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John Hay Peoples Alternative Coalition, et al v Victor Lim (BCDA Pres) et al 2003 | Carpio Morales, J. 1.

Bases Conversion and Development Act of 1992 (RA 7227) was enacted to set out the policy of the government to accelerate the sound and balanced conversion into alternative productive uses of the former military bases under the 1947 PH-US Military Bases Agreement, namely: a. The Clark and Subic military reservations as well as b. Their extensions including the John Hay Station (Camp John Hay or the camp) in the City of Baguio; 2. RA 7227: a. Created public respondent Bases Conversion and Development Authority (BCDA) vesting with powers to carry out the ultimate objective of utilizing the bases areas in accordance with the declared government policy; b. Created the Subic Special Economic [and Free Port] Zone (Subic SEZ) the metes and bounds to be delineated by the President thru a Proclamation; c. Granted the Subic SEZ incentives (tax and duty-free importations, exemptions from local and national taxes, to other hallmarks of a liberalized financial and business climate; d. Expressly gave authority to the President to create through executive proclamation, subject to the concurrence of the local government units directly affected, other Special Economic Zones (SEZ) in the areas covered respectively by the Clark military reservation, the Wallace Air Station in San Fernando, La Union, and Camp John Hay 3. August 1993, BCDA entered into a Memorandum of Agreement and Escrow Agreement with private respondents Tuntex and Asiaworld (foreign private corps) as preparatory to the formation of a joint venture for the development of Poro Point in La Union and Camp John Hay as premier tourist destinations and recreations cetners; a. 4 months later, they entered into the joint venture agreement and bound themselves to put up Baguio International Development and Management Corporation which would lease areas within the Camp John Hay and Poro Point; 4. The Bagiuo City government (thru its Sanggunian) passed a number of resolutions in response to actions by BCDA as owner and administrator of Camp John Hay: a. To exclude barangays located within the Camp from reach of any plan for its development; b. Sought from BCDA waiver of its ownership over the home lots occupied by residents of 9 barangays surrounding the military reservation; c. Submitted to BCDA its vision: development which affords protection to the environment, family oriented type of tourist destination, ect; 5. BCDA, Tuntex and Asiaworld rejected some of the proposals: a. They stressed the need to declare Camp John Hay a SEZ as a condition precedent to its full development in accordance with the mandate of R.A. No. 7227; 6. The Sanggunian then passed Resolution No. 255 (Series of 1994) supporting the issuance of the Proclamation No. 420; 7. Later, the President issued Proclamation 420 which established a SEZ on a portion of Camp John Jay: a. It declared 288.1 hectares of the camp as a SEZ in accordance with the provisions of R.A. No. 7227; b. Relevant provision: Section 3 (sentence 2) Sec. 3. Investment Climate in John Hay Special Economic Zone. Pursuant to Section 5(m) and Section 15 of Republic Act No. 7227, the John Hay Poro Point Development Corporation shall implement all necessary policies, rules, and regulations governing the zone, including investment incentives, in consultation with pertinent government departments. Among others, the zone shall have all the applicable incentives of the Special Economic Zone under Section 12 of Republic Act No. 7227 and those applicable incentives granted in the Export Processing Zones, the Omnibus Investment Code of 1987, the Foreign Investment Act of 1991, and new investment laws that may hereinafter be enacted. 8. Petitioners filed for prohibition, mandamus and declaratory relief challenging the constitutionality of Proclamation 420 as well as the legality of the Memorandum of agreement and Joint Venture Agreement between BCDA and Tuntex and Asiaworld; 9. Respondents contend: a. Petition moot and academic: question MOA and Joint Venture Agreement already abandoned; b. Proclamation 420, by extending to the John Hay SEZ economic incentives similar to those enjoyed by the Subic SEZ which was established under R.A. No. 7227, the proclamation is merely implementing the legislative intent of said law to turn the US military bases into hubs of business activity or investment;


that the governments policy of bases conversion cannot be achieved without extending the same tax exemptions granted by R.A. No. 7227 to Subic SEZ to other SEZ;

