
Unexpected balances of appropriations authorized in the appropriations

ordinance shall revert to the balance at the end of the fiscal year and shall
not thereafter be available for expenditure except by subsequent
enactment. Appropriations for capital outlays shall continue and remain
valid until fully spent or the project is completed.
(b)
Reversions of continuing appropriations shall not be allowed unless

obligations therefore have been fully paid or otherwise settled. Balances of
continuing appropriations shall be reviewed as part of the annual budget
preparation.
The
sanggunian
concerned
may
approve,
upon
recommendation of the local chief executive, the reversion of funds no
longer needed in connection with the activities funded by said continuing
appropriations.
Continuing appropriations refer to appropriations available to support

obligations for a specified purpose or project, even when these obligations are
beyond the budget year.
Budgetary Requirements. The budgets of LGUs for any fiscal year shall
comply with the following requirements:
(a)
The aggregate amount appropriated shall not exceed the estimates of

income;
(b)
Full provision shall be made for all statutory and contractual obligations of
the LGU concerned provided that the amount of appropriations for debt
50
servicing shall not exceed twenty percent (20%) of the regular income of
the LGU concerned.
Regular income refers to the estimates of regular income for the budget
year as determined by the local finance committee.
(c)
In the case of provinces, cities, and municipalities, aid to barangays shall

be provided in amounts of not less than One thousand Pesos (P1,000.00)
per barangay; and
(d)
Five percent (5%) of the estimated revenue from regular sources shall be
set aside as an annual lump sum appropriation for unforeseen
expenditures arising from the occurrence of calamities provided that such
appropriation shall be used only in the area or a portion thereof of the LGU,
or other areas declared in a state of calamity by the President.
General Limitations
(a)
The total appropriations, whether annual or supplemental, for personal

services of an LGU for one (1) fiscal year shall not exceed forty-five percent
(45%) in the case of first to third class provinces, cities, and municipalities,
and fifty-five percent (55%) in the case of fourth or lower class provinces,
cities, and municipalities, of the total annual income from regular sources
realized in the next preceding fiscal year. The appropriations for salaries,
wages, representation and transportation allowances of officials and
employees of public utilities and economic enterprises owned, operated,
and maintained by the LGU concerned shall not be included in the annual
budget and in the computation of the maximum amount for personal
services. The appropriations for personal services of such economic
enterprises shall be charged to their respective budgets. The limitations
prescribed herein shall apply only after the LGU shall have complied with
the implementation of RA 6758 or Salary Standardization Law for existing
and mandatory positions.
(b)
No official or employee shall be entitled to a salary rate higher than the

maximum fixed for his position or other positions of equivalent rank by
applicable laws, rules and regulations issued there under ;
(c)
No local fund shall be appropriated to increase or adjust salaries or wages

of officials and employees of the National Government, except as may be
expressly authorized by law;
(d)
In cases of abolition of positions and creation of new ones resulting from

the abolition of existing positions in the career service, such abolition or
creation shall be made in accordance with pertinent provisions of these
Rules and civil service law, rules and regulations;
(e)
Positions in the official plantilla for career positions which are occupied by
incumbents holding permanent appointments shall be covered by
adequate appropriations;
(f)
No changes in designation or nomenclature of positions resulting in a

promotion or demotion in rank or increase or decrease in compensation
shall be allowed, except when the position is actually vacant, and the filing
of such positions shall be strictly made in accordance with civil service law,
rules and regulations;
(g)
The creation of new positions and salary increases or adjustments shall in

no case be made retroactive;
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(h)
The annual appropriations for discretionary purposes of the local chief

executive shall not exceed two percent (2%) of the actual receipts derived
from basic real property tax in the next preceding calendar year.
Discretionary funds shall be disbursed only for public purposes to be
supported by appropriate vouchers and subject to such guidelines as may
be prescribed by law. No amount shall be appropriated for the same
purpose except as authorized in this Article.
Review of Appropriations Ordinances of Provinces, HighlyUrbanized Cities and Independent Component Cities, and Municipalities
within the Metropolitan Manila Area.
DBM shall review ordinances
authorizing the annual or supplemental appropriations of provinces, highlyurbanized cities, independent component cities, and municipalities within MMA in
accordance with the immediately succeeding Article.
Review of Appropriations Ordinances of Component Cities and
Municipalities.
(a)
The Sangguniang Panlalawigan shall review the ordinances authorizing

annual or supplemental appropriations of component cities and
municipalities in the same manner and within the same period prescribed
for the review of other ordinances.
(b)
If within ninety (90) days from receipt of copies of appropriations

ordinances of component cities and municipalities, the sangguniang
panlalawigan takes no action thereon, the same shall be deemed to have
been reviewed in accordance with law and shall continue to be in full force
and effect. If within the same period, the sangguniang panlalawigan shall
have ascertained that the ordinance authorizing annual or supplemental
appropriations has not complied with the budgetary requirements and
limitations provided in this Rule, the sangguniang panlalawigan shall,
within the ninety-day period herein prescribed, declare such ordinance
inoperative in its entirety or in part. Items of appropriation contrary to
limitations prescribed in this Rule or in excess of the amounts prescribed
herein shall be disallowed or reduced accordingly.
The sangguniang panlalawigan shall, within the same period advice the
sangguniang panlungsod or Sangguniang bayan concerned through the
local chief executive, of any action on the ordinance under review. Upon
receipt of such advice, the city or municipal treasurer concerned shall not
make further disbursements of funds from any of the items of
appropriation declared inoperative, disallowed, or reduced.
(c)
Appropriations for ordinary administrative purposes not duly obligated

shall terminate with the fiscal year and all unexpended balances thereof
shall be automatically reverted on the thirty-first (31st) day of December
of each year to the general fund of LGU.
Preparation of Barangay Budgets

Unless otherwise provided for by law, all the income of the barangay from
whatever source shall accrue to its general fund and shall, at the option of the
barangay concerned, be kept as trust fund in the custody of the city or municipal
52
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 the provisions of this Rule.
Ten percent (10%) of the general fund of the barangay shall be set aside
for the sangguniang kabataan. The said ten percent (10%) share shall be
appropriated and administered by the sangguniang kabataan and shall be spent
for the purposes provided in Rule XXVII of these Rules except for personal
services.
On or before the fifth (5th) day of September each year, the city or
municipal treasurer, jointly with the city or municipal accountant, shall issue a
certified statement covering the actual income of the past year and estimates of
income of the current and ensuing fiscal years from local sources for the
barangay concerned. Based on such certified statements, the barangay treasurer
shall submit, on or before the fifteenth (15th) day of September of each year, to
the punong barangay a statement covering the estimates of income and
expenditures for the past, current, and ensuing fiscal years.
Upon receipt of the statement of income and expenditures from the
barangay treasurer, the punong barangay shall prepare the barangay budget for
the ensuing fiscal year in the manner and within the period prescribed in this
Rule and submit the annual barangay budget to the sangguniang barangay for
enactment.
The total annual appropriations of a barangay for personal services,
inclusive of benefits provided under applicable laws for one (1) fiscal year, shall
not exceed fifty-five percent (55%) of the total annual income actually realized
from local sources during the next preceding fiscal year.
The barangay budget including changes therein shall be subject to the
same budgetary requirements and limitations applicable to other local
government budgets. The barangay ordinance enacting the annual budget shall
take effect at the beginning of the ensuing calendar year. An ordinance enacting
a supplemental budget shall take effect upon its approval or on the date fixed
therein. The punong barangay shall be primarily responsible for the execution of
and the accountability for the annual and supplemental budgets of the barangay.
Review of Barangay Budgets
Within ten (10) days from its approval, copies of the barangay ordinance
authorizing the annual appropriations shall be furnished the sangguniang
panlungsod or the sangguniang bayan, through the city or municipal budget
officer, as the case may be. The sanggunian concerned shall review the
barangay ordinance to ensure compliance thereof with all the budgetary
requirements and limitations provided in this Rule.
If within sixty (60) days after receipt of the barangay ordinance the
sanggunian concerned takes no action thereon, said ordinance shall continue to
be in full force and effect. If within the same period the sanggunian concerned
shall have ascertained that the subject ordinance contains appropriations in
excess of the estimates of income duly certified as collectible, or that the same
has not complied with the established budgetary requirement, said ordinance
53
shall be declared inoperative in its entirety or in part. Items of appropriations

contrary to or in excess of any of the general limitations or the maximum amount
prescribed in this Rule shall be disallowed or reduced accordingly.
Within the established period, the sangguniang panlungsod or
sangguniang bayan concerned shall return the barangay ordinance, through the
city or municipal budget officer, to the punong barangay with the advice of action
thereon in the form of a resolution or letter of review, as may be prescribed by
the sanggunian concerned, for proper and appropriate adjustments and
corrections; in which case, the barangay shall operate on the ordinance
authorizing annual appropriations of the preceding fiscal year until such time that
the new ordinance authorizing annual appropriations for the year in question
shall have met the objections and disallowances raised by the reviewing
sanggunian.
Upon receipt of the review action on the budget, the barangay treasurer or
the city or municipal treasurer who has custody of the barangay funds shall not
make further disbursements from any items of appropriation declared
inoperative, disallowed, or reduced.
Barangay Financial Procedures
(a)
(b)
(c)
(d)
The barangay treasurer shall collect taxes, fees, and other charges due
and contributions accruing to the barangay. Official Receipts shall be
issued for all such collections.
When deputized by the provincial or city or municipal treasurer, the
barangay treasurer shall collect real property taxes and all other taxes as
may be imposed by the province, city, or municipality, as the case may be,
due the barangay.
Within five (5) days after receipt of collections, the barangay treasurer
shall deposit all collections with the city, or municipal treasurer, or in the
depository account maintained in the name of the barangay.
The barangay treasurer may be authorized by the sangguniang barangay
to:
(1)
(2)
(e)
Hold petty cash that shall not exceed twenty percent (20%) of the
funds available and to the credit of the barangay treasury; and
Make direct purchases amounting to not more than One Thousand
Pesos (P1, 000.00) at any time for the ordinary and essential needs
of the barangay.
The financial records of the barangay such as books of accounts, ledgers,

statements of income and expenditures, balance sheets, trial balances,
and other documents shall be kept in the office of the city or municipal
accountant in a simplified manner as may be prescribed by COA. The
representatives of COA shall audit the accounts and financial records of the
barangay annually, or as often as may be necessary, and shall submit an
audit report thereon to the sangguniang panlungsod or sangguniang
bayan, as the case may be.
The COA shall prescribe simplified procedures for barangay finances within six (6)
months after approval of these Rules.
54
Responsibility of the Department of Budget and Management and the

