Case Summary (G.R. No. 154130)
Key Dates and Procedural Posture
RA 7227 enacted March 13, 1992. EO 97 issued June 10, 1993; EO 97-A issued June 19, 1993. Proclamation No. 532 (metes and bounds) issued February 1, 1995. Petition to the Supreme Court filed October 26, 1994; matter referred to the Court of Appeals by the Supreme Court on June 27, 1995. Court of Appeals decision upholding EO 97-A promulgated August 29, 1996; its resolution denying reconsideration dated November 13, 1996. Supreme Court decision denying petition and affirming the Court of Appeals issued January 20, 1999.
Applicable Law
Primary statutory source: Republic Act No. 7227 (An Act Accelerating the Conversion of Military Reservations Into Other Productive Uses, creating the Bases Conversion and Development Authority). Executive issuances at issue: Executive Order No. 97 and Executive Order No. 97-A. Constitutional framework: Equal protection clause of the 1987 Constitution.
Statutory Framework (RA 7227) and Policy Objectives
Section 12 of RA 7227 created the Subic Special Economic Zone (SSEZ), subject to delineation by Presidential proclamation, and declared policies to convert former military reservations into productive uses, develop a self-sustaining industrial/commercial/financial/investment center, ensure a separate customs territory, provide tax and duty incentives, and generally attract productive foreign investment. The statute authorized tax incentives, a 3% gross income remittance scheme in lieu of taxes, establishment of a development fund, and various liberalizations in banking, immigration, and other areas to promote investment.
Executive Orders and the Secured Area
EO 97 (June 10, 1993) clarified that tax-and-duty-free importations applied to raw materials, capital goods, and equipment brought in by business enterprises into the SSEZ, with other imports subject to applicable taxes and duties. EO 97-A (June 19, 1993) further specified that the “Secured Area,” defined as the presently fenced-in former Subic Naval Base, would be the only completely tax- and duty-free area in the SSEFPZ. EO 97-A limited tax-and-duty-free importations and certain consumption privileges to business enterprises and residents within that fenced-in Secured Area.
Factual and Practical Considerations
RA 7227’s clear policy is conversion of lands covered by the 1947 Military Bases Agreement into productive economic use. The fenced former naval base constituted the locus for concentrated, large-scale investment capable of producing national-level economic impact—substantial capital inflows and significant employment—whereas business activities in adjacent municipal or city areas were not expected to have the same transformative effect at that stage. The secured, fenced nature of the former base also facilitated administration and monitoring (e.g., to prevent fraudulent importation and smuggling).
Court of Appeals Ruling
The Court of Appeals upheld EO 97-A, finding no substantial difference between EO 97-A’s Secured Area concept and Section 12 of RA 7227. It interpreted legislative intent as confining SSEZ coverage effectively to the secured areas where actual free-port operations would take place, supported by legislative debates indicating that only “portions” or “certain areas” of Olongapo City and nearby municipalities were to be designated and that the President would delineate those portions.
Issue Presented
Whether EO 97-A’s confinement of RA 7227’s tax-and-duty incentives to the fenced Secured Area of the Subic Naval Base, thereby excluding residents and enterprises in the broader zone outside the fenced area, violates the equal protection clause of the Constitution by creating an unreasonable or discriminatory classification.
Supreme Court’s Holding
The petition was denied for lack of merit. The Supreme Court affirmed the constitutionality and validity of EO 97-A, holding that it did not violate the equal protection clause and that the classification embodied in EO 97-A was valid, reasonable, germane to legislative purpose, applied equally to all members of the defined class, and not limited solely to existing conditions.
Equal Protection Standard and Tests Applied
The Court applied settled equal protection principles: (1) equal protection does not require absolute equality but permits reasonable classification; (2) a valid classification must rest on substantial distinctions, be germane to the statutory purpose, not be limited to existing conditions only, and apply equally to all members of the class. The Court relied on prior jurisprudence recognizing that legislation may be limited by object or territory and that distinguishing territories with actual material differences is permissible.
Reasoning: Germane Purpose and Substantial Distinctions
The Court analyzed RA 7227’s purpose—accelerating conversion of military reservations—and concluded that the fenced former Subic Naval Base was the primary object for transformation into a self-sustaining investment center. EO 97-A’s delimitation to the secured area was reasonable because: (a) the government intended to attract larg
...continue readingCase Syllabus (G.R. No. 154130)
Nature of the Case and Relief Sought
- Petition for review under Rule 45 of the Rules of Court seeking reversal of the Court of Appeals Decision promulgated on August 29, 1996, and the Resolution dated November 13, 1996, in CA-GR SP No. 37788.
