G.R. No. 192694, February 22, 2023
Bases Conversion and Development Authority and John Hay Management Corporation, Petitioners, vs. City Government of Baguio City, as represented by its Mayor, City Treasurer, and City Legal Officer, Respondent.

FACTS

Congress enacted Republic Act No. 7227 (Bases Conversion and Development Act of 1992), creating the Bases Conversion and Development Authority (BCDA) to develop former U.S. military bases. Camp John Hay was one such base. In 1994, President Fidel V. Ramos issued Proclamation No. 420, designating a portion of Camp John Hay as the John Hay Special Economic Zone (JHSEZ) to be administered by the John Hay Poro Point Development Corporation (later renamed John Hay Management Corporation or JHMC), a subsidiary of BCDA. Proclamation No. 420 stated that the JHSEZ shall have all the applicable incentives of the Special Economic Zone under Section 12 of R.A. No. 7227, including those under the Omnibus Investments Code of 1987, which provided for exemption from local taxes and licenses. In 2003, the Supreme Court in John Hay Peoples Alternative Coalition v. Lim nullified the second sentence of Section 3 of Proclamation No. 420 insofar as it granted tax exemptions and incentives, but stated that if a statutory basis exists, qualified persons may avail of it. Subsequently, Congress enacted Republic Act No. 9400 in 2007, which amended R.A. No. 7227 and provided that all registered business enterprises within the JHSEZ shall be entitled to the same tax and duty incentives as provided under Republic Act No. 7916 (Special Economic Zone Act of 1995), as amended. In 2009, the Baguio City Government issued Administrative Order No. 102, requiring all establishments within the JHSEZ to secure business permits and pay corresponding fees to the City. BCDA and JHMC filed a petition before the Regional Trial Court seeking to nullify the Administrative Order, arguing that establishments within the JHSEZ are exempt from local taxes and fees under applicable laws. The RTC upheld the validity of Administrative Order No. 102. BCDA and JHMC elevated the case to the Supreme Court via a Petition for Review on Certiorari.

ISSUE

Whether establishments within the John Hay Special Economic Zone are exempt from paying fees for business permits required by the Baguio City Government.

RULING

No. The Supreme Court denied the petition and affirmed the Regional Trial Court’s decision upholding Baguio City Administrative Order No. 102. The Court ruled that the payment of fees for the issuance of business permits is regulatory in nature, exercised under the local government unit’s police power. It is not a tax for revenue generation. Therefore, tax-exempt entities cannot claim exemption from paying such fees. The Court held that the tax exemptions granted to the JHSEZ under R.A. No. 7227, as amended by R.A. No. 9400, and other relevant laws, apply only to revenue-raising measures like taxes, and not to regulatory fees such as business permit fees. The power to issue business permits and collect fees is a regulatory function of the local government to ensure public safety, health, and welfare in the conduct of businesses within its territory. This power is distinct from the power to tax. Consequently, establishments within the JHSEZ are obliged to secure business permits and pay the necessary fees to the City Government of Baguio.