Local government units (LGUs) that collect their taxes efficiently may soon avail of a special fund to finance their local development projects, programs and activities, once a bill filed by Senator Ping Lacson is passed into law.
Senate Bill No. 405 mandates the allocation of one percent of total Value-Added Tax (VAT) collections to finance such local development projects – and could motivate other LGUs to improve their tax collection as well.
“Such incentives are designed to serve as motivation for LGUs to facilitate business operations and reduce barriers for small entrepreneurs.”
“This bill intends to incentivize local government units (LGUs) that consistently achieve their revenue collection targets and substantially contribute to the national coffers. Such incentives are designed to serve as motivation for LGUs to facilitate business operations and reduce barriers for small entrepreneurs, hence, further enhancing tax collection efficiencies,” Lacson, a champion of LGUs, said in his bill titled “The Local Government Development Fund Act of 2025.”
“Giving the LGUs the necessary wherewithal to be active participants in the development of our country will contribute to dismantling the culture of mendicancy and political patronage that viciously thrive in our system. Ultimately, this will help in the realization of the elusive inclusive growth that the Filipinos all aspire for as a nation,” the veteran legislator added.
Under the bill, a special fund known as the “Local Government Development Fund (LGDF)” will be allocated to LGUs that have proven tax collection efficiency, thus contributing to the growth of the economy.
“The LGDF shall be made available exclusively to LGUs that attained an increase of at least ten percent in their respective VAT collection performance.”
The seasoned lawmaker said the LGDF shall be made available exclusively to LGUs that attained an increase of at least ten percent in their respective VAT collection performance in the immediately preceding fiscal year of the release of the LGDF, as certified by the Bureau of Local Government Finance (BLGF) and validated by the Department of Finance ((DOF).
“To ensure meaningful alignment of funds that is reflective of the needs of the communities, the LGDF shall be used solely for developmental projects, activities, and programs (PAPs) based on the LGUs’ approved Comprehensive Development Plans (CDPs),” the senator stressed.
He said the LGDF shall be sourced from and equivalent to one percent of the total actual VAT collections, as determined by the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) based on the third fiscal year preceding the current fiscal year.
The amount corresponding to the LGDF shall be included in the General Appropriations Act (GAA) and shall be released directly to the LGUs by the Department of Budget and Management (DBM), Lacson added.
His bill also provides for a capacity-building mechanism to ensure LGUs have the capacity to properly use the LGDFs.
Such a mechanism will “enhance local governance, improve the delivery of public services, and strengthen accountability among local governments,” Lacson stressed.
The bill also provides for a web-based monitoring system for programs to be funded by the LGDF. An initial P100-million funding will be allocated for the monitoring system.
In effect, Lacson said his bill seeks to institutionalize “rational and equitable management of resources for LGU development while allowing for a fiscal environment that fosters self-sufficiency and independence.”