Commission of Audit
The DBM, jointly with COA shall, within one (1) year from the effectivity of
these Rules, promulgate a Budget Operations Manual for LGUs to improve and
systematize methods, techniques, and procedures in local government budget
preparation, authorization, execution, and accountability.
The DBM shall promulgate such administrative issuances as may be
needed from time to time relative to the implementation of the provisions of this
Rule. The DBM shall, upon request of LGUs, extend technical assistance on local
government budgeting.
Local Government Supply and Property Management
This Rule shall govern the procurement, care, utilization, custody, and
disposal of supplies and the other aspects of supply management in an LGU. It
shall not cover direct purchase made by the barangay treasurer that may be
authorized by the sangguniang barangay pursuant to Article 101, Rule XVII of
these Rules.
Definition of terms.
Lowest Complying and Responsible Bid refers to the proposal of one
who offers the lowest price and meets all the technical specifications and
requirements of the supplies desired, and as a dealer in the line of supplies
involved, maintains a regular establishment, and has complied consistently with
previous commitments;
Suitable Substitute refers to that kind of article which would serve
substantially the same purpose or produce substantially the same results as the
brand, type, or make of article originally designed or requisitioned;
Supplies include everything, except real property, which may be needed
in the transaction of public business or in the pursuit of any undertaking, project,
or activity, whether in the nature of equipment, furniture, stationary materials for
construction or personal property of any sort, including non-personal or
contractual services such as the repair and maintenance of equipment and
furniture, as well as trucking, hauling, janitorial, security, and related services;
and
Terms and Conditions refer to other requirements not affecting the
technical specifications and requirements of the required supplies desired such as
bonding, terms of delivery and payment, and related preferences.
Except, as otherwise provided in the Local Government Code, acquisition
of supplies by LGUs shall be through competitive public bidding. Supplies which
have become unserviceable or are no longer needed shall be sold, whenever
applicable, at public auction, subject to applicable rules and regulations.
The governor or city mayor, through the provincial or city general services
officer, respectively, and the municipal mayor or punong barangay, through the
55
municipal or barangay treasurer, shall provide for the efficient and effective
property management in an LGU.
Every LGU shall provide for the establishment of an archival system to
ensure the safety and protection of all government property, public documents or
records such as records of births, marriages, property inventory report, land
assessments, land ownership, tax payments, tax accounts, business permits, and
such other records or documents of public interest in the various offices and
departments in the province, city, or municipality, and the barangay concerned.
Primary and Secondary Accountability for Government Property
The head of office or department of a province, city, or municipality or the
punong barangay, shall be primarily accountable for all supplies and property
assigned or issued to his office or department. The person or persons entrusted
with the possession or custody of supplies and property under the primary
accountability of the head of an office or department shall be immediately
accountable to said officer.
The head of an office or department primarily accountable for government
property may require the person in possession or having custody and control
thereof under him to keep such records and make reports as may be necessary
for his own information and protection.
It shall be the duty of every head of an office or department to keep a
complete record of all supplies and property under his charge and render his
accounts thereof semi-annually to the provincial or city general services officer or
the municipal mayor or punong barangay, as the case may be. The municipal or
barangay treasurer, as the case may be, shall be furnished with a copy of said
report.
Buildings and other physical structures shall be under the accountability
and responsibility of the provincial or city general services officer, municipal
mayor or punong barangay, as the case may be. He shall keep a separate and
updated record of these properties and shall submit an inventory report to the
provincial, city, or municipal auditor on or before the fifteenth (15th) day of
January each year showing, among other things, the condition of said properties.
The person in actual physical possession of or entrusted with the custody
or control of supplies or property shall be responsible for the proper use and care
of the same and shall exercise due diligence in the utilization and safekeeping
thereof. He shall likewise keep a complete and updated record of such supplies
and property and shall render an account thereof semi-annually to the head of
office or department concerned.
Measure of Liability of Persons Accountable for Government Property
The person in possession of or having custody or control of supplies or
property shall be liable for its money value in case of illegal, improper, or
unauthorized use or misapplication thereof, by himself or any other person whose
acts he may be responsible for, and shall be liable for all loss, damage, or
deterioration occasioned by negligence in the keeping or use of such property,
56
unless it is proven that he has exercised due diligence and care in the utilization
and safekeeping thereof.
Unless he registers his objection in writing, accountable person shall not be
relieved from liability by reason of his having acted under the direction of a
superior officer in using supplies or property for which he is accountable. The
officer directing any illegal, unauthorized, or improper use of property shall first
be required to answer therefore.
In cases of loss, damage, or deterioration of government property arising
from, or attributable to negligence in security, the head of the local security unit
shall be held liable therefore.
When an employee transfers to another government offices, retires,
resigns, is dismissed, or is separated from the service, he shall be required to
secure supplies or property clearance from the supply officer concerned, the
provincial or city general services officer concerned, the municipal mayor and the
municipal treasurer, or the punong barangay and the barangay treasurer, as the
case may be. The local chief executive shall prescribe the property clearance
form for this purpose.
As a general rule, sale of property owned by the LGU shall be made only
through public auction. Other modes of disposal may be resorted to only when
public auction has failed.
Public Auction
When the property of an LGU has become unserviceable for any cause, or
is no longer needed, the officer immediately accountable therefore shall return
the same to the head of the office or department who shall cancel the
corresponding Memorandum Receipt. If no longer needed in the office or
department, the head of the office or department shall return the same to the
provincial or city general services officer, municipal treasurer, or barangay
treasurer, as the case may be, with the use of Property Return Slip. The provincial
or city general services officer, municipal or barangay treasurer, as the case may
be, shall, through the local chief executive, file an application for its disposal
through an Inventory and Inspection Report with the provincial, city, or municipal
auditor for inspection and determination whether the subject property is with or
without value.
If a property of an LGU has become unserviceable for any cause or is no
longer needed but is found to be still valuable, the provincial, city or municipal
auditor shall indicate his findings in the Inventory and Inspection Report and
forward the same to the committee on awards. The subject property shall then be
sold at public auction to the highest bidder under the supervision of the
committee on awards and in the presence of the provincial, city, or municipal
auditor or his duly authorized representative. Notice of public auction shall be
posted in at least three (3) conspicuous and publicly accessible places. If the
acquisition cost exceeds One Hundred Thousand Pesos (P100, 000.00) in the case
of provinces and cities, and Fifty Thousand Pesos (P50, 000.00) in the case of
municipalities, notices of auction shall be published at least two (2) times within a
reasonable period in a newspaper of general circulation in the locality.
57
The provincial or city general services officer or the municipal or barangay

treasurer, as the case may be, shall be responsible for disposal of supplies or
property of the LGU.
The local chief executive shall be responsible for the disposal of real property,
building and other physical structures.
Supplies and property no longer needed may be disposed of through
private sale at such price as may be determined by the committee on awards,
subject to the approval of COA or its duly authorized representative when the
acquisition or transfer cost of the property exceeds Fifty Thousand Pesos
(P50,000.00) in the case of municipalities or barangays.
In case of real property, disposal shall be subject to the approval of COA
regardless of the value or cost involved.
Transfer without Cost to Other Offices or Departments or Other
Government Agencies. Property which has become unserviceable or is no
longer needed may be transferred without cost to another office, agency,
subdivision or instrumentality of the National Government or another LGU at an
appraised valuation determined by the committee on awards. Such transfer shall
be subject to the approval of the sanggunian concerned making the transfer and
by the head of the office, agency, subdivision, instrumentality or LGU receiving
the property.
When property of an LGU has become unserviceable for any cause or is no
longer needed, it shall, upon application of the head of the office or department
accountable therefore, be inspected and appraised by the provincial, city, or
municipal auditor, as the case may be, or his duly authorized representative or
that of the COA Chairman, and if found valueless or unusable, shall be destroyed
either by burning, pounding, throwing beyond recovery, and the like, in the
presence of the auditor.
LGUs shall be exempt from payment of duties and taxes for the
importation of heavy equipment or machinery which shall be used for the
construction, improvement, repair, and maintenance of roads, bridges, and other
infrastructure projects, as well as garbage trucks, fire trucks, and other similar
equipment provided that such equipment or machinery shall not be disposed of,
either by public auction or negotiated sale as provided in this Rule, within five (5)
years from the importation thereof. In case the equipment or machinery is sold
within five-year period, the purchasers or recipients shall be considered the
importers thereof, and shall be liable for duties and taxes computed on the book
value of such importation.
For the effective implementation of this Article, the DOF shall issue the
necessary procedures in the a ailment of tax exemption privileges on importation
by LGUs of heavy equipment or machinery which shall be used for the
construction, improvement, repair, and maintenance of roads, bridges, and other
infrastructure projects, as well as garbage trucks, fire trucks, and other similar
equipment.
The COA shall promulgate the rules and regulations on supply and property
management of LGUs to effectively implement the provisions of this Rule,
58
including requirements as to testing, inspection, and standardization of supplies

and property.
The Local Government Code shall govern the conduct and management of
financial affairs, transactions, and operations of provinces, cities, municipalities,
and barangay.
Local Funds and Special Funds
Local Funds.
Every LGU 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 consist of monies
and resources of the LGU which are available for the payment of
expenditures, obligations or purposes not specifically declared by law as
accruing and chargeable to, or payable from, any other fund.
Special Funds. There shall be maintained in every provincial, city, or

municipal treasury the following special funds which shall be deemed
automatically appropriated for purposes indicated therefore:
(1)
Special Education Fund shall consist of the respective
shares of provinces, cities, municipalities, and barangays in the proceeds
of the additional tax on real property to be appropriated to purposes
prescribed in Article 327, Rule XXXI of these Rules; and
(2)
Trust Funds shall consist of private and public monies which
have officially come into the possession of the LGU 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 the specific purpose for which it was created or for
which it came into the possession of the LGU.
Officers of LGU authorized to receive and collect monies arising from taxes,
revenues, or receipts of any kind shall remit the full amount received and
collected to the treasury of such LGU which shall be credited to the particular
account or accounts to which the monies in question properly belong.
Local accountants and local treasurers shall maintain separate books and
depository accounts, respectively, for each fund in their custody or administration
under such rules and regulations as COA may prescribe.
Local treasurers shall maintain depository accounts in the name of their
respective LGUs with banks, preferably government-owned, located in or nearest
their respective areas of jurisdiction. Earnings of each depository account shall
accrue exclusively thereto.
Local treasurers and other accountable officers shall keep personal monies
separate and distinct from local public funds in their custody and shall not make
profit out of public money or otherwise apply the same to any use not authorized
by law or ordinance.
59
LGUs shall maintain special accounts in the general fund for the following:
(a)
Public utilities and other economic enterprises;
(b)
Loans, interests, bond issues, and other contributions for specific

purposes; and
(c)
Development projects funded from the share of the LGU concerned

in the IRA and such other special accounts which may be created by
law or ordinance.
Receipts transfer, and expenditures involving the foregoing special
accounts shall be properly taken up there under.
Profits or income derived from the operation of public utilities and
other economic enterprises, after deduction for the cost of
improvement, repair and other related expenses of the public utility
or economic enterprise concerned, shall first be applied for the
return of the advances or loans made therefore. Any excess shall
form part of the General Fund of the LGU concerned.
Expenditures, Disbursements, Accounting, and Accountability

Prohibition Against Expenditures for Religious or Private Purposes - No
public money shall be appropriated or applied for the benefit of any religious sect
or activity not any undertaking or purpose private in character.
Use of Appropriated Funds and Savings - Funds shall be available
exclusively for the specific purpose for which they have been appropriated. No
ordinance shall be passed authorizing any transfer of appropriations from one
item to another. The local chief executive or the presiding officer of the
sanggunian concerned, may, by ordinance, be authorized to augment any item in
the approved annual budget for their respective offices from savings in other
items within the same expense class of their respective appropriations.
Savings refer to portions or balances of any programmed appropriation
free from any obligation or encumbrance still available after the satisfactory
completion or unavoidable discontinuance or abandonment of the work, activity
or purpose for which the appropriation is authorized, or arising from unpaid
compensation and related costs pertaining to vacant positions and leaves of
absence without pay.
Augmentation implies the existence in the budget of an item, project,
activity or purpose with an appropriation which upon implementation or
subsequent evaluation of needed resources is determined to be deficient.
Disbursements in accordance with appropriations in the approved annual
budget may be made from any local fund in the custody of the local treasurer,
but the total disbursements from any local fund shall in no case exceed fifty
percent (50%) of the uncollected estimated revenue accruing to such local fund
in addition to the actual collections provided, however, that no cash overdraft in
any local fund shall be incurred at the end of the fiscal year.
In case of emergency arising from typhoon, earthquake, or any other
calamity, the sanggunian concerned may authorize the local treasurer to
60
continue making disbursements from any local fund in his possession in excess of
the limitations herein provided, but only for such purposes and amounts included
in the approved annual budgets. Any overdraft which may be incurred at the end
of the year in any local fund by virtue of the provisions hereof shall be covered
with the first collections of the immediately succeeding fiscal year accruing to
such local fund.
Art. 391 of Rule XXXII of these Rules mandate each LGU to appropriate
their share in the proceeds from the development and utilization of the national
wealth to finance local development and livelihood projects, respectively.
Disbursements from such special accounts under the General Fund shall
proceed from itemized appropriations in the budgets of LGU instead of by lump
sum. Such itemized appropriations shall be for specific development
projects/activities embodied in the local development plan and/or public
investment program formulated and prioritized by the Local Development Council
and approved by the sanggunian concerned. Provided also that copies of the
development plan of LGU shall be furnished DILG and that at least eighty (80)
percent of the proceeds derived from the development and utilization of
hydrothermal, geothermal and other sources of energy shall be applied solely to
lower the cost of electricity in the LGUs where such a source of energy is located.
Appropriation for development projects shall not include those for personal
services including salaries standardization except for contractual employees who
may be, if necessary, contracted coterminous with and compensation, against
the project, subject to budget and COA rules and regulations.
Development projects, activities for this purpose, are those component
project/activity incidental to the efficient and effective provision of the basic
services and facilities enumerated in Rule - of these Rule and for the preservation
and enhancement of the indigenous resources of wealth of the LGU from which
share is derived, as the case may be.
No money shall be paid on account of any contract under which no
services have been rendered or goods delivered.
No cash advance shall be granted to any local official or employee, elective
or appointive, unless made in accordance with the rules and regulations as COA
may prescribe.
Any officer of the LGU whose duty permits or requires the possession or
custody of local government funds shall be accountable and responsible for the
safekeeping thereof in conformity with the provisions of this Rule. Other local
officers who, though not accountable by the nature of their duties, may likewise
be similarly held accountable and responsible for local government funds through
their participation in the use or application thereof.
The official fiscal year of LGUs shall be the period beginning with the first
(1st) day of January and ending with the thirty-first (31st) day of December of the
same year.
61
Administrative Issuances, Local Treasury Operations Manual. The