Issues: W/N petition complies with the requirements for the Courts exercise of jurisdiction over constitutional issues. Yes. Requisites when constitutional questions are raised: 1. The existence of an actual and appropriate case; At case: real clash of interests and rights between petitioners and respondents arising from the issuance of a presidential proclamation that converts a portion of the area covered by Camp John Hay into a SEZ, the former insisting that such proclamation contains unconstitutional provisions, the latter claiming otherwise; 2. A personal and substantial interest of the party raising the constitutional question; A. No. 7227 expressly requires the concurrence of the affected local government units to the creation of SEZs out of all the base areas in the country. The grant by the law on local government units of the right of concurrence on the bases conversion is equivalent to vesting a legal standing on them; The interest of petitioners, being inhabitants of Baguio, in assailing the legality of Proclamation No. 420, is personal and substantial such that they have sustained or will sustain direct injury as a result of the government act being challenged; Petitioners Claravall and Yaranon (who voted against were duly elected councilors of Baguio at the time, engaged in the local governance of Baguio City and whose duties included deciding for and on behalf of their constituents the question of whether to concur with the declaration of a portion of the area covered by Camp John Hay as a SEZ The exercise of judicial review is pleaded at the earliest opportunity; and SC just said its been complied with; The constitutional question is the lis mota of the case Also this one; anyways, the respondents never raised issues with respect to these requisites, hence, they are deemed waived.

3. 4.

Whether Proclamation No. 420 is constitutional by providing for national and local tax exemption within and granting other economic incentives to the John Hay Special Economic Zone. No. Petitioners: Objects to the creation by Proclamation 420 of a regime of tax exemption within the John Hay SEZ; Nowhere in RA 7227 is there a grant of tax exemption to SEZs yet to be established in base areas, unlike the grant under Section 12 thereof of tax exemption and investment incentives to the therein established Subic SEZ; Thus, The grant of tax exemption to the John Hay SEZ, petitioners conclude, contravenes Article VI, Section 28 (4) of the Constitution which provides that No law granting any tax exemption shall be passed without the concurrence of a majority of all the members of Congress. SC agrees: See first section 3 (2nd sentence) emphasized above; Court cites Section 12 of RA 7227; under it, it is only the Subic SEZ which was granted by Congress with tax exemption, investment incentives and the like; There is no express extension of the aforesaid benefits to other SEZs still to be created at the time via presidential proclamation; SC then cites the Senate deliberations which confirm the exclusivity to Subic SEZ of the tax and investment privileges accorded it under the law; Under Section 12, privileges to Subic SEZ consist principally of: o Exemption from tariff or customs duties, o National and local taxes of business entities therein (paragraphs (b) and (c)), o Free market and trade of specified goods or properties (paragraph d), o Liberalized banking and finance (paragraph f), and o Relaxed immigration rules for foreign investors (paragraph g);

Yet, aside from these, Proclamation 420 also makes available to the John Hay SEZ benefits existing in other laws such as: o The privilege of export processing zone-based businesses of importing capital equipment and raw materials free from taxes, duties and other restrictions; o Tax and duty exemptions, tax holiday, tax credit, and other incentives under the Omnibus Investments Code of 1987; and o The applicability to the subject zone of rules governing foreign investments in the Philippines; While the grant of economic incentives may be essential to the creation and success of SEZs, free trade zones and the like, the grant thereof to the John Hay SEZ cannot be sustained BECAUSE the incentives under RA 7227 are are exclusive only to the Subic SEZ, hence, the extension of the same to the John Hay SEZ finds no support therein; nor in other laws specified under Section 3 of the proclamation; The nature of most of the assailed privileges is one of tax exemption; o It is the legislature, unless limited by a provision of the state constitution, that has full power to exempt any person or corporation or class of property from taxation, its power to exempt being as broad as its power to tax; o Other than Congress, the Constitution may itself provide for specific tax exemptions, or local governments may pass ordinances on exemption only from local taxes; The challenged grant of tax exemption would circumvent the Constitutions imposition that a law granting any tax exemption must have the concurrence of a majority of all the members of Congress; the claimed statutory exemption of the John Hay SEZ from taxation should be manifest and unmistakable from the language of the law on which it is based; If it were the intent of the legislature to grant to the John Hay SEZ the same tax exemption and incentives given to the Subic SEZ, it would have so expressly provided in the RA 7227;

Whether Proclamation No. 420 is constitutional for limiting or interfering with the local autonomy of Baguio City. No. Petitioners: There is no authority of the President to subject the John Hay SEZ to the governance of BCDA which has just oversight functions over SEZ; Proclamation No. 420 unlawfully gives the President power of control over the local government instead of just mere supervision; SC disagrees: Under RA 7227, BCDA is entrusted, among other things, the purpose to own, hold and/or administer the military reservations; With such broad rights of ownership and administration vested in BCDA over Camp John Hay, BCDA virtually has control over it, subject to certain limitations provided for by law; Conclusion: second sentence of Section 3 of Proclamation 420 is voided; other provisions not unconstitutional.

