BAGUIO CITY, Philippines – The Supreme Court (SC) has ruled that only businesses with the John Hay Special Economic Zone (JHSEZ) in Baguio City registered under the Philippine Economic Zone Authority (PEZA) are covered by duty and tax-free privileges.

The 45-page decision penned by Senior Associate Justice Marvic Leonen also said that unregistered businesses in the area are bound to pay taxes, duties, and fees. The case was decided by the High Court’s Second Division.

The high tribunal affirmed the ruling of the Baguio City Regional Trial Court (RTC) that dismissed the petition for declaratory relief with a prayer for a writ of preliminary of injunction against the Baguio City local government. The petition was filed by the Bases Conversion Development Authority (BCDA) and the JHSEZ on March 12, 2010.

The Supreme Court said establishments within the economic zone are not exempt from paying the mayor’s permit.

“No statute authorizes petitioners to issue permits or regulate businesses inside the John Hay Special Economic Zone. Neither can they invoke the powers granted only to the Philippine Economic Zone Authority. Without an express grant by law, respondent’s police power prevails,” the tribunal said.

What happened before

The case stemmed from Administrative Order No. 102, series of 2009 that created the John Hay Special Economic Zone Task Force to implement City Tax Ordinance No. 2000-001. The order mandated the businesses within Baguio City to secure business permits or necessary licenses from the government.

This included businesses within the JHSEZ.

On May 13, 2010, the Baguio City RTC said business permits and payment of fees to Baguio City are different from taxes and duties. This was because its sole purpose was revenue generation. The RTC said the JHSEZ was exempt from local and national taxes, but not from business permits.

The RTC also ruled that neither the BCDA, nor the John Hay Management Corporation (JHMC), have police power so they were not exempt from the requirement of business permits and regulatory fees for their businesses.

After losing their case in the lower court, the BCDA and JHMC filed a motion for reconsideration but was also denied. The case was then elevated to the High Court.

In their motion, the petitioners argued that the RTC ruling should be reversed because the regulation of establishments inside JHSEZ is exercised by the PEZA, and not by Baguio City. The petitioners also noted that businesses under the special economic zone have preferential tax treatment under the law, and “neither subject to internal revenue laws and regulations nor to any local tax.”

According to the petitioners, Republic Act No. 7916 or the Special Economic Zone Act exempts all establishments operating within special economic zones from paying taxes. They also mentioned two other laws: Republic Act No. 9399, which declared a one-time amnesty on certain tax and duty liabilities, inclusive of fees, fines, penalties, and interest; and Republic Act No. 9400 that granted tax exemption to the JHSEZ.   

The petitioners said they practice an income-sharing arrangement with the Baguio City local government. With this, the petitioners argued that respondent cannot avail of its share in the arrangement and impose business taxes at the same time. – Rappler.com