PROVIDING FOR A NEW CLASSIFICATION OF PROVINCES, CITIES AND MUNICIPALITIES AND FIXING MAXIMUM AMOUNTS EXPENDABLE FOR SALARIES AND WAGES, AMENDING FOR THE PURPOSE REPUBLIC ACTS N…

WHEREAS, pursuant to Section 2 of Republic Act No. 4477,
provinces and cities shall be classified by the Secretary of Finance
every four fiscal years on the basis of the average annual income of the
local units as certified by the Auditor General (now the Chairman,
Commission on Audit) ;

WHEREAS, the Secretary of Finance shall likewise classify
all municipalities every four fiscal years pursuant to Section 4 of
Republic Act No. 2368 and subclassify all first class municipalities
under Section 2 of Republic Act No. 4358;

WHEREAS, the minimum annual income of P1.5 million fixed
under Republic Act No. 4477 for first class provinces and cities; and
the minimum annual income of P2.5 million fixed under Republic Act No.
4358 for first class-1 municipalities, as well as the maximum and
minimum ranges fixed for the other classes are no longer in proportion
to the present income of the local government;

WHEREAS, in view of new issuances and changes in fiscal
policies, there has been a marked and significant increase in the
collection of local revenues; and

WHEREAS, the classification of provinces, cities and
municipalities serves, among other purposes, as basis for fixing the
maximum tax ceilings imposable by the local governments under the Local
Tax Code, as amended by Presidential Decree No. 426;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines, by virtue of the powers in me vested by the Constitution,
in order to provide a more equitable system of classifying provinces,
cities and municipalities that will be commensurate with their
respective revenue-raising capacities, hereby adopt and fix, as it is
hereby adopted and fixed, the following income classifications of
provinces, cities and municipalities:

SECTION 1. Classification of Provinces and Cities.—
Provinces and cities, except Manila and Quezon City, are divided into
five main classes according to their average annual income during the
last four fiscal years, as follows:

1. First Class.—The provinces and cities that have obtained
   an average total revenue of three million pesos or more per annum;
2. Second Class.—The provinces and cities that have
   obtained an average total revenue of one million five hundred thousand
   pesos or more but less than three million pesos per annum;
3. Third Class.—The provinces and cities that have obtained
   an average total revenue of one million pesos or more but less than one
   million five hundred thousand pesos per annum;
4. Fourth Class.—The provinces and cities that have obtained
   an average total revenue of five hundred thousand pesos or more but
   less than one million pesos per annum; and
5. Fifth Class.—The provinces and cities that have obtained
   an average total revenue of less than five hundred thousand pesos per
   annum.

Revenue, as used herein, shall be interpreted to mean all
income and receipts accruing to the province or city except
unappropriated balances, proceeds from bond issues, proceeds from or
repayment of loans, aid from National Government, private contributions
or donations, return of advances to economic enterprises, sales of fixed
assets, income from sale of real property, prior year’s adjustment, and
other receipts not regularly recurring each fiscal year.

SEC. 2. Classification under this Decree.—Upon
the effectivity of this Decree, and for each period of four consecutive
fiscal years thereafter, the Secretary of Finance shall classify all
provinces and cities, except Manila and Quezon City, which shall remain
as special class cities, on the basis of the average total revenues of
each province or city derived during the last four consecutive fiscal
years immediately preceding such classification according to the
provisions of this Decree as certified by the Chairman, Commission on
Audit: Provided, That the first classification shall take effect
July first, nineteen hundred and seventy-four: Provided, further,
That a province or city which has been in existence for a period of
less than four full fiscal years immediately preceding the initial
classification herein provided shall be classified on the basis of its
average income during such lesser number of full fiscal years or year
immediately following its organization as such province or city: And
provided, finally, That no readjustment of classification shall be
made oftener than once in four consecutive fiscal years after the first
classification provided in this Decree, except in cases of diminishing
revenues when the Secretary of Finance may order at any time the
readjustment to the classification of any province or city in accordance
with the foregoing schedule.

SEC. 3. Subclassification of first class provinces
and cities.—Upon the effectivity of this Decree and after each
period of two consecutive fiscal years thereafter, the Secretary of
Finance shall subclassify all first class provinces and cities according
to their average annual income actually realized from regular sources
during the last two fiscal years immediately preceding the
subclassification, as follows:

1. First Class-A.—The provinces and cities that have
   obtained an average total revenue of seven million pesos or more per
   annum;
2. First Class-B.—The provinces and cities that have
   obtained an average total revenue of five million pesos or more
   but less than seven million pesos per annum; and
3. First Class-C.—The provinces and cities that have
   obtained an average total revenue of three million pesos or more but
   less than five million pesos per annum.

