Section 4. Income Classification of Provinces, Cities, and Municipalities. -

1. Classification of Provinces. - Provinces shall be classified into five (5) classes, according to their income ranges and based on the average annual regular income for three (3) fiscal years preceding a general income reclassification. The classification shall be as follows:

   1. First Class – Provinces that have obtained an average annual regular income of One billion five hundred million pesos (P1,500,000,000.00) or more;

   2. Second Class – Provinces that have obtained an average annual regular income of Nine hundred million pesos (P900,000,000.00) or more, but less than One billion five hundred million pesos (P1,500,000,000.00);

   3. Third Class – Provinces that have obtained an average annual regular income of Seven hundred million pesos (P700,000,000.00) or more, but less than Nine hundred million pesos (P900,000,000.00);

   4. Fourth Class – Provinces that have obtained an average annual regular income of Five hundred million pesos (P500,000,000.00) or more, but not less than Seven hundred million pesos (P700,000,000.00); and

   5. Fifth Class – Provinces that have obtained an average annual regular income of less than Five hundred million pesos (P500,000,000.00).

2. Classification of Cities – Cities shall be classified into five (5) classes, according to their income ranges and based on the average annual regular income for three (3) fiscal years preceding a general income reclassification. The classification shall be as follows:

   1. First Class – Cities that have obtained an average annual regular income of One billion three hundred million pesos (P1,300,000,000.00) or more;

   2. Second Class – Cities that have obtained an average annual regular income of One billion pesos (P1,000,000,000.00) or more, but less than One billion three hundred million pesos (P1,300,000,000.00);

   3. Third Class – Cities that have obtained an average annual regular income of Eight hundred million pesos (P800,000,000.00) or more, but less than One billion pesos (P1,000,000,000.00);

   4. Fourth Class – Cities that have obtained an average annual regular income of Five hundred million pesos (P500,000,000.00) or more, but less than Eight hundred million pesos (P800,000,000.00); and

   5. Fifth Class – Cities that have obtained an average annual regular income of less than Five hundred million pesos (P500,000,000.00).

3. Classification of Municipalities. - Municipalities shall be classified into five (5) classes, according to their income ranges and based on the average annual regular income for three (3) fiscal years preceding a general income reclassification. The classification shall be as follows:

   1. First Class – Municipalities that have obtained an average annual regular income of Two hundred million pesos (P200,000,000.00) or more;

   2. Second Class – Municipalities that have obtained an average annual regular income of One hundred sixty million pesos (P160,000,000.00) or more, but less than Two hundred million pesos (P200,000,000.00);

   3. Third Class – Municipalities that have obtained an average annual regular income of One hundred thirty million pesos (P130,000,000.00) or more, but less than One hundred sixty million pesos (P160,000,000.00);

   4. Fourth Class – Municipalities that have obtained an average annual regular income of Ninety million pesos (P90,000,000,.00) or more, but less than One hundred thirty million pesos (P130,000,000.00); and

   5. Fifth Class – Municipalities that have obtained an average annual regular income of less than Ninety million pesos (P90,000,000.00).

4. If a province or municipality is created before the regular reclassification of LGUs, the Secretary of Finance shall have the authority to classify the concerned LGU on the basis of the estimated aggregate net share of income from regular sources from its component cities and municipalities in the case of a province, or its component barangays in the case of a municipality, including the corresponding estimated NTA of the newly created province or municipality pursuant to Section 285 of Republic Act No,. 7160, as amended or the Local Government Code of 1991, during the fiscal year immediately preceding its creation. This rule shall likewise apply to a municipality that is converted into a city, or a city that is created out of existing municipalities and/or barangays: Provided, That the income ranges herein shall be adjusted and updated by the Secretary of Finance every three (30 years based on the standards provided in the succeeding section.