DOF, jointly with the Chairman of COA, shall within one (1) year from the
effectivity of the Code, promulgate a Treasury Operations Manual for LGUs.
Debt Relief for Local Government Units
This Rule shall govern the granting of debt relief for provinces, cities and
municipalities.
Coverage. Debt relief for LGUs shall cover the following:
(a) All debts owed by LGUs to the National Government arising from statutory
contributions to the Integrated National Police Fund, the Special Education
Fund, and the hospital fund.
(b) National government shares in taxes, fees, and charges collected by LGUs
that have been unremitted as of December 31, 1991.
(c) Program loans, either secured to LGUs by NGAs and which were relent to
private persons, natural or juridical, or granted to LGUs by NGAs and which
were utilized by LGUs for community development, livelihood, and other
small-scale projects.
(d) Debts due to GFIs, GOCCs and private utilities that is outstanding as of
December 31, 1988.
Limitations.
Debt relief shall not apply to the following:
(a) Statutory contribution of the cities and municipalities of MMA to the

Metropolitan Manila Authority that have accrued as of December 31, 1991.
Beginning calendar year 1992, cities and municipalities within MMA
are no longer required to make such contributions to the Metropolitan
Manila Authority.
(b) Foreign loans or indebtedness of LGUs arising from loan contracts or
project agreements entered into with foreign countries or international
lending institutions and agencies.
(c) National taxes collected by the local treasurer that accrue in full to the
National Government.
(d) Debts incurred or contracted by LGUs from GFIs, GOCCs, and private
utilities after December 31, 1988, which shall be settled by the LGU
concerned. For this purpose, repayments of outstanding obligations which
are covered by existing withholding agreement shall continue to be
deducted from the IRA share of debtor-LGU.
(e) Obligations to the Home Development Mutual Fund (Pag-IBIG), Medicare,
and those pertaining to premium contributions and amortization payment
of salary and policy loans to the Government Service Insurance System.
Manner of Settlement
(a)
Subject to limitations provided under this Rule, all unremitted national

collections and statutory contributions and program loans shall be written
62
off in full provided that NGA tasked with the implementation of program
loans secured by LGU which were relent to private persons, natural or
juridical, shall continue to collect from debtors belonging to the private
sector concerned.
(b)
The National Government shall assume all debts incurred or contracted

by LGUs from GFIs, GOCCs, and private utilities that are outstanding as
of December 31, 1988, in accordance with the following schemes:
(1)
The National Government may buy outstanding obligations

incurred by LGUs from GFIs at a discounted rate.
(2)
The National Government may settle obligations due GOCCs at a

discounted rate through offsetting, only to the extent of the
obligations of LGUs against the outstanding advances made by the
National Treasury in behalf of the GOCC concerned.
(3)
The National Government may settle debts due private utilities at

a discounted rate by offsetting against the outstanding obligations
of such private utilities to GOCCs. GOCCs may in turn offset these
obligations against the outstanding advances made by the
National Treasury in their behalf.
In the case of obligations owed by LGUs to private utilities which are not
indebted to any GOCC or NGA, the National Government may instead buy the
obligations of LGUs from the private utilities at a discounted rate, upon
concurrence by the private utilities concerned.
Recovery Schemes for the National Government
LGUs shall pay back the National Government whatever amounts were
advanced or offset by the National Government to settle their obligations to GFIs,
GOCCs, and private utilities. The National Government shall not charge interest or
penalties on the outstanding balance owed by LGUs. These outstanding
obligations shall be restructured and an amortization schedule prepared, based
on the capability of LGU to pay.
The National Government shall be authorized to deduct from the quarterly
share of each LGU in internal revenue allotments an amount to be determined on
the basis of the amortization schedule of LGU concerned provided that such
deduction shall not exceed five percent (5%) of the monthly internal revenue
allotment of LGU concerned. (c)
As incentive to debtor-LGUs to increase
fiscal management efficiency, the National Government shall write off
outstanding debts of LGUs at the rate of five percent (5%) for every one percent
(1%) increase in revenues generated by LGU over the collections of the preceding
year. For this purpose, the annual increase in local revenue collections shall be
computed starting from the year 1988.
The Development Budget Coordinating Committee through the Task Force
on debt relief created under DBCC Order No. 2 dated September 18, 1990, in
consultation with the presidents of the leagues of provinces, cities and
municipalities shall prepare and implement a debt relief program for LGUs and
issue such guidelines as may be necessary for the effective implementation of
this Rule.
63
Monitoring System for the Implementation of the local Government

Code of 1991
The Oversight Committee shall supervise the transfer of such powers and
functions mandated under the Code to the LGUs, together with the corresponding
personnel, properties, assets and liabilities of the offices or agencies concerned,
with the least possible disruptions to existing programs and projects. The
Committee shall likewise recommend the corresponding appropriations necessary
to effect the said transfer.
The Code likewise provides that the Congress shall conduct a mandatory
review of the Code at least once every five (5) years and as often as it may deem
necessary, with the primary objective of providing a more responsive and
accountable local government structure.
There shall be established a monitoring system for the implementation of
the code to hasten the decentralization process, support the oversight committee
in the supervision of the transfer of powers and functions from the national
government agencies to local government units and provide valuable information
to promote local autonomy.
There shall be established from the national to the local levels an
organization responsible for the operationalization of the monitoring system. For
this purpose, the DILG shall be the lead agency of the said organization
composed of the following:
National
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
Department of the Interior and Local Government

Department of Finance
Department of Budget and Management
Senate
House of Representatives
League of Provinces
League of Cities
League of Municipalities
Liga ng mga Barangay
Commission on Audit
Civil Service Commission
National Government Agencies affected by Devolution
Regional
All national government agencies represented at the national organization of the
monitoring system.
Province, City, and Municipality
All provincial, city, and municipal field offices of the DILG and NGAs
affected by devolution. A National Secretariat for the monitoring system shall be
created in the DILG.
64
Target Users and Their Information Requirements.

The target users of the monitoring system are the Oversight Committee, the
NGAs concerned, the Congress, and the LGUs.
The information requirements of the target users cover the following areas:
1. Transfer of personnel, assets, projects,
corresponding to the devolved functions;
funds,
and
records
2. Deconcentration of requisite authority and power of national

government agencies from their central offices to appropriate
regional and field offices;
3. Mandated fund allocations to LGUs;
4. Reorganization of LGUs and affected NGAs;
5. Formation and operation of local special bodies;
6. Compliance with established standards, guidelines, systems and
procedures;
7. LGU participation in the planning and implementation of national
projects;
8. NGO-LGU joint ventures and cooperative programs or undertakings;
9. Grants, aids, and subsidies given to LGUs; and
10.Other relevant information.
Funds for the implementation of the monitoring system shall be taken the
appropriations of the DILG. Other national government agencies may augment
funds out of their savings. Likewise, the LGUs may set aside funds for this
purpose from any available local funds.
hapter 8
65
The National Economic Development Authority

Functions and Organization
Organizational Chart
A. The NEDA Board
B. NEDA Board Executive Committee
C. The NEDA Secretariat
1. National Development Office (NDO)

2. Regional Development Office (RDO)
3. Central Support Office (CSO)
D. Other Offices
E. Attached Agencies
NEDA Board
The powers and functions of the NEDA reside in the NEDA Board. It is the
country's premier social and economic development planning and policy
coordinating body.
The Board is composed of the President as chairman, the Secretary of
Socio-Economic Planning and NEDA Director-General as vice-chairman, and the
following as members: the Executive Secretary and the Secretaries of Finance,
Trade and Industry, Agriculture, Environment and Natural Resources, Public Works
and Highways, Budget and Management, Labor and Employment, and Interior
and Local Government.
Pursuant to Sec. 4 of EO 230, empowering the President to modify the
membership of the Board whenever deemed necessary, the following members
have been added as members of the NEDA Board.
Per Memorandum Order No. 164,
dated 21 March 1988
Secretaries of Health

dated 19 May 1989
Secretary of Science and Technology
Secretaries of Agrarian Reform

dated 26 September 1990
Secretaries of Foreign Affairs
Secretary of Transportation
Communications
Per R.A. No. 7638, approved Dec. 9,

1992
Secretary of Energy
and
Per Section 124 of R.A. No. 7653,

approved June 14, 1993
Deputy Governor of the Bangko

Sentral ng Pilipinas
Assisting the NEDA Board in the performance of its functions are five
cabinet-level interagency committees. These are as follows:
66
1. Development Budget Coordination Committee (DBCC). The DBCC

is composed of the Secretary of Budget and Management, as chairman; the
Director-General of the NEDA Secretariat, as co-chairman; and the Executive
Secretary, Secretary of Finance and the Governor of the Central Bank of the
Philippines, as members. The DBCC recommends to the President the following:
a.
Level of annual government expenditures and the ceiling of
government spending for economic and social development, national defense,
and government debt service;
b.
Proper allocation of expenditures for each development activity
between current operating expenditures and capital outlays; and;
c.
Amount set to be allocated for capital outlays broken down into the
various capital or infrastructure projects.
2. Infrastructure Committee (InfraCom). The InfraCom is composed of

the Director-General of the NEDA Secretariat, as chairman; Secretary of Public
Works and Highways, as cochairman; and the Executive Secretary and
Secretaries of Transportation and Communications, Finance, and Budget and
Management, as members. The InfraCom does the following:
a.
Advises the President and the NEDA Board on matters concerning
infrastructure development, including highways, airports, seaports and shore
protection; railways; power generation, transmission and distribution;
telecommunications; irrigation, flood control and drainage, water supply and
sanitation; national buildings for government offices; hospitals and related
buildings; state colleges and universities elementary and secondary school
buildings; and other public works;
Coordinates the activities of agencies, including government-owned

or controlled corporations involved in infrastructure development; and
b.
c.
Recommends to the President government policies, programs and
projects concerning infrastructure development consistent with national
development objectives and priorities.
3. Investment Coordination Committee (ICC). The ICC consists of the

Secretary of Finance, as chairman; the NEDA Director-General, as cochairman;
and the Executive Secretary, the Secretaries of Agriculture, Trade and Industry,
Budget and Management and the Governor of the Central Bank of the Philippines,
as members. The ICC has the following functions:
Evaluates the fiscal, monetary and balance of payments implications
of major national projects, and recommends to the President the timetable of
their implementation on a regular basis;
a.
b.
Advises the President on matters related to the domestic and foreign
borrowings program; and
Submits a status of the fiscal, monetary and balance of payments

implications of major national projects.
c.
67
4. Social Development Committee (SDC).

