‘JHSEZ firms must secure permits from LGU’

By Joel R. San Juan @jrsanjuan1573

BAGUIO CITY—The Supreme Court (SC) has declared that only business establishments within the John Hay Special Economic Zone (JHSEZ) that are registered with the Philippine Economic Zone Authority (PEZA) can enjoy duty- and tax-free privileges.

In a 45-page decision penned by Associate Justice Marvic Leonen, the SC’s Second Division also declared that all unregistered businesses within the John Hay Special Economic Zone are mandated to pay national and local taxes, duties, and fees.

T he ruling affirmed the decision issued by the Regional Trial Court of Baguio City which junked the petition for declaratory relief, with a prayer for a writ of preliminary injunction filed by the Bases Conversion and Development Authority (BCDA) and JHSEZ last March 12, 2010 against the Baguio City government.

T he Baguio RTC, in its May 13, 2010, held that business permits and the payment of fees to the local government unit (LGU) are of a different character than that of taxes and duties, as revenue generation was not their sole purpose.

T he 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 or John Hay Management Corp. (JHMC) possessed any police power, thus, they were not exempted from the power of LGUs to require business permits and exact regulatory fees for their businesses.

T he BCDA and JHMC filed a motion for reconsideration but the trial court issued a resolution on June 24, 2010 denying it.

T his prompted the BCDA and JHMC to elevate the issue before the High Tribunal.

T he petitioners argued that the trial court’s ruling should be reversed as regulation of establishments inside the JHSEZ is exercised by the PEZA, not the LGU.

T hey also argued that the issuance of permits under Baguio City Tax Ordinance No. 2000-001 is “primarily revenue raising” since before it can be issued, establishments must pay the applicable fees based on their gross receipts for the fiscal year.

F urthermore, the petitioners pointed out that establishments in the JHSEZ have preferential tax treatment under the law, “neither subject to internal revenue laws and regulations nor to any local tax.”

T hey noted that Republic Act (RA) 7916 (Special Economic Zone Act) exempts all establishments operating within special economic zones from paying taxes and RA

9399 which declared a one-time amnesty on certain tax and duty liabilities, inclusive of fees, fines, penalties, and interest.

T he petitioners also cited RA 9400 that granted tax exemption to the JHSEZ.

Petitioners maintained that in lieu of paying taxes, they practice an income-sharing arrangement with the respondent.

T hrough this arrangement, the respondent was allegedly able to acquire the Baguio Convention Center and some of its projects.

T hey argued that respondent cannot avail of its share in the arrangement and impose business taxes at the same time.

In ruling against the petitioners, the SC declared: “The mayor’s permit is not a tax that establishments within the JHSEZ are exempt from paying.”

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 SC said.

Thus, locators within the John Hay Special Economic Zone not duly registered with the Philippine Economic Zone Authority are liable to pay business permit fees to respondent,” it added.