- Petitioners challenged the constitutionality of Executive Order No. 97-A (EO 97-A) as violative of the equal protection clause of the Constitution.
- Petitioners sought relief from this Court to declare EO 97-A unconstitutional for limiting tax-and-duty incentives authorized under Republic Act No. 7227 (RA 7227) to business enterprises and residents within the fenced-in area of the Subic Special Economic Zone (SSEZ) and excluding residents of the Zone outside the fenced area.
Relevant Chronology and Procedural Posture
- March 13, 1992: Congress, with the President’s approval, enacted RA 7227, "An Act Accelerating the Conversion of Military Reservations Into Other Productive Uses, Creating the Bases Conversion and Development Authority for this Purpose, Providing Funds Therefor and for Other Purposes."
- June 10, 1993: President Fidel V. Ramos issued Executive Order No. 97 clarifying application of tax and duty incentives under RA 7227.
- June 19, 1993: President Ramos issued Executive Order No. 97-A specifying the area within which tax-and-duty-free privileges were operative, designating the "Secured Area" as the presently fenced-in former Subic Naval Base.
- October 26, 1994: Petitioners filed their challenge to EO 97-A before the Supreme Court.
- February 1, 1995: Proclamation No. 532 issued by President Ramos delineated the exact metes and bounds of the Subic Special Economic and Free Port Zone pursuant to RA 7227.
- June 27, 1995: This Court referred the matter to the Court of Appeals pursuant to Revised Administrative Circular No. 1-95.
- August 29, 1996: Court of Appeals Decision (Special Thirteenth Division) upheld constitutionality and validity of EO 97-A.
- November 13, 1996: Court of Appeals denied petitioners’ motion for reconsideration.
- September 7, 1998: The case was deemed submitted for resolution upon receipt of BCDA’s memorandum.
- January 20, 1999: Supreme Court EN BANC decision rendered denying the petition and affirming the Court of Appeals.
Statutory Background: RA 7227 (Section 12) — Creation and Policies for the Subic Special Economic Zone
- Section 12 created the Subic Special Economic Zone (SSEZ) subject to concurrence of local legislative bodies (sangguniang panlungsod and sangguniang bayan) and required the President to issue a proclamation delineating metes and bounds.
- The SSEZ was described to consist of the City of Olongapo, the Municipality of Subic (Zambales), the lands occupied by the Subic Naval Base and its contiguous extensions as embraced by the 1947 Military Bases Agreement, and parts within the territorial jurisdiction of Morong and Hermosa, Bataan — with exact metes and bounds to be determined by presidential proclamation.
- Policies declared for the zone included:
- Development into a self-sustaining industrial, commercial, financial and investment center to generate employment and attract productive foreign investments.
- Operation and management as a separate customs territory ensuring free flow of goods and capital within, into and out of the SSEZ, and provision of incentives such as tax- and duty-free importation of raw materials, capital and equipment (subject to duties if goods are exported or removed to other parts of Philippine territory).
- No local and national taxes within the SSEZ, with in-lieu remittance scheme: 3% of gross income to National Government, 1% each to affected local government units, and establishment of a 1% development fund for adjacent municipalities.
- Resolution in favor of local laws in case of conflict over tax exemption privileges.
- Liberalized and special regimes for foreign exchange, banking, and residence/visa privileges for qualifying investors and technical personnel.
- National Government responsibility for defense and perimeter security in coordination with Subic Bay Metropolitan Authority (SBMA), with SBMA providing security and firefighting forces.
- Retention of basic autonomy and identity of local government units composing the SSEZ, subject to their charters and the Local Government Code.
Content of EO No. 97 and EO No. 97-A
- EO No. 97 (June 10, 1993):
- Section 1: Tax- and duty-free importations apply only to raw materials, capital goods and equipment brought in by business enterprises into the SSEZ; other importations by enterprises or resident individuals are subject to taxes and duties under relevant Philippine laws.
- Exportation or removal of tax- and duty-free goods from SSEZ to other parts of the Philippines shall be subject to duties and taxes.
- Section 2: In lieu of all local and national taxes (except import taxes), business enterprises in the SSEZ shall pay the tax specified in Section 12(c) of RA 7227.
- EO No. 97-A (June 19, 1993):
- Section 1.1: Designated the "Secured Area" consisting of the presently fenced-in former Subic Naval Base as the only completely tax- and duty-free area in the Subic Special Economic and Free Port Zone (SSEFPZ).
- Business enterprises and individuals residing within the Secured Area may import raw materials, capital goods, equipment and consumer items tax- and duty-free, but consumption items must be consumed within the Secured Area.
- Removal of such items out of the Secured Area for sale to non-SSEFPZ registered enterprises is subject to usual taxes and duties, subject to exceptions provided.