The Committee is
composed of the Secretary of Labor and Employment, as chairman; the DirectorGeneral of the NEDA Secretariat as cochairman; and the Executive Secretary, and
the Secretaries of Education, Culture and Sports, Health, Interior and Local
Government, Agrarian Reform, Agriculture, Social Welfare and Development, and
Budget and Management, as members.
The SDC performs the following functions:
a.
Advises the President and the NEDA Board on matters concerning
social development, including education, manpower, health and nutrition,
population and family planning, housing, human settlements, and the delivery of
other social services.
b.
Coordinates the activities of government agencies concerned with
social development; and
c.
Recommends appropriate policies, programs and projects consistent
with the national development objectives.
5. Committee on Tariff and Related Matters (CTRM). The CTRM is

composed of the Secretary of Trade and Industry, as chairman, with the DirectorGeneral of the NEDA, as co-chairman. Its members are the Executive Secretary,
the
Secretaries
of
Foreign
Affairs,
Agriculture,
Transportation
and
Communications, Environment and Natural Resources, Budget and Management,
and Finance, the Governor of the Central Bank, and the Chairman of the Tariff
Commission.
The CTRM does the following:
a.
Advises the President and the NEDA Board on Tariff and related
matters and on the effects on the country of various international developments;
Coordinates agency positions and recommends national positions for

international economic negotiations; and
b.
Recommends to the President a continuous rationalization program

for the country's tariff structure.
c.
NEDA Board Executive Committee. Created under Memorandum Order

No. 222 (dated 26 July, 1994, the NEDA Board Executive Committee resolves
policy issues without the necessity of convening the entire NEDA Board. It
facilitates the decision-making process at the NEDA Board to ensure that projects
or issues requiring NEDA Board discussion and decision are immediately acted
upon.
The NEDA Board ExCom is composed of the Executive Secretary as
Chairman; the Secretary of Socio-Economic Planning and NEDA Director-General
as Co-Chairman; Chairpersons of the Development Budget Coordination
Committee, Investment Coordination Committee, Committee on Tariff and Related
Matters, Social Development Committee; Co-Chairperson of the Infrastructure
Committee; and the Governor of the Bangko Sentral ng Pilipinas.
68
NEDA Secretariat. The NEDA Secretariat serves as the research and

technical support arm of the NEDA Board. It also provides technical staff support
and assistance, including the conduct of studies and formulation of policy
measures and other recommendations on the various aspects of development
planning and policy formulation, and coordination, evaluation and monitoring of
plan implementation.
The Secretariat is headed by a Director-Ceneral who carries the rank and
title of Secretary of Socio-Economic Planning and Development and who exercises
general supervision and control over the technical and administrative personnel
of the Secretariat.
The NEDA Director-Ceneral is assisted by three deputy directors-general,
each of whom is responsible, respectively, for the three major offices of NEDA,
the National Development Office (NDO), the Regional Development Office (RDO)
and Central Support Office (CSO).
Assisting the deputy directors-general in their task of coordinating and
supervising their respective Offices are three assistant directors-general.
Each of the Central Office Staffs is headed by a staff director, assisted by
an assistant director, while each Regional Office is headed by a regional director,
assisted by an assistant regional director.
The three major Offices comprising the NEDA Secretariat, and the bureaulevel Staffs under each are as follows:
1. National Development Office (NDO). The NDO provides technical
staff support to the NEDA Board in coordinating the formulation of national and
sectoral policies, plans and programs. It also monitors macroeconomic and
sectoral perforrnance, prepares the necessary economic reports, and conducts
econon-dc and development studies on macrolevel plans and policies.
1.1 National Planning and Policy Staff (NPPS)
a.
Provides technical staff support in coordinating the formulation of

national development plans and policies;
b.
Evaluates and conducts studies on macrolevel plans and policies;
c.
Develops and applies macroeconomic models and other statistical

tools for planning, forecasting and policy analysis; and
d.
Monitors macroeconomic performance

reports.
and prepares economic
1.2 Agriculture Staff (AS)

a.

national plans and policies for the agricultures, natural resources
and agrarian reform sectors;
b.
Evaluates and conducts studies on policies in the said sectors;
c.
Provides technical staff support in the evaluation and review of

proposed programs and projects in the said sectors;
69
d.
Provides technical assistance in program and project identification,

development and evaluation; and
e.
Monitors sectoral performance.
1.3 Trade, Industry and Utilities Staff (TIUS)

a.

national plans and policies for the trade, industry and tourism
sectors;
b.
Evaluates and conducts studies on trade and industrial policies,

including those involving the regulation and pricing of public utilities;
c.
Provides technical staff support in the evaluation of proposed

industrial projects involving significant government exposure;
d.
Assists in coordinating the formulation of national approaches to

international relations and cooperation in trade and other economic
matters;
e.
Assists in the review and evaluation of the various investment

priorities, plans and applicable investment incentives; and
f.
1.4 Infrastructure Staff (IS)

a.

physical plans for the transportation, communications, water, power
and energy, and social infrastructure sectors;
b.
Evaluates and conducts studies on policies in the said sectors;
c.

d.

e.
1.5 Social Development Staff (SDS)

a.

national policies and plans in education and manpower
development, health and nutrition, family planning, housing, social
services, and community organization;
b.
Evaluates and conducts studies on policies covering the said sectors;
c.

70
d.

e.
1.6 Public Investment Staff (PIS)

a.
Provides technical staff support in the coordination and review of the

flow of official development assistance to the country to ensure
consistency with national development priorities;
b.
Provides technical staff support in the review of proposed programs

and projects on a global basis;
c.
Provides technical staff support in the preparation of a rolling

medium-term public investment program, where the sources and
uses of funds for priority programs and projects are indicated;
d.
Develops and recommends the criteria and system for evaluating

projects; and
e.
Monitors the status of proposed and pipeline projects for possible

funding assistance by foreign donor institutions.
2. Regional Development Office (RDO). The RDO provides technical

staff support as may be required by the implementing agencies in the regions. It
also monitors regional and interregional development policies; plans and
programs ; prepares integrated reports on regional planning; andconducts studies
on regional development policies.
2.1 Regional Development Coordination Staff (RDCS)
a.

interregional development policies, plans and programs;
b.
Serves as a link between the Regional Development Councils and

the national agencies of government involved in regional planning
and program implementation;
c.
Monitors and evaluates the formulation of regional policies, plans

and programs by the Regional Development Councils and other
agencies of government;
d.
Prepares integrated reports on regional development;
e.
Coordinates with the Regional Development

preparation of physical and land use plans; and
f.
Conducts studies on regional development policies.
Councils
in
the
2.2 Project Monitoring Staff (PMS)

a.
Monitors the progress of implementation of approved development

programs, based on reports from the central offices of line agencies
and the NEDA regional offices;
71
b.
Identifies bottlenecks and proposes solutions to problems of

implementation;
c.
Prepares integrated reports on the status of approved development

projects;
d.
Monitors the implementation of ongoing projects, including the

utilization of foreign exchange proceeds by these projects;
e.
Provides technical assistance to the NEDA regional offices in project

monitoring and assessment; and
f.
Conducts post project evaluation and impact analyses.
2.3 Regional Offices (NRO)

a.
Serves as the technical staff of the Regional Development Council

(RDC) in the region;
b.
Provides staff assistance to the RDC in the coordination of plan

formulation and implementation at the regional level;
c.
Provides staff assistance to implementing agencies in the region in

identifying and developing programs and projects;
d.
Evaluates and reviews proposed regional programs and projects for

consideration by the RDC;
e.
Monitors and assesses project implementation in the region; and
f.
Coordinates with regional offices of other departments and agencies

and with the local government units in the region in the performance
of their assigned tasks.
3. CentraI Support Office (CSO).

The CSO provides the NEDA
Secretariat technical assistance and support services in the areas of development
administration, internal management improvement, legal services, development
information, and administrative services.
3.1 Management Staff (MS)
a.
Conducts studies, formulates recommendations and provides

technical assistance on development administration matters;
b.
Develops guidelines and provides technical assistance in the

preparation, monitoring and assessment of the development
administration framework of the national development plan,
including
the
monitoring
of
administrative
reforms
and
developments in the public sector;
c.
Serves as internal management improvement unit, conducts studies,

formulates recommendations and provides technical assistance on
organization and management matters; and
d.
Develops and maintains an internal control system within the NEDA

Secretariat and monitors and evaluates on a continuing basis the
implementation of internal control policies and measures.
72
3.2 Legal Staff (LS)

a.
Provides legal advice and assistance in the formulation and

implementation of development policies, plans and programs;
b.
Provides legal service on operational matters;
c.
Conducts legal research and specialized studies; and
d.
Maintains a data base on and monitors laws, administrative

issuances, court decisions, and other legal issuances relative to
economic and social development.
3.3 Administrative Staff (AdS)

a. Develops, implements and updates on a continuing basis a
comprehensive and integrated human resources development
program for the NEDA Secretariat personnel;
b. Provides services related to personnel transactions and benefits, and
discipline, health and safety services;
c. Provides financial and accounting services;
d. Provides security services and general support services in the areas
of records and communications; procurement and property, supply
equipment maintenance, utilization and disposal; transport; general
utility and housekeeping; and building and office facilities
maintenance.
3.4 Information Techonology Coordination Staff (ITCS)
a.
Conducts and coordinates the studies, formulates recommendations

and provides technical staff support and assistance on information
technology (IT);
b.
Develops and coordinates the implementation and maintenance of

IT-related information systems in support of NEDA's development
planning, policy formulation and other functions and operations;
c.
Coordinates the formulation and implementation of a continuing

NEDA IT development activities of NEDA offices and staffs, including
its regional offices;
d.
Establishes and maintains a viable information network with other

government agencies and instrumentalities for more effective
development planning and decision making."
3.5 Development Information Staff (DIS)

a. Develops and maintains public information programs to meet the
requirements of the NEDA and the public;
73
b. Prepares press releases and articles for public dissemination and

coordinates press briefings and interviews;
c. Undertakes the preparation and dissemination of NEDA publications
and other information materials and provides editorial and other
information-related services to the NEDA Secretariat; and
d. Maintains the NEDA Secretariat library and undertakes the
acquisition, cataloguing, maintenance and safekeeping of library
materials, and provides circulation, reference and interlibrary
Other Offices. Two Secretariat units have been created within NEDA to
provide technical assistance and secretariat services to the Legislative-Executive
Development Advisory Council (LEDAC) and the Special Committee on
Scholarship (SAS). A unit, the Legislative Liaison Office (LLO), has also been
instituted to administer the NEDA Legislative Liaison System (LLS). These units
have the following functions:
1) The Legislative-Executive Development Advisory Council (LEDAC)

Secretariat.
The LEDAC Secretariat provides technical assistance,
administrative support and secretariat services to the Council. The LEDAC
Secretariat has the following functions:
a.
Provides technical and administrative support to the Council and its

sub-committees, if any;
b.
Determines and prepares the agenda for and the minutes of the
Council meetings;
c.
Serves as venue for the initial processing/discussion of issues prior

to deliberation by the Council;
d.
Receives and prepares communications pertinent to the work of the

Council;
e.
Manages and maintains the official recordsof the Council;
f.
Prepares the annual budget of the Council;
g.
PreparesreportsasreqliiredbytheCouncil; and
h.
Performsotherdutiesasmaybeassigned by the Council.
2) The Scholarship Affairs Secretariat (SAS). Under the supervision

of the Public Investment Staff, the SAS provides technical assistance and
secretariat services to the Special Committee on Scholarships (SCS). The SAS has
the following functions:
a.
Provides secretariat supportt on the SCS in the planning and

programming of scholarship offers received from various donor
countries/institutions to ensure relevance of training programs/
courses to th- country's development objectives;
b.
Evaluates, with the assistance of the NEDA sector staffs, foreign

scholarship offers, and processes agency nominations; and
74
c.
Establishes and maintains effective institutional linkages with local

representatives of donor countriesand institutions or organizations
on foreign scholarship matters.
3.) The Legislative Liaison Office (LLO). The LLO provides assistance
in the administration of the NEDA Legislative Liaison System (LLS). The LLO has
the following functions:
a.
Establishes the necessary linkage of the NEDA with both Houses of

Congress and the Presidential Legislative Liaison Office (PLLO);
b.
Provides technical support to Congressional Committees principally

involved
with
NEDA's
major
areas
of
concern;
and
Keeps track of economic bills and other proposed legislative
measures pertinent to NEDA and its areas of concern and promotes
passage of legislation high in NEDA's agenda.
Attached Agencies. Six government agencies are attached to the NEDA

for purposes of administrative supervision. These are the
1.
Tariff Commission (TC),
2.
Philippine National Volunteer Service Coordinating Agency (PNVSCA),
3.
Population Commission (POPCOM),
4.
National Statistical Coordination Board (NSCB),
5.
National Statistics Office (NSO), and
6.
Statistical Research and Training Center (SRTC).
Moreover, the,Philippine Institute for Development Studies (PIDS) is

attached to the NEDA for policy and program coordination or integration.
ASSIGNMENT
1. Research on the new projects undertaken by NEDA that affect Public
Finance in the Internet.
75
hapter 9
AGENCIES MONITORING GOVERNMENT REVENUES & EXPENDITURES
THE DEPARTMENT OF FINANCE

According to EO 292 Administrative Code of 1987 Finance Chapter 1 that
states that:
1.) It is the policy of the State that the Department of Finance shall be primarily
responsible for the sound and efficient management of the financial resources
of the Government, its subdivisions, agencies and instrumentalities.
2.) The Department shall be responsible for the formulation, institutionalization
and administration of fiscal policies in coordination with other concerned
subdivisions, agencies and instrumentalities of government.
3.) Moreover, the Department shall be responsible for the generation and
management of the financial resources of the government, ensuring that said
resources are generated and managed judiciously and in a manner supportive
of development objectives.
4.) The Department shall be responsible for the supervision of the revenue
operations of all local government units, with the objective of making these
entities less dependent on funding from the national government.
5.) Finally, the Department shall be responsible for the review, approval and
management of all public sector debt, whether foreign or domestic, with the
end in view of ensuring that all borrowed funds are effectively utilized and all
such obligations are promptly serviced by the government.
The Department of Finance shall consist of the Department proper
comprising the Office of the Secretary, the Offices of the Undersecretary and
Assistant Secretaries, the Economic Intelligence and Investigation Bureau, the
Service, the Operations Groups and their constituent units, and the Regional
Offices.
Office of the Secretary. - The Office of the Secretary shall consist of the
Secretary, his Undersecretary and their immediate staffs.
Undersecretaries. - The Secretary shall be assisted by five (5) Undersecretaries
appointed by the President upon the recommendation of the Secretary, each of
76
whom shall head, respectively, the Policy Development and Management

Services Group and the four (4) Operations Groups.
Assistant Secretaries. - The Secretary shall also be assisted by five (5)
Assistant Secretaries appointed by the President upon the recommendation of
the Secretary. The respective assignments of the Assistant Secretaries and the
reporting procedures to be followed by them shall be determined by the
Secretary.
DEPARTMENT SERVICES
Policy Development and Management Services Group. The Policy
Development and Management Services Group, which shall be headed by an
Undersecretary, shall consist of the following:
Planning and Policy Research Office;
Central Management Information Office;
Central Administration Office;
Central Financial Management Office;
Public Information and Assistance Office;
Legal Office; and
Regional Coordination Office.
Planning and Policy Research Office.
Research Office shall have the following functions:
The Planning and Policy
Formulate long-range and annual projections of revenue needs, cash position

and borrowing capacity of the Government as basis for policy decisions of
the department;
Supervise policy research and development on fiscal and tax measures
undertaken by the operating bureaus and offices of the department;
Coordinate with other government agencies on policy research and its
impact on fiscal and tax measures; and
Perform such other functions as may be assigned by the Secretary or his
undersecretaries.
Central Management Information Office.
The
Information Office shall have the following functions:
Central
Management
Establish a Management Information System and sub-systems for monitoring

and evaluation of department-wide programs and projects, including those
that are executed by operating Bureaus and Offices;
Formulate policies, plans and procedures for data control and systems
management;
Act as the central repository of existing and future computer files; and
77
Perform such other appropriate functions as may be assigned by the

Secretary or his undersecretaries.
Central Administration Office.
The Central Administration Office shall
Supervise Department-wide services relating to internal cash management,

personnel administration, property and supplies procurement, and custody;
and maintenance of central files, and corresponding reporting systems;
Assist in the formulation of policies and guidelines on the management of
human and physical resources and general housekeeping activities for
uniformity and standardization;
Serve as a center for the establishment and periodic evaluation of
management operation systems, internal control and work outputs to
determine Department-wide performance efficiency;
Design and develop training policies and guidelines, administer and evaluate
training programs and in coordination with external training institutions,
screen and recommend to the Secretary the participation of Department
personnel in training programs, seminars and conferences in the country or
abroad;
Ensure that Department-wide activities and efforts are focused towards a
central direction as embodied in the national socio-economic development
plans; and
Department or his Undersecretaries.
Central Financial Management Office.
Management Office shall have the following functions:
The
Central
Financial
Supervise Department-wide activities relating to budget preparation and

management, department accounting, and internal audit;
Department or his Secretary or his Undersecretaries.
Public Information and Assistance Office. The Public Information and
Assistance Office shall have the following functions:
Provide policy direction and guidance to the operating Bureaus and Offices of
the Department for the proper dissemination of appropriate information or
Department-wide programs, operations and activities;
Provide the operating Bureaus and Offices with the general framework for
rendering direct assistance to the general public;
Receive complaints and grievances from the general public; prepare referrals
to concerned Bureaus and Offices and monitor responses or actions taken;
and
Secretary or Undersecretary for Policy Development and Management
Service.
Legal Office. The Legal Office shall have the following functions:
78
Prepare draft opinions or rulings for the signature of the Department

Secretary or his Undersecretaries on matters elevated to it by the Bureaus
and Offices of the Department;
Conduct legal researches on all matters referred to it by the Secretary or his
Undersecretaries; and
Secretary or his Undersecretaries.
Regional Coordination Office.
The function of the Regional
Coordination Office is to coordinate the operations of the Regional Offices.
The Bureu
A.
Operations Groups. The Operation Groups, each of which shall be
headed by an Undersecretary, shall consist of the following:
1)
Revenue Operations Group, composed of the following:

(a) Bureau of Internal Revenue;
(b) Bureau of Customs;
(c) Revenue Service;
(d) Legal Service;
2)
Domestic Operations Group, composed of the following:

(a) Bureau of Treasury;
(b) Bureau of Local Government Finance;
(c) Financial and Fiscal Policy and Planning Office;
B.
3)
International Finance Group, composed of the following:

(a) International Finance Policy Office;
(b) International Finance Operations Office.
4)
Internal Administration Group
Economic Intelligence and Investigation Bureau.
The Economic Intelligence and Investigation Bureau, which shall be headed

by and subject to the supervision and control of the Commissioner, who shall in
turn be appointed by the President upon the recommendation of the Secretary,
shall have the following functions:
Receive, gather and evaluate intelligence reports

and information and evidence on the nature, modes and extent of
illegal activities affecting the national economy, such as, but not
limited to, economic sabotage, smuggling, tax evasion, and dollarsalting, to investigate the same and aid in the prosecution of cases;
Coordinate with external domestic or foreign
agencies in monitoring the financial and economic activities of
persons or entities, which may adversely affect national financial
79
interest with the goal of regulating, controlling or preventing said

activities;
Provide all intelligence units of operating Bureau
or Offices under the Department with the general framework and
guidelines for the proper conduct of intelligence and investigation
work;
Supervise, monitor and coordinate all the
intelligence and investigation operations of the operating Bureaus
and Offices under the Department;
Investigate, hear and file, upon clearance by the
Secretary, anti-graft and corruption cases against personnel of the
Department and its constituent units; and
Perform such other appropriate functions as may
be assigned by the Secretary or his Undersecretaries.
Bureau of Internal Revenue.

The Bureau of Internal Revenue, which shall be headed by and subject to
the supervision and control of the Commissioner of Internal Revenue who shall be
appointed by the President upon the recommendation of the Secretary, shall
(1)
(2)
(3)
(4)
(5)
Assess and collect all taxes, fees and charges and account for all
revenues collected;
Exercise duly delegated police powers for the proper performance of
its functions and duties;
Prevent and prosecute tax evasions and all other illegal economic
activities;
Exercise supervision and control over its constituent and subordinate
units; and
Perform such other functions as may be provided by law.
The Commissioner of Internal Revenue, with the approval of the Secretary

of Finance, shall draft and prepare the necessary rules and regulation as may be
needed to delineate the authority and responsibility of the various groups and
services of the Bureau.
Deputy Commissioners.
The Commissioner shall be assisted by two (2) Deputy Commissioners.
Each Deputy Commissioner shall supervise one (1) of the groups below, to be
assigned by the Commissioner.
Composition of the Bureau of Internal Revenue.
The Bureau of Internal Revenue shall be composed of the following:
(1)
Assessment and Collection Group, headed and supervised by a

Deputy Commissioner and composed of the following services, each
of which shall be headed by a Revenue Chief;
80
(2)
Legal and Internal Administration Group, headed and supervised by

a Deputy Commissioner and composed of the following services,
each of which shall be headed by a Service Chief.
The aforementioned Undersecretaries shall be appointed by the President upon

recommendation of the Secretary.
The Commissioner and the two (2) Deputy Commissioners shall each have a
Management and Technical Staff to render technical and secretarial support
services.
Bureau of Customs
The Bureau of Customs which shall be headed and subject to the management
and control of the Commissioner of Customs, who shall be appointed by the
President upon the recommendation of the Secretary and hereinafter referred to
as Commissioner, shall have the following functions:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Collect customs duties, taxes and the corresponding fees, charges

and penalties;
Account for all customs revenues collected;
Exercise police authority for the enforcement of tariff and customs
laws;
Prevent and suppress smuggling, pilferage and all other economic
frauds within all ports of entry;
Supervise and control exports, imports, foreign mails, and the
clearance of vessels and aircrafts in all ports of entry;
Administer all legal requirements that are appropriate;
Prevent and prosecute smuggling and other illegal activities in all
ports under its jurisdiction;
Exercise supervision and control over its constituent units;
Perform such other functions as may provided by law.
The Bureau of Customs shall be composed of the following:

(1)
(2)
(3)
Customs Revenue Collection Monitoring Group, headed and

supervised by a Deputy Commissioner and composed of Legal,
Financial and Collection Services, each of which shall be headed by
a Service Chief;
Customs Assessment and Operations Coordinating Group, headed
and supervised by a Deputy Commissioner and composed of the
Imports and Assessment and Ports Operations Services, each of
which shall be headed by a Service Chief; and
Intelligence and Enforcement Group headed and supervised by a
Deputy Commissioner and composed of the Intelligence and
Investigation Service and the Enforcement and Security Service.
The aforementioned Deputy and Assistant Commissioners shall be appointed by

the President upon the recommendation of the Commissioner of Customs in
keeping with the intent of Executive Order No. 9.
The Collection Districts.
81
The Bureau shall have thirteen (13) Collection Districts under the direct
control and supervision of the Commissioner. Each Collection District shall have
as many subports as necessary to maximize revenue collection and the
prevention of smuggling and fraud against customs. Each Collection District shall
be headed and supervised by a District Collector while each subport will be
headed by a Port Collector. The Collectors shall have the following functions:
(a)
Collect duties, taxes, fees, charges, penalties and fines accruing to the
Government under the Tariff and Customs Code and related laws;
(b) Exercise police powers conferred to him/her by the Tariff and Customs Code
or other laws which include the enforcement of penalties and fines;
(c)
Examine goods assess duties, fees, charges, penalties and fines accruing to
the Government under the Tariff and Customs Code and other related laws;
(d) Supervise the entrance and clearance of vessels and aircrafts engaged in
foreign commerce;
(e) Supervise and control handling of foreign mails arriving in the Philippines;
and
(f)
Supervise all import and export cargoes landed and/or stored in piers,
airports, terminal facilities, yards and freight stations;
Perform such other appropriate functions consistent with the assigned task of the
District/Port Collectors and those which may be given by the Commissioner.
Management and Technical Staff.
The Commissioner and three (3) Deputy Commissioners, and the Assistant
Commissioner shall each have a Management and Technical Staff, which shall be
limited to a specific number of personnel as determined by the Secretary, to
render technical and secretarial support services.
Review Exercise
Divide the class into groups. Assign each group a particular bureau, agency or
department in the national government. Let them identify the name of the
persons occupying the said positions.
82
Chapter10
History and Operation of
The Bureau of Treasury