SEC. 4. Classification of municipalities.—Municipalities
are divided into six main classes according to their average annual
income during the last four fiscal years, as follows:

1. First Class.—Municipalities that have obtained an average
   total revenue of one million five hundred thousand pesos or more per
   annum;
2. Second Class.—Municipalities that have obtained an
   average total revenue of one million pesos or more but less than one
   million five hundred thousand pesos per annum;
3. Third Class.—Municipalities that have obtained an average
   total revenue of five hundred thousand pesos or more but less than one
   million pesos per annum;
4. Fourth Class.—Municipalities that have obtained an
   average total revenue of three hundred thousand pesos or more but less
   than five hundred thousand pesos per annum;
5. Fifth Class.—Municipalities that have obtained an average
   total revenue of one hundred thousand pesos or more but less than
   three hundred thousand pesos per annum; and
6. Sixth Class.—Municipalities that have obtained an average
   total revenue of less than one hundred thousand pesos per annum.

Revenue, as used herein, shall be interpreted to mean all
income and receipts accruing to the municipality except unappropriated
balances, proceeds from bond issues, proceeds from or repayment of
loans, aids from the National Government, private contribution or
donations, return of advances to economic enterprises, sales of fixed
assets, income from sale of real property, prior year’s adjustment, and
other receipts not regularly recurring each fiscal year.

SEC. 5. Classification under this Decree by the
Secretary of Finance.—Upon the effectivity of this Decree, and for
each period of four consecutive fiscal years thereafter, the Secretary
of Finance shall classify all municipalities on the basis of the average
total revenue of each municipality during the last four consecutive
fiscal years immediately preceding such classification according to the
provisions of this Decree as certified by the Chairman, Commission on
Audit; Provided, That the first classification shall take
effect July first, nineteen hundred and seventy-four; Provided,
further, That a municipality which has been in existence for a
period of less than four full fiscal years immediately preceding the
initial classification herein provided shall be classified on the basis
of its average income during such lesser number of full fiscal years or
year immediately following its organization as such municipality; And
provided, finally, That no readjustment of classification shall be
made oftener than once in four consecutive fiscal years after the first
classification provided in this Decree, except in cases of diminishing
revenues when the Secretary of Finance may order at any time the
readjustment of the classification of any municipality in accordance
with the foregoing schedule.

SEC. 6. Subclassification of first class
municipalities.— Upon the effectivity. of this Decree and after each
period of two consecutive fiscal years thereafter, the Secretary of
Finance shall subclassify all first class municipalities according to
their average annual income actually realized from regular sources
during the last two fiscal years immediately preceding the
subclassification, as follows:

1. First Class—A.—Municipalities that have obtained an
   average total revenue of five million pesos or more per annum;
2. First Class-B.—Municipalities that have obtained an
   average total revenue of three million five hundred thousand pesos or
   more but less than five million pesos per annum; and
3. First Class-C.—Municipalities that have obtained an
   average total revenue of one million five hundred thousand
   pesos or more but less than three million five hundred thousand pesos
   per annum.

SEC. 7. Maximum Amount Expendable for Salaries and Wages.—That
total annual appropriations for salaries and wages of provincial, city
and municipal officials and employees for one fiscal year shall not
exceed forty-five per cent (45%), in the case of all first and second
class provinces, cities and municipalities, and fifty-five per cent
(55%) in the case of those lower than second class, of the total annual
income actually realized from regular sources during the next preceding
fiscal year or the current fiscal year estimates from the same sources
certified as collectible by the provincial or city treasurer concerned,
which ever is lower. The appropriations for salaries and wages of
officials and employees in the public schools, hospitals, health and
agricultural services, public utilities, markets and slaughterhouses and
other economic enterprises, owned, operated and maintained by the
province, city or municipality, as well as representation and emergency
cost-of-living allowances, shall not be included in the computation of
the maximum amount expendable for salaries and wages.

The Secretary of Finance, however, may authorize
appropriations in excess of the percentages hereinabove fixed subject to
such conditions as he may impose, but in no case shall the excess in
appropriations for salaries and wages me more than twenty-five per cent
(25%) of the maximum expendable amounts nor shall such exemption be
granted in case of overdraft or imminence thereof.

SEC. 8. Fixing of the Maximum Annual Salary Rates of
Local Elective and Appointive Officials.—Notwithstanding the new
classification provided for in this decree, the annual salary rates of
local elective and appointive officials shall be determined and fixed
according to the maximum rates prescribed in the salary scales provided
for in Republic Act No. 4477 in the case of provinces and cities and
Republic Act No. 6414 in the case of municipalities on the basis of the
official classification by the Secretary of Finance of provinces, cities
and municipalities as of June 30, 1973.

SEC. 9. Repealing clause.—Section 5 of Republic
Act No. 4477 and Section 4 of Republic Act No. 2368 are hereby expressly
repealed.

This Decree shall form part of the laws of the land and all
laws, executive orders, administrative orders, rules or regulations or
parts thereof, contrary to or inconsistent with any of the provisions of
this Decree are likewise hereby repealed and/or modified accordingly.

SEC. 10. Effectivity.—This Decree shall take
effect on July 1, 1974.

Done in the City of Manila, this 20th day of May, in the year
of Our Lord, nineteen hundred and seventy-four.