Case Digest (G.R. No. 192694)
Facts:
The case involves the Bases Conversion and Development Authority (BCDA) and John Hay Management Corporation (JHMC) as petitioners against the City Government of Baguio City, represented by its Mayor, City Treasurer, and City Legal Officer, as respondents. The dispute centers around the requirement for business permits and the payment of corresponding fees for establishments operating within the John Hay Special Economic Zone (JHSEZ). The events leading to the case began with the enactment of Republic Act No. 7227 on March 13, 1992, which established the BCDA to convert former U.S. military bases into productive civilian use, including Camp John Hay. In 1994, Proclamation No. 420 designated a portion of Camp John Hay as the JHSEZ, allowing businesses within the zone to remit a percentage of their gross income instead of paying local and national taxes. However, in 2009, the Baguio City government issued Administrative Order No. 102, requiring all establishments, including thos...
Case Digest (G.R. No. 192694)
Facts:
Creation of Bases Conversion and Development Authority (BCDA) and John Hay Special Economic Zone (JHSEZ):
Congress enacted Republic Act No. 7227 (Bases Conversion and Development Act of 1992), creating the BCDA to convert former U.S. military bases, including Camp John Hay in Baguio City, into productive civilian use. In 1993, the John Hay Development Corporation (later renamed John Hay Management Corporation or JHMC) was established as BCDA’s implementing arm for the conversion of Camp John Hay into a tourism and multiple-use forest watershed reservation.
Proclamation No. 420 and Tax Incentives:
On July 5, 1994, President Fidel V. Ramos issued Proclamation No. 420, designating a portion of Camp John Hay as the John Hay Special Economic Zone (JHSEZ). Section 3 of the Proclamation granted JHSEZ the same tax incentives as the Subic Special Economic Zone under Section 12 of Republic Act No. 7227, including exemptions from local and national taxes.
Baguio City Resolution No. 362 and Revenue Sharing:
In 1994, the Baguio City government passed Resolution No. 362, outlining conditions for the Master Development Plan of Camp John Hay. It required an equitable revenue-sharing agreement, with 3% of gross income to the national government, 3% to the Baguio City government, and 1% for community development. It also mandated that 25% of lease rentals or 30% of net income from JHSEZ operations be allocated for Baguio City’s development projects.
Republic Act No. 7916 and Tax Exemptions:
On February 24, 1995, Congress passed Republic Act No. 7916 (Special Economic Zone Act of 1995), which provided tax exemptions for businesses within special economic zones. Section 24 stipulated that no local or national taxes would be imposed on businesses within ecozones, and instead, 5% of their gross income would be remitted to the national government.
John Hay Peoples Alternative Coalition v. Lim (2003):
The Supreme Court nullified the second sentence of Section 3 of Proclamation No. 420, which granted tax exemptions to businesses in JHSEZ, ruling that such exemptions must be expressly granted by Congress.
Republic Act Nos. 9399 and 9400:
In 2007, Congress passed Republic Act No. 9399, providing a one-time tax amnesty for registered businesses in special economic zones, and Republic Act No. 9400, which granted JHSEZ the same tax exemptions as Republic Act No. 7916.
Administrative Order No. 102, Series of 2009:
On June 15, 2009, the Baguio City government issued Administrative Order No. 102, requiring businesses within JHSEZ to secure business permits and pay corresponding fees under City Tax Ordinance No. 2000-001.
Petition and Regional Trial Court Ruling:
On March 12, 2010, BCDA and JHMC filed a Petition for Declaratory Relief seeking to nullify Administrative Order No. 102. The Regional Trial Court dismissed the Petition, ruling that business permit fees are regulatory in nature and not covered by tax exemptions.
Issue:
- Whether statutory tax exemptions under Republic Act No. 7916 and related laws cover exemptions from business permit and license fees.
- Whether the exactions under City Tax Ordinance No. 2000-001, implemented by Administrative Order No. 102, are taxes or regulatory fees.
- Whether the Baguio City government waived its right to collect business permit fees through Resolution No. 362 or its income-sharing arrangement with BCDA.
Ruling:
The Supreme Court denied the Petition, affirming the Regional Trial Court’s Decision. The Court held that:
- Statutory tax exemptions do not cover business permit and license fees, which are regulatory in nature and not revenue-generating taxes.
- The fees imposed under City Tax Ordinance No. 2000-001 are regulatory fees, not taxes, as their primary purpose is to regulate businesses within Baguio City.
- The Baguio City government did not waive its right to collect regulatory fees through Resolution No. 362 or its income-sharing arrangement with BCDA.
Ratio:
- Tax vs. Regulatory Fees: Taxes are levied for revenue generation, while fees are imposed for regulation and inspection under the local government’s police power. Business permit fees are regulatory in nature and are not covered by tax exemptions.
- Police Power of Local Governments: Local governments, under the Local Government Code, have the power to require business permits and impose regulatory fees as part of their police power to promote public welfare.
- Strict Construction of Tax Exemptions: Tax exemptions must be expressly granted by law and are construed strictly against the claimant. Statutory tax exemptions do not extend to regulatory fees.
- Income-Sharing Arrangement: The income-sharing arrangement between BCDA and Baguio City under Resolution No. 362 does not waive the City’s right to impose regulatory fees, as these are separate from tax obligations.
Conclusion:
The Supreme Court ruled that businesses within the John Hay Special Economic Zone that are not registered with the Philippine Economic Zone Authority must pay business permit fees to the Baguio City government. These fees are regulatory in nature and are not covered by statutory tax exemptions.