The Bureau of Treasury, which shall be headed by and subject to the
supervision and control of the National Treasurer who shall be appointed by the
President upon the recommendation of the Secretary, shall have the following
functions:
(a) Act as the principal custodian of all national government funds;
(b) Assist in the formulation of, and execute, policies on financial management,
public borrowings and capital market development;
(c) Formulate, in coordination with government agencies concerned, annual
projections of revenue needs, cash position and borrowing capacity of the
government;
(d) Maintain accounts of the financial transactions of all national secretaries,
bureaus, agencies and instrumentalities;
(e) Manage the cash resources of the Government and perform banking functions
in relation to receipts and disbursements of national funds;
(f) Manage, control and service public debts from domestic or foreign sources;
(g) Exercise line supervision over its Regional Offices/field units within
Department Regional Administrative Coordination Offices; and
(h) Perform such other appropriate functions as may be assigned by the Secretary
or Undersecretary for Domestic Operations.
The Bureau of Treasury shall be composed of the following:
83
(1)
Internal Affairs Sub-Sector under the direct supervision and

control of an Assistant National Treasurer and composed of the
following:
(a)
(b)
(c)
(d)
(e)
(f)
(2)
Administrative Service;
Financial and Management Service;
Management Information and Data Systems Service;
Planning and Policy Research Division;
Public Information and Assistance Division; and
Legal Division.
National Government Affairs Sub-Sector under the direct

supervision and control of an Assistant National Treasurer and
composed of the following:
Public Debt Management Service;

Debt Clearing Service;
National Cash Accounts Service;
Treasury Banking Service;
Operations Planning Service;
Regional Offices which shall have under their supervision
all provincial offices and shall be under the direct control
and supervision of the National Treasurer.
Assistance to National Treasurer. The National Treasurer shall be

directly assisted by the:
(1)
Management and Technical Staff, which shall perform the functions of
rendering technical and secretarial support services;
(2)
Intelligence and Investigation Office, which shall perform the following
functions:
(a)
Monitor, gather and evaluate reports on financial and economic activities
of persons or entities, foreign and domestic, which may adversely affect
national financial interests;
(b)
National Treasurer.
The aforementioned two (2) Assistant National Treasurers shall be appointed by
the President upon the recommendation of the Secretary.
Bureau of Local Government Finance. The Bureau of Local
Government Finance, which shall be headed by and subject to the supervision
and control of an Executive Director who shall be appointed by the President and
upon the recommendation of the Secretary, shall have the following functions:
(1)
(2)
(3)
Assist in the formulation and implementation of policies on local

government revenue administration operations of local governments;
Exercise administrative and technical supervision and coordination
over the treasury and assessment operations of local governments;
Develop and promote plans and programs for the improvement of
resource management systems, collection enforcement mechanisms,
and credit utilization schemes at the local levels;
84
(4)
Provide consultative services and technical assistance to the local

governments and the general public on local taxation, real property
assessment and other related matters;
(5) Exercise line supervision over its Regional Offices/field units within
the Department Regional Administrative Coordination Office and the
Local Treasury and Assessment Services; and
(6)
Secretary or Undersecretary for Domestic Operations.
The Bureau of Local Government Finance shall be composed of the following:
(1)
(2)
(3)
Internal Administration Office;

Policy Enforcement and Special Projects Group;
Field Operations Examination Group
The Executive Director shall be directly assisted by the:

(1)
(2)
Management and Technical Staff, which shall perform the functions

of rendering technical and secretarial support services;
Intelligence and Investigation Office, which shall perform the
following functions:
(a)
Monitor, gather and evaluate reports on financial and
economic activities of persons or entities, foreign and
domestic, which may adversely affect national financial
interests;
(b)
Perform such other appropriate functions as may be assigned
by the Director.
85
Chapter11
SOURCES OF REVENUE
I.
TAXATION
Governments can never create wealth. They must, therefore, support