Resolution dated March 2005 This is the resolution of the MFR of the respondents in the 2003 decision. Issue: Whether the tax exemptions and other financial incentives granted to the Subic SEZ under Section 12 of R.A. No. 7227 are applicable to the John Hay SEZ. Still No. Section 12 of RA 7227 cited. Policies which govern and regulate the Subic SEZ emphasized. 1. (a) shall be developed into a self-sustaining, industrial, commercial, financial and investment center ; 2. (b) be operated and managed as a separate customs territory ensuring free flow or movement of goods as provide incentives such as tax and duty free importations of raw materials, capital and equipment; 3. (c) no taxes, local and national, shall be imposed within the Subic Special Economic Zone. In lieu of paying taxes, three percent (3%) of the gross income earned by all businesses and enterprises one percent (1%) each to the local government units affected by the declaration of the zone in proportion to their population area, and other factors. In addition, there is hereby established a development fund of one percent (1%) of

the gross income earned by all businesses and enterprises within the Subic Special Economic Zone to be utilized for the Municipality of Subic, and other municipalities contiguous to [the] base areas; 4. (d) No exchange control policy shall be applied and free markets for foreign exchange, gold, securities and futures shall be allowed and maintained; 5. (e) The Central Bank, through the Monetary Board, shall supervise and regulate the operations of banks and other financial institutions; 6. (f) Banking and Finance shall be liberalized with the establishment of foreign currency depository units of local commercial banks and offshore banking units of foreign banks; 7. (g) Any investor whose continuing investment shall not be less than Two Hundred fifty thousand dollars ($250,000), his/her spouse and dependent children under twenty-one (21) years of age, shall be granted permanent resident status within the Subic Special Economic Zone The Subic Bay Metropolitan Au thority referred to in Section 13 of this Act may also issue working visas renewable every two (2) years to foreign executives and other aliens possessing highly-technical skills which no Filipino within the Subic Special Economic Zone possesses, as certified by the Department of Labor and Employment. Respondents: that the foregoing "policies" or incentives, while enumerated in reference to the Subic SEZ, are nonetheless expressly made applicable to the other SEZs subsequently created by presidential proclamation; The intention of the Senate was clearly to empower the President, who would then have the luxury of time and further studies, to constitute special economic zones in the former Clark Air Base and its extensions, including Camp John Hay. This power to proclaim the other base areas as special economic zones, including all privileged appurtenant thereto, was instead delegated to the President in Section 15 of the law; Republic Act No. 7227 authorizes the President to delineate Special Economic Zones in the former base areas. True, section 12 of the said law enumerating the tax exemptions and the financial incentives of the Subic Special Economic Zone, is expressly made applicable to the former Subic Bay Naval Base. However, there is no showing that the term "special economic zones", used to denote what the President can establish in John Hay, does not have the same definition and characteristics as the SSEZ SC disagrees: Section 15 does not support the proposition; No doubt, under Section 151 (as in Section 12) the President has the power to delineate, by proclamation, the metes and bounds of SEZs which may be created in the other former base lands. However, there is neither an express reference to Section 12 nor to the incentives granted to the Subic SEZ;

1 SECTION 15. Clark and Other Special Economic Zones. Subject to the concurrence by resolution of the local government units directly affected, the President is hereby authorized to create by executive proclamation a Special Economic Zone covering the lands occupied by the Clark military reservations and its contiguous extensions as embraced, covered and defined by the 1947 Military Bases Agreement between the Philippines and the United States of America, as amended, located within the territorial jurisdiction of Angeles City, Municipalities of Mabalacat and Porac, Province of Pampanga, and the Municipality of Capas, Province of Tarlac, in accordance with the policies as herein provided insofar as applicable to the Clark military reservations. The governing body of the Clark Special Economic Zone shall likewise be established by executive proclamation with such powers and functