Title
Bases Conversion and Development Authority vs. City Government of Baguio City
Case
G.R. No. 192694
Decision Date
Feb 22, 2023
The Supreme Court ruled that businesses in the John Hay Special Economic Zone must pay Baguio City’s regulatory business permit fees, as tax exemptions under RA 7916 do not cover such fees, affirming local government police power.

Case Summary (G.R. No. 192694)

Tax Exemption Statutes for SEZs

RA 7227 granted Subic SEZ enterprises exemption from national and local taxes in exchange for a 3% gross‐income remittance. Proclamation 420 extended similar incentives to JHSEZ, but the SC in John Hay Coalition v. Lim (2003) invalidated that grant absent explicit legislative authorization. To fill the gap, Congress enacted RA 9399 (one‐time tax amnesty) and RA 9400 (inserting Sec. 15‐C in RA 7227), entitling JHSEZ registered enterprises to RA 7916 incentives and assigning PEZA as the sole registering and supervisory body.

Distinction Between Taxes and Regulatory Fees

Under jurisprudence, taxes are compulsory exactions for revenue; fees are charges for specific regulatory services under police power. License and permit fees, although revenue‐generating, serve primarily regulatory purposes and are valid exercises of police power. An exaction is a tax if its primary purpose is revenue raising or if it produces revenue in excess of regulatory costs.

Local Business Permit Fees as Regulatory Exactions

The Local Government Code empowers cities to levy taxes, fees, and charges for local governance and public welfare. Business permit fees (mayor’s permits) function as prerequisites for lawful operation and for supervision of public health, safety, and order. They are regulatory fees, minimal in amount, unconnected to primary revenue needs, and not “local taxes” for purposes of tax‐exemption statutes.

Supreme Court’s Jurisdiction and Petition’s Nature

The petition presented purely legal questions: whether statutory tax exemptions shield SEZ enterprises from local business permit fees, whether those fees are taxes, and whether a prior sharing agreement waived the city’s right to collect them. These issues are within the SC’s discretionary Rule 45 jurisdiction, as they raise matters of statutory interpretation and constitutional powers of local government versus SEZ authorities.

Applicability of SEZ Tax Exemptions to Permit Fees

RA 7916 (Sec. 24) exempts SEZ enterprises from national and local taxes, replacing them with a 5% gross‐income remittance scheme. “Local taxes” in this context refer to exactions imposed under taxing power primarily for revenue. Business permit fees, as regulatory charges under police power, fall outside the scope of that exemption unless expressly included by statute. RA 9400’s insertion of Sec. 15‐C clarifies that PEZA, not BCDA/JHMC, registers, regulates, and supervises SEZ enterprises; BCDA/JHMC’s role is limited to property management.

BCDA/JHMC’s Authority Versus City Police Power

BCDA’s charter under RA 7227 confers corporate and administrative powers to manage properties and promulgate rules incidental to its corporate purposes. It lacks express legislative delegation of police power to regulate business operations or issue permits. By contrast, local government units retain police power under the Constitution and the Local Government Code to require and regulate permits within their territorial jurisdiction, including those in SEZs for non-PEZA-registered entities.

Waiver and Income-Sharing Arrangement

A 1994 Baguio City resolution provided for mutual income sharing with BCDA from JHSEZ operations and an additional 25% allocation of lease rentals for city development projects. BCDA also entered a separate agreement to apply 25% of its lease rentals toward acquiring the city’s convention center. These commitments were voluntary a

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