themselves by taking a portion of the wealth of their citizens. The chief means by
which governments do this is taxation. Taxes are required payments of money
that must be made regularly. Most of the money goes into a general pool of
revenues from which all government expenses are paid.
Governments also have other ways of raising money that are in effect
forms of taxation. State governments, for example, sell license plates for
automobiles, and they charge fees for licensing drivers. Local governments sell
operating licenses to owners of businesses as well as charge fees for marriage
licenses, pet licenses, and parking cars.
Borrowing is another means of obtaining revenue. In the United States the
federal government sells bonds and notes of different maturity dates. Probably
the best known of these are treasury bills. State and local governments sell
revenue bonds for a variety of purposes, including highway construction, school
buildings, and office structures. Borrowing is not considered taxation, but it has
the same effect: it diverts money from private savings and investment to public
expenditures.
Nature and Purpose
Tax law distinguishes between objects of taxation and the tax base. A tax
object may consist of products, property, transactions, or sums of money. Among
the transactions that are taxed are sales, purchases of real estate, and importing
goods.
86
The tax base is the physical unit or the amount of money to which a tax
rate is applied. A tax on automobiles, for example, may use as a tax base the
weight of the car, its horsepower, its age, or its stated value. The tax base of real
estate is its assessed valuation. An import duty on coffee may be levied based on
the weight or on the stated value.
When elected officials of state and local governments complain that their
tax base is eroding, they mean that few new homes, office buildings, and
factories are being constructed; older homes and other buildings have fallen in
value; and businesses are leaving the area. To make up for revenue lost in
income and property taxes, they must find other tax substitutes or raise the
taxes already in place.
Prior to the 20th century taxation was regarded solely as a means to
finance the necessary obligations of a government. The money was used to pay
elected officials; maintain military forces; build roads, bridges, dams, and public
buildings; and pay for such services as schools, police, and fire fighters.
In the 20th century the purposes of taxation have expanded considerably,
as have the roles of government in society. Today taxes have three functions. First
and foremost, they provide the money that makes it possible for government to
function.
Second, taxes have an economic significance: they are used to promote
such goals as full employment, satisfactory rates of economic growth, and
stability of the money supply. The economic goals of taxation are achieved by
raising or lowering tax rates.
The fewer taxes people pay, the more money they have for their personal
use. Conversely, the more taxes they pay, the less money they have available for
themselves. This economic use of taxes has been strongly influenced by political
reaction to the Great Depression and by the work of economist John Maynard
Keynes (sees Keynes).
The third and most controversial use of taxes is the redistribution of
wealth. The purpose of income redistribution is to lessen the inequalities of
wealth in society. This is done through what is called a system of transfer
payments. The effect of the system is to transfer money from those who have a
good deal of it to those who have very little. Two of the most common examples
are social security payments and welfare payments made to people who, for one
reason or another, do not work. Social security taxes are paid by members of the
working population and are given by governments to those who have retired. In
the countries of Western Europe and North America, transfer payments make up
the largest portion of government budgets. In some nations social welfare
systems have been developed that provide economic security to individuals from
birth until death, and consequently the taxes to account for transfer payments
are high.
Apart from these primary tax functions, there are some lesser purposes to
revenue raising. Alcoholic beverages and tobacco may be taxed heavily on the
ground that their use is injurious to the health of individuals. Such revenue, often
called a sin tax, is in effect a penalty paid by users of these substances. Taxes
87
have also been used to affect population growth. Some countries have had
bachelor taxes and taxes on childless couples. Whether such taxes achieve their
goals is debatable.
The kinds of taxes raised for government revenue are numerous.
The most common are: personal income taxes, corporate income
taxes, property taxes, sales taxes, death and gift taxes, and importexport duties. Import-export duties are covered in the article Tariff.
Personal Income Taxes. The personal income tax is the major source of
revenue in all non-planned economies such as those in the United States and
Western Europe. In planned economies such as the Soviet Union and Eastern
Europe were all wealth and means of production are owned and controlled by the
government. Income taxes are less important as a source of income than the
taxes collected directly from the state-owned businesses and the turnover tax,
collected on a wide range of consumer goods.
Historically, the income tax is the most recent type to be used and to gain
wide acceptance. The first income tax was introduced in Great Britain in 1799 as
a wartime measure. In the United States the first income tax was introduced in
1862 during the American Civil War, and it lasted ten years. An attempt to
impose an income tax in 1894 was declared unconstitutional by the United States
Supreme Court. This prompted the movement that led to the adoption of the 16 th
Amendment to the Constitution in 1913, allowing Congress to impose and collect
income taxes.
Widespread acceptance of income taxation is based on the reasoning that
it is the fairest kind of tax because an individuals income is the best single
indication of the ability to pay. All income is not alike, and some countries
distinguish among sources of income in their tax rates. In the United States, for
example, income from work is taxed at a higher rate than that from other
sources. Some sources of income are not taxed or are very lightly taxed; income
from municipal revenue bonds is an example.
Income tax laws usually allow certain deductions, money that is tax-free in
that it is deducted from gross income before the tax is paid. Two of the most
common deductions are personal exemptions and certain expenses.
Personal exemptions in the United States, for example, differentiate
between large and small family units. A single individual pays a larger tax than a
person whose wife or husband and children are considered dependents. The
taxpayer is allowed a specific amount of tax-free income for each dependent.
Personal deductions vary from country to country. In the United States
they include abnormal medical expenses, interest paid on home mortgage debt,
contributions to charity, and most state and local taxes.
Capital gains or losses also figure into the determination of income tax
payments. A capital gain is the increase in value of a capital asset such as a
share of stock, a government or corporate bond, or a piece of real estate. Capital
gains are usually taxed at a lower rate than other income. One reason for this is
that if a capital gain has accumulated over a long period of time and is taxed all
at once, the tax is much higher than if the gain had been taxed annually. When
88
capital gains are taxed at a high rate, individuals are discouraged from making
useful and necessary investments in the economy.
The negative income tax is an idea that has not yet been put into
widespread practice in either Great Britain or the United States as a substitute for
public assistance or family allowances. The program works in this way: it is a form
of guaranteed minimum income for which eligibility is determined by family size
in relation to income. Under this system there is a critical level of income a breakeven point at which no taxes are paid out and no payments are received. Families
whose incomes fall below this level will receive cash payments equal to all or part
of the difference between their income and the critical level. One advantage is
that eligibility is determined on the basis of income alone. Therefore the working
poor are not excluded.
Corporate Income Taxes
Most countries get income taxes from corporations as well as from
individual people. (Corporations also pay other revenues such as property taxes
and sales taxes.) These taxes are based on net profits, which is the income left
after all allowable costs of doing business and other exemptions have been
deducted. In the United States and some other countries, taxes are levied on
corporations by states and local governments as well as by the federal
government.
Corporate taxes are generally flat-rate amounts instead of the graduated
income taxes that individuals pay based on the amount of their incomes.
Sometimes, however, corporate taxes are graduated according to the return on
invested capital instead of on profits. Such a graduated tax is called an excess
profits tax. This is considered a tax on income that is considerably above the
normal rate of return for a company that has not expanded or has not made new
investments in buildings or machinery.
Deductions of particular value to corporations include the depreciation
allowance. This is the rate at which the cost of new machinery and buildings is
written off, or deducted. Another deduction, the investment allowance, lets
investors subtract from taxable income a portion of assets in addition to
depreciation. Tax credits reduce taxes by specific percentages of the cost of new
investment. Alternatively, governments sometimes give investment grants or
payments to companies making certain kinds of investments. Money spent on
research and development is also given special tax treatment.
One of the best-known and most controversial deductions permitted in the
United States is the depletion allowance. This deduction is used by corporations
involved in extracting non-replaceable minerals, especially petroleum, from the
ground. The theory behind the depletion allowance is that investors in
exhaustible resources should be allowed the same consideration as other
companies that deduct depreciation on machinery and buildings.
Tax shifting is one of the issues that have enlivened the debate about
corporate taxes. The taxes must either be paid out of the companys profits or
shifted from the company to the consumer in the prices charged for products.
Opponents of corporate income taxes say that if the companies were untaxed,
89
prices would be lower. If the tax is not shifted, it tends to reduce taxable profits
and cuts back future investments in growth.
Double taxation is another issue in corporate taxes. Many corporations
operate in more than one country. If a company has its headquarters in one
country and a manufacturing plant in another, both countries may tax the
companys profits. Relief from such double taxation is sometimes provided by
treaty. One country allows a tax credit for income tax paid in a second country or
gives up its right to tax profits earned abroad. Another form of double taxation
that has generated considerable attention occurs when stockholders in
corporations are taxed on dividends paid to them by the corporations. Since the
dividends are paid out of profits upon which the corporation has already been
taxed, the question is why they should be taxed again.
The unitary tax policy adopted by many states in the United States has
raised another controversial issue for corporate taxation. The word unitary does
not refer to a type of tax but to corporate structure. If, for example, a Californiabased corporation has operations in Singapore and Saudi Arabia, it can be taxed
on the total income of those operations as long as the kind of business engaged
in is the same in all locations. If, however, the company owns a subsidiary
elsewhere that is engaged in another kind of business, it is not subject to the
unitary policy. Most corporations oppose the unitary policy on the grounds that it
is double taxation and may run afoul of international treaties. A corporation
operating in a United States state, for instance, may be a subsidiary of a
company based in Europe. The European headquarters is not legally bound to
turn over profit statements to an American state for income tax purposes.
Property Taxes.
One of the oldest types of taxation is that levied on
land and buildings. It was used in the ancient world, in parts of medieval Europe,
and in the American Colonies. In some countries the tax also covers business and
farm equipment and inventories. In some parts of the United States personal
property is taxed. This includes such items as automobiles, jewelry, and furniture.
In most countries property is taxed by state or local rather than national
governments. In the United States property taxes have long been the chief
source of revenue for local governments. Often taxes are imposed by more than
one governmental unit within the same geographic area: a state, county, town,
and school district may all make demands on property owners.
Property taxes are paid by businesses, homeowners, and owners of rental
property. In the case of businesses, the tax can usually be shifted to consumers in
the form of higher prices, but homeowners are unable to shift the taxes on their
houses.
The amounts of money collected in property taxes are diminished by
numerous properties that are exempt, or excused, from paying them. In the
United States those exempt include schools, parks, and other properties of local
government; federally owned property; and land and buildings used by religious
and charitable institutions.
Continually rising property taxes were, in 1978, the source of a tax revolt
in California that has spread to other states. Voters in California overwhelmingly
approved a referendum, popularly known as Proposition 13 that rolled back
90
property taxes by 57 percent. These deep cuts in local revenues prompted fears
of drastic cuts in services. These fears proved unfounded, but in other areas of
the country local services have been cut back and educational programs
curtailed as voters have consistently voted against new tax levies.
Sales Taxes. Among the most widely used of all taxes, sales taxes are
imposed on the sale of goods and services. A sales tax on a specific type of
commodity such as alcohol, tobacco, or automobiles is called an excise tax. Other
sales taxes are simply an amount related to the total cost: a $100 purchase with
a five percent sales tax costs $105. An excise tax is normally much higher
sometimes accounting for more than half the cost of an article.
Many countries have national sales taxes, but in the United States only the
states levy them (with the exception of the excise tax; the federal government
collects large revenues from excise taxes on alcohol and tobacco). Some local
and county governments also levy sales taxes. Sales taxes are normally collected
at the manufacturing, wholesale, or retail level.
A sales tax is often considered regressive: it falls more heavily on those
less able to pay. Poor people and wealthy people who buy the same items pay the
same amount of tax. As price levels increase, the taxes also increase. To offset
this problem, some governmental units exempt food, medicines, or clothing from
the sales tax because they are considered necessities.
Some sales taxes are often set aside for specific purposes. Gasoline taxes
and automobile taxes are set aside by many governments exclusively for
highway improvement or public transportation.
There is a form of sales tax that has come into wide use in Western Europe
since 1954 when it was adopted in France called the value-added tax (VAT). The
idea did not originate in Europe. The tax was used in Japan after World War II and
was introduced in the state of Michigan in 1953.
Theoretically the value-added tax is a levy that accumulates on goods as
they move from one stage of production to another from raw material to finished
product. Copper ore, for example, proceeds from the mine to a smelter, then to a
maker of wire, and lastly to a manufacturer of electronics equipment. At each
stage its value is increased. The value-added tax, as it is used in Europe,
amounts to a national sales tax on goods and services. As with many taxes, it is
shifted forward to the final purchaser.
Proponents of the value-added tax have suggested that it be adopted in
the United States as preferable to an income tax. The value-added tax is a tax on
consumption. Therefore it exempts savings and investment and encourages
economic expansion. Opponents consider it, like all sales taxes, to be regressive,
falling hardest on those least able to pay.
Death and Gift Taxes. Death and gift taxes are those imposed on
transfers of property that are made without payment. The most obvious such
transfer is what is left for others by one who has died. It also applies to gifts
made by an individual at some time before death to eventual heirs.
91
Taxes imposed on property at death are known as estate taxes. The taxes
imposed on those who inherit property are called inheritance taxes or succession
duties. These taxes are among the least productive in the amount of revenue
obtained by government. Most people have no taxable estate to leave anyone,
and there are so many exemptions and deductions that yields are reduced
drastically. In recognition of the relative uselessness of these taxes, the Economic
Recovery Tax Act passed by the United States Congress in 1981 greatly increased
the exemptions and allowances for estate and gift taxes. Through this act,
eventually the gifts and estates of most Americans will be exempt from taxation.
Inheritance taxes collected by the states, however, are unaffected by the
legislation. (See also Estate and Inheritance Law.)
History of Taxation. Tax history for more than 2,500 years has focused
on two significant issues: who pays and what is taxed. For most of human history,
taxes were paid by the poor peasants, slaves, colonists, or conquered peoples to
support the government and the wealthy classes. Taxation as the responsibility of
free citizens is a modern concept that originated with the emergence of
constitutional governments first in England and later in the United States and
Western Europe.
In the ancient world to the end of the Roman Empire in the West in about
AD 476, governments owned so much of the wealth within their territories that
taxes were not heavily relied on for revenue. Income from mines, tributes from
ruled peoples, and gifts often required from wealthy citizens made up the
greatest portion of a governments income.
Taxes on trade and consumption were added to meet government needs.
Direct taxes such as the modern income tax were virtually unknown, though
Rome had an inheritance tax and a capitation tax. The capitation, or head, tax is
one imposed on each individual in a society. An example is the poll tax, once
required of voters in state and local elections in the United States. In the time of
Julius Caesar in the 1st century BC, Rome instituted a 1 percent sales tax, and in
the Roman provinces land was often subject to taxation.
Taxes of any kind except those imposed by the church had little place in
the rural, feudal system of the middle Ages. Kings and nobles made their livings
from land held directly or through payments from those who worked the land
(see Feudalism). As the social system of the Middle Ages broke up, land became
the primary source of wealth and therefore of taxation. In France the annual taille
was a tax levied on estimated farm income. In England land taxes were first
based on area but later on annual rental value. In the British North American
colonies, the English land tax system was broadened into a property tax whose
base included land, houses, personal property, and the earning capacity of the
individuals who owned the land.
Rebellion against oppressive tax systems played a major role in both the
American and French revolutions. The subsequent establishment of
representative democracies along with the modern ideal of social justice helped
to bring about the reform of tax systems.
The emergence of the modern economic system with all of its varied
sources of income and wealth also led to the more uniform system of taxing
income directly. The first modern income tax was adopted in England in 1799 but
92
was abolished from 1816 to 1842. In the United States an income tax was used
as a temporary measure during the American Civil War. In 1894 the income tax
was again enacted, but it was later declared unconstitutional, necessitating an
amendment, which was adopted in 1913.
Non-tax Revenue: Lotteries
One of the ways in which governments raise money without adding new or
higher taxes is the use of lotteries. A lottery has long been a procedure used by
governments, churches, fraternal societies, and other organizations to raise
money. A lottery is a form of gambling in which a large number of people buy
chances, called lottery tickets, in the hope of winning one or more prizes. Prizes
offered by organizations may be goods such as automobiles, television sets, or
other appliances or they may be money prizes.
What differentiates a lottery from a tax is that no one is forced to take part.
Wherever lotteries are offered, however, they have proved quite popular. In many
places the money raised is used for specific purposes such as funding education
or for public projects.
In Australia a lottery financed the building of the Sydney Opera House,
which was completed in 1973. State lotteries or large-scale private ones are
found in many African and Middle East states, most European countries, most
Latin American nations, Japan, and Australia. In North America, Canada has a
national lottery, but in the United States only some states maintain lotteries. The
first to adopt them were New Hampshire, New York, and New Jersey in the 1960s.
Many others have since followed. In some lotteries, particularly in Europe, where
the prizes may be very large, ticket prices may be very high. It is possible,
however, to buy fractions of a ticket. Winners, of course, only receive a fraction of
a large prize if they have bought less than a whole ticket.
Because of the very large number of people who buy lottery tickets,
computers are now used to issue tickets and to keep track of the numbers sold.
By computer it is also possible to determine how many winning tickets have been
sold after a drawing has taken place. In the United States there remains
opposition to state lotteries to raise public funds. Opponents say that many who
play are those who can least afford it, and, even though it is by free choice, it
amounts to another regressive tax.
Tax Policy
SUBSIDY. If economic competition was completely unhindered and all
markets were free and unregulated, customers would pay only market prices for
goods and services. Competition would serve to keep prices low and quality high.
This situation rarely exists because of a wide range of government policies that
affect the selling prices and the quantities of most items that are produced.
Governments use subsidies payments, economic concessions, or privileges to
favor business enterprises or consumers. A subsidy may be in the form of a direct
payment, or it may be indirect a lower rate of taxation for certain enterprises, for
example.
The word subsidy is derived from the Latin subsidium, meaning reserve
troops or assistance. Today it refers to aspects of government economic policy
93
that have the result of protecting certain segments of the economy from
competition or failure.
The best-known subsidies in Europe, Canada, and the United States are
farm price supports. In 1987, for instance, the agriculture sector in the United
States was receiving about 26 billion dollars per year in various types of support.
In the same year, the European Economic Community devoted about two thirds
of its annual budget to subsidize exports of farm surplus.
Direct subsidies. During the 19th century, as the American frontier was
moving westward, the federal government gave extensive grants of land and
construction funds to the railroads. In the 20 th century, governments in Europe,
North America, and Japan give direct payments for ship construction and some
forms of public transportation.
In the United States the federal government helps to increase the demand
for food products by giving away food and by financing the Food Stamp and
School Lunch programs. Some surplus food products are given away to other
countries in the Food for Peace program. Direct payments made to individuals for
the purpose of income maintenance are also subsidies (see Social Security;
Welfare State).
The largest proportion of direct subsidies in the United States is provided
for military programs. Billions of dollars are bestowed on defense contractors for
the research, development, and manufacture of weapons and other goods.
Company profits are guaranteed by the government, regardless of the projects
outcome. Cost overruns are common on large projects, and most purchases are
made at prices higher than the normal market rate. Similar military procurement
systems exist in other nations.
University research conducted for the military or for other scientific
purposes is also heavily subsidized by the United States government. Public
schools in the United States receive funding from both federal and state
governments, in addition to receiving local property-tax support.
Indirect subsidies. These are the most widespread, if less visible, forms
of assistance provided to private enterprise and other institutions. Indirect
subsidies may take such forms as favorable tax policies, loans, import quotas,
and price supports. If, for example, the United States government persuades
Japan to limit its new car exports, the United States auto industry benefits. It has
less competition from foreign cars and may therefore raise its prices. This
practice amounts to an indirect government subsidy of the automobile industry,
though the immediate cost to consumers may be high.
Low-cost loans to farmers, homeowners, or small businesses may also be
considered as subsidies because the loans are made at less than normal rates of
interest. In farm programs, price supports for some crops are provided through
special loans known as non-recourse loans. If the market prices rise above the
minimum support price, the farmer pays off the loan and takes possession of the
crop originally pledged as collateral. If the market prices remain low or fall even
lower, the farmer defaults on his loan and keeps the money loaned to him, and
the government keeps the crop and absorbs the loss.
94
Tax policy is one of the most effective means of providing indirect

subsidies. Individual and corporate taxpayers all benefit from the use of
deductions and from certain forms of nontaxable income. Businesses in particular
benefit from being able to write off capital improvements in buildings and
machinery by means of depreciation allowances.
Nonprofit institutions, including religious organizations, are indirectly
subsidized in the United States in at least two ways. First, they do not pay taxes
on income or property. Second, contributions made to them are tax deductible.
In international trade, protectionism has been used for centuries to
subsidize home industries at the expense of foreign industries. Protectionism is a
nations use of high import taxes (tariffs), import quotas, or payments to shield
certain of its industries from competition. Protectionism rarely has beneficial
results. It tends to stifle international trade and weaken the economies of the
nations that practice it. Protectionism hurts consumers by artificially raising
prices. It can also be used to protect inefficient and failing industries from
competition.
Evaluation of subsidies. Although some subsidies may serve to
encourage activities that are generally regarded as socially desirable, the
benefits of subsidies are sometimes outweighed by two main defects. First,
consumer prices are often higher under the influence of subsidies.
Second, subsidies transfer funds by means of taxation from one segment
of a population to another for reasons that may not necessarily promote the
general welfare. Every subsidy is provided, therefore, at someones expense.
Subsidies tend to keep taxes high while discouraging economic efficiency. The
test of the desirability of a subsidy hinges on a comparison of the public benefits
(which are usually diffuse and difficult to measure) with its costs in terms of
higher prices, taxes, and inefficiency.
Review Exercises
1).
Give examples of the following:

