The Second Division of the Supreme Court (SC) denied for lack of merit the petition of the State-owned Bases Conversion and Development Authority (BCDA) and its subsidiary John Hay Management Corporation (JHMC) that assailed the decision and order of the Regional Trial Court (RTC) that upheld Administrative Order (AO) No. 102, series of 2009 that required establishments within the John Hay Special Economic Zone (JHSEZ) to secure business permits and pay the corresponding fees to the local government to continue their business operations.
In a 45-page decision, the SC affirmed the earlier decision of the Regional trial court upholding the power of the local government to issue business permits to the businesses operating in the JHSEZ and for the same to pay their corresponding taxes.
Further, the High Court pointed out that only businesses within the JHSEZ that are registered with the Philippine Economic Zone Authority (PEZA) shall enjoy the tax and duty exemption privileges under Republic Act (RA) 7916 and RA 9400.
However, all unregistered businesses within the JSEZ shall pay all relevant national and local taxes, duties, and fees as may be imposable under national and local laws.
The decision explained that the mayor’s permit fee is not a tax that establishments with the JHSEZ are exempt from paying.
It asserted that local taxes within the context of tax exemption statutes only refer to those exactions made primarily for revenue generation. It does not include any other taxes and fees that may be levied for a primarily regulatory purpose.
According to the ruling, taxes, fees, and charges for business permits within the city are regulatory in nature. The purpose of requiring a business permit is outlined under Tax Ordinance No. 2000-001.
The SC stipulated that fees for the issuance of a business permit were also of minimal amounts and could not possibly be for revenue generation.
RA 1916 or the Special Economic Zone Act grants the PEZA the power to register, regulate, and supervise the enterprises within the special economic zone. In the exercise of its regulatory power, the PEZA issued Memorandum Circular No. 2204-024 which provided that all its registered locator enterprises entitled to fiscal incentives are exempted from having to secure permits from the local government units.
The PEZA claimed that its registered locators within the JHSEZ as of March 16, 2010 are only JHMC and Hillford Property Corporation while all other 26 locators were ordered by the management to secure business permits were not entities registered with the PEZA.
For its part, JHMC insisted that it was authorized to establish the one-stop action center for the issuance of permits within the JHSEZ but the law clearly stated that the PEZA is the entity authorized to register, regulate, and supervise businesses and that BCDA shall only engage in acquiring, owning, holding, administering or leasing real properties, and in other activities incidental thereto.
The high tribunal underscored that unless specifically stated in the statute creating it, a development authority such as BCDA is not automatically granted legislative power simply by virtue of its creation.
While BCDA’s charter permits it to promulgate all necessary rules and regulations, the decision emphasized that the said rules and regulations must in relation to and in the exercise of its corporate powers.
In contrast, the SC noted that nothing in Executive Order No. 103, series of 1993 authorizes BCDA to exercise executive jurisdiction and sole police authority over all areas owned or administered by the State corporation.
“No statute authorizes BCDA and JHMC to regulate businesses inside the JHSEZ. Neither can they invoke the powers granted only to the PEZA without an expressed grant by law, respondent’s police power prevails. Thus, locators within the JHSEZ not duly registered with the PEZA are liable to pay business permit fees to the BCDA and JHMC,’ the decision stated.
The SC reiterated that any local tax exemption enjoyed by duly registered establishments under Condition No. 9 of Resolution 362, series of 1994 only refers to local taxes imposed in the exercise of taxation power. Exemptions for any action levied in the exercise of police power are excluded.
Considering that BCDA’s income-sharing arrangement with the Baguio city government was not that which was contemplated by law, the SC insinuated that it is deemed to have voluntarily entered into the earlier agreement. Because it agreed to help the city with the acquisition of the Baguio convention Center, the BCDA and JHMC cannot now refuse to comply with a valid regulatory issuance of the local government.
On June 15, 2003, the local government issued AO No. 102, series of 2009 that created the John Hay Special Economic Zone task force to implement Ordinance No. 2000-001 requiring all establishments inside the city to secure business permits or licenses from the city that included business within the said zone.
On July 28, 2009, the local government, through the City Treasurer, wrote the JHMC management requesting a list of all business establishments within the said zone but on October 15, 2009, the JHMC informed the city that the said request could not be acted upon as the issue of the legality of AO No. 102, series of 2009 was being endorsed to the office of the government Corporate Counsel.
On May 13, 2010, the RTC rendered a decision dismissing the petition of BCDA and JHMC and held that business permits and the payment of fees to the local government are of a different character than that of taxes and duties as revenue generation was not their sole or primary purpose. Moreover, these were so minimal that they were to be used to defray the expenses for regulatory purposes.
The trial court concluded that the JHSEZ was exempt from paying local and national taxes but not from the requirement of business permits. It further held that neither the BCDA nor JHMC possess any police power, thus, they were not exempted from the local government’s power to require business permits and exact regulatory fees for their issuance.
