G.R. No. 192694 - Bases Conversion and Development Authority vs. City Government of Baguio City

In 1992, Congress enacted Republic Act No. 7227 (Bases Conversion and Development Act) establishing the Bases Conversion and Development Authority (BCDA) to convert former U.S. military bases into productive civilian use.

Camp John Hay was one such base and, soon after, the John Hay Development Corporation (later renamed John Hay Management Corporation) was created as a subsidiary of the BCDA to implement conversion and development projects.

On July 5, 1994, Proclamation No. 420 established the John Hay Special Economic Zone (JH SEZ) over a portion of Camp John Hay and purportedly extended incentives similar to those granted in other economic zones, though later judicial developments questioned the scope of these privileges.

Several legislative acts and executive issuances shaped the regulatory framework governing the zone:

Republic Act No. 7227 provided the foundational authority for converting and developing the base.

Subsequent laws, including Republic Act No. 7916 (Special Economic Zone Act), Republic Act No. 8748, Republic Act No. 9399, and Republic Act No. 9400, modified incentives and clarified the tax and duty exemption scheme for special economic zones.

The local government of Baguio City, through Resolution No. 362 (1994), established an income-sharing arrangement with the BCDA concerning operations within the zone, including specific provisions on remittances from gross income and lease rentals.

Administrative Order No. 102, series of 2009, issued by the City of Baguio, extended the requirement of securing business permits (and paying corresponding fees) to establishments within the John Hay SEZ, thereby making these entities subject to additional local regulatory requirements.

Following administrative correspondence and notices—for example, a memo from the City Treasurer and subsequent legal opinions—business establishments operating within the John Hay SEZ were directed to secure business permits pursuant to City Tax Ordinance No. 2000-001.

Petitioner Authority (BCDA and John Hay Management Corporation) contested the imposition of such permit fees, arguing that as tax‐exempt entities or as beneficiaries of special economic incentives, they should not be subject to these local exactions.

The Regional Trial Court (RTC) rendered a decision dismissing the petition, holding that business permit fees are regulatory fees distinct from taxes and are imposed solely to defray the minimal costs of regulating business operations.

Petitioner Authority subsequently filed motions for reconsideration and a Petition for Review on Certiorari to challenge the RTC decision, as well as seeking a status quo order/injunction—measures that were ultimately denied by the Supreme Court.

Petitioner Authority asserted that the statutory incentives (including tax and duty exemptions) granted to entities within special economic zones should exempt them from paying business permit fees.

The City of Baguio (respondent) maintained that the issuance of business permits and the collection of corresponding fees are exercises of its police power—meant to regulate trade and ensure public welfare—and are categorically distinct from revenue-raising taxes.

The dispute further involved the question of whether the regulatory oversight (which under certain statutes is vested in the Philippine Economic Zone Authority for registered locators) could be transferred or diluted by local government enforcement over entities not duly registered with the agency.

Whether the payment of fees for the issuance of business permits in the John Hay Special Economic Zone constitutes a tax (and thus may be subject to statutory tax exemptions) or is merely a regulatory fee imposed under the exercise of police power.
Whether the statutory incentives and exemptions provided under Republic Act No. 7227 and related laws (such as R.A. No. 7916, R.A. No. 9399, and R.A. No. 9400) categorically exempt tax‐exempt entities from paying business permit fees imposed by the local government.
Whether petitioners' challenge—raising questions that allegedly involve factual mixes and the proper exercise of police power—should be entertained by the Supreme Court, given the doctrine on the hierarchy of courts and the reservation of certain questions of fact for the lower courts.
Whether the local government’s imposition of such fees amounts to an overreach or an impermissible interference with the incentives provided to enterprises operating within special economic zones.