A.
B.
C.
D.
Tax Shift
Double Taxation
Subsidies
Gift Tax and Death Tax. Which is more preferable?
2).
Divide the class into 2. Choose from the topics above for debate by the
students.
95
hapter 12
SUMMARY OF TAX REVENUE SOURCES
TAX REVENUE:
A
TAXES ON INCOME & PROFITS

1)
2)
2)
2)
3)
Real Property Taxes

Basic
Special Education
Stabilization Fund
Special Assessments
3)
Transfer Taxes
Sale of Real Properties
Estate
Donors
Others
4)
Taxes on use of goods or property or permission to perform

activities
A Motor Vehicle
D Forest charges
B Franchise
E Mining
C Fixed taxes
Selective excises on goods
4) General Sales, Turnover or
Value Added Tax
Selective taxes on services
5) Others
TAXES ON INTERNATIONAL TRADE & TRANSACTIONS

1)
3)
E
Others
TAXES ON DOMESTIC GOODS & SERVICES

1)
3)
PROPERTY TAXES
1)
Individual
Corporation / Partnership
Import Duties
A General sales, turnover or
VAT
B Selective excise on goods
C Taxes on Use of goods or
property
Import Taxes
2)
Others
A Foreign Exchange
B
C
Travel Tax
Others
Export Duties
MISCELLANEOUS TAXES
1)
2)
3)
4)
5)
Stamp Tax
A Documentary Stamp Tax
B Science Stamp Tax
Residence Tax
Energy Tax
Local Govt. share on
Internal Revenue collection
Fire Code
C
6)
7)
8)
96
Others
Immigration Tax
Cinema Tax
Others
FINES & PENALTIES

1) On Income & Profits
2)
3)
4)
On Property Tax
On taxes on Domestic
Goods & Services
5)
On Taxes on International
Trade & Transactions
Others
NON-TAX REVENUES
1
)
Operating & Service Income
2
)
Property & Investment Income

A
.
FROM PUBLIC FINANCIAL & NON-FINANCIAL ENTERPRISES

1
2
3
B
3
)
INTEREST
DIVIDENDS
PROFIT SHARING
4
5
6
RENT
ROYALTIES
GAIN FROM SALE OF ACQUIRED
ASSETS
FROM PRIVATE ENTERPRISES & THE REST OF THE WORLD
Miscellaneous Non-Tax Revenues

A
B
4
)
PCCG
AFT
C
D
SHARE FROM CASINO OPERATIONS

OTHERS
Fines & Penalties

A
B
C
On Operating & Service Income

On property & investment income
Others
CAPITAL REVENUES
1)
2)
3)
4)
Income
Income
Income
Income
from
from
from
from
sale of FIXED CAPITAL ASSETS

sale of LAND & INTANGIBLE ASSETS
sale of SCRAP ASSETS
GAIN ON SALE OF FIXED ASSETS
GRANTS
A.
1. From Local Govt.

3.
2. From Govt. Corporation
Others:
Domestic
EXTRAORDINARY RECEIPTS
97
Foreign
1
)
Repayments
2
)
Borrowings
A
B
Domestic
Foreign
REVIEW EXERCISE
Research on the updated tax rates of the following:
A
TAXES ON INCOME & PROFITS

1)
2)
2)
2)
3)
Real Property Taxes

Basic
Special Education
Stabilization Fund
Special Assessments
3)
Transfer Taxes
Sale of Real Properties
Estate
Donors
Others
4)
Taxes on use of goods or property or permission to perform

activities
A Motor Vehicle
D Forest charges
B Franchise
E Mining
C Fixed taxes
Selective excises on goods
4) General Sales, Turnover or
Value Added Tax
Selective taxes on services
5) Others
TAXES ON INTERNATIONAL TRADE & TRANSACTIONS

1)
Others
TAXES ON DOMESTIC GOODS & SERVICES

1)
3)
PROPERTY TAXES
1)
Individual
Corporation / Partnership
Import Duties
A General sales, turnover or
VAT
B Selective excise on goods
C Taxes on Use of goods or
property
3) Import Taxes
MISCELLANEOUS TAXES
1) Stamp Tax
A Documentary Stamp Tax
B Science Stamp Tax
2) Residence Tax
3) Energy Tax
4) Local Govt. share on
Internal Revenue collection
5) Fire Code
FINES & PENALTIES
1) On Income & Profits
2)
Others
A Foreign Exchange
B
C
Travel Tax
Others
Export Duties
C
Others
6)
7)
8)
Immigration Tax
Cinema Tax
Others
4)
On Taxes on International
Trade & Transactions
98
2)
3)
On Property Tax
On taxes on Domestic
Goods & Services
5)
Others
hapter 13
TAX REVENUE SOURCES BY AGENCY
National
1)
BIR
2) BUREAU OF CUSTOM
3) BTR
4) DPWH
5) DECS
6) INP
7) LAND TRANSPORTATION OFFICE
8) LRC
9) LDP
10) BUREAU OF FORESTRY
11) DENR
12) DEPT. OF IMMIGRATION & DEPORTATION
13) SUPREME COURT

14) DOJ
15) DEPT. OF LABOR & EMPLOYMENT
16) HOSPITALS BY REGION
17) PHIL. CONSTABULARY
18) BUREAU OF LANDS
19) BU. OF MINES & GEO-SCIENCES
20) NAPOLCOM
21) U.P. LAW SYSTEM
22) DTI
23) SEC
24) FOREST MANAGEMENT BUREAU
Regional
1)
2)
3)
4)
5)
6)
MPWH
EQUIPMENT SERVICES
DECS
DTI
DAP
LTC
7) BUREAU OF POST
8) TELECOM
9) LTFRB
10) TELECOM
11) DAR
12) DENR
99
BIBLIOGRAPHY
Comptons Interactive Encyclopedia 1996 CD-Rom Access

Department of Treasury. Manual of Operation of the National Treasury of
the Philippines. Cebu City 2004: Department of Treasury Region VII
Copy
Encarta Reference Library 2002
Local Government Code of the Philippines. Lex Libris CD Tech Access
Romualdez, Yoingco, Casem. 1978. Philippine Public Finance . National
Book Store Publication. Manila
100
ABOUT THE AUTHOR

A graduate of Master of Arts in Public
Administration ( March 2005) from the Cebu
Normal University, Cebu City ; University of Cebu
Instructor of Management and Finance ; and
Keynote
Speaker,
facilitator
and
trainor
of
Customer Service Training Program- SERVICE

PLUS of DDI, Ma. Fe Planco-Imbong was born on
Ma Fe Planco-Imbong
July 19, 1957 in Cebu City.

She was raised by her parents, Arcadio Cabardo Planco and Epifania Monte
De Ramos Logrono, in the City of Lapu-Lapu, where she is now residing with her
husband Franco B. Imbong and their children.
She finished her high school
studies from St. Alphonsus Catholic School, Lapu-Lapu City with academic honors.
She studied at the Cebu State College ( now Cebu Normal University ) for one
year taking up Bachelor of Science in Nursing and finished her Bachelor of
Science in Commerce Major in Accounting from St. Theresas College, Cebu City
on May, 1978 while enjoying a scholarship grant from Aboitiz and Company. From
1978 to 1980, she worked at Aboitiz Shipping Corporations Corporate Planning
Department as Senior Budget Analyst. She also worked at Fairchild Philippines in
MEPZ, as Senior Data Process Clerk for a year. From 1981 to 1996, she worked at
Citibank N. A. Makati and Cebu Branch as Money Transfer Clerk, Teller, Cables
Clerk, Card Products Authorizer and Citicare-Authorizer.
After her retirement
from Citibank, N. A. Cebu, she joined Plantation Bay for a short stint as General
Cashier and trainor for Customer Service.
Universal Telecommunication Services Inc
Head for the Visayas and Mindanao.
From 1996 to 1998, she worked at

( Mobilcom) as Customer Support
For two years, she managed her own
businesses. She also worked at Pilipinas Makro Incorporated for Makro Store 6Cebu as Audit and Logistics Manager.
She is currently a management and finance instructor of the University of
Cebu, Cebu City and Customer Service Facilitator and Trainor.
She facilitated
customer service trainings for ASPAC Bank, Tambuli Resorts Group of Companies,
and Cebu Chamber of Commerce Inc.
101

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Hapter 1

UNDERSTANDING PUBLIC FINANCE

the following are major distinction between public

Both differ in its financial means available to generate resources.

Government generates resources through:

Private corporations generate resources through:

Issuance of Bonds ( evidence of indebtedness)

The allocation function is being done through the accepted objective of

Allocation Function: The Budgetary System

Growing scope of government activities

The History and Growth.

The Americans introduced income taxation in the Philippines.

Tax levied on estimated farm income.

System where kings and nobles made

their livings from land held

Monarchial form of government in the early Philippines.

1. What is the difference of the services extended by the government during

The two variants of Public Expenditures are:

government spending on public investment like hospital, highways, bridges and

Somers Principles of Government Expenditures

________________________________ DATE: ________ SCORE: _______

Test I Multiple Choice.

Performance budgeting is a management-oriented system of budgeting

there is a need to accelerate capital formation. Its developmental projects

Expenditures shall not exceed receipts or

Concept of Fiscal Control. No money shall be paid out of the treasury

Concept of Obligation. This is analogous to private law of obligation

Appropriations are made for a single fiscal year. However, program

The Presidential budget is based on the principle of separation of

Figure 1 shows the flow chart of the budget process.

Involves the various steps in preparing the budget estimates

The legislative authorization of the plan

The carrying out of the plan as authorized

The accounting and audit & review of the financial operation.

The Budget system may consist of three elements:

Procedure for formulating a budget system

Governmental authority responsible for its successful operation.

IN THE NATIONAL GOVERNMENT

WITHIN THE DEPARTMENT/AGENCY

PERFORMANCE OBJECTIVES WITHIN

The Constitution provides: No money shall be paid out of the Treasury

departments, bureaus and offices.

He shall ensure that the laws be faithfully

2. National Governments Program of Expenditures showing approved programs

Budget is a system of management control. However, it can not serve as a

Budget accountability concerns the reporting of actual performance

Presidential Decree No. 1177, revises the budget process to institutionalize

The preparation of the annual budget as an integral part of a long-term plan

The specification of multi-year requirements in each stage of the budget

General Provisions as provided for in the Local Government Code of the

All appropriations, revenue or tariff bills, bills authorizing increase of the

No provision or enactment shall be embraced in the general appropriations

"Appropriation" refers to an authorization made by law or other

It is declared in the policy of the State to formulate and implement a

A budget message setting forth in brief the government's budgetary

Budget Levels. The ordinary income of government shall be used

Objectives, functions, activities, programs and projects showing the

Regional Budget. The Budgets of national government agencies shall be

amount submitted by the President in his budget proposal. In case of any

It shall be unlawful for any person to make any unauthorized revision of

Appropriations authorized for any Department or agency of the

approval of the President and after notice to the department or agency

The Secretary of Budget shall recommend to the President the year's

Except as otherwise provided in the General Appropriations Act and

__________________________ DATE: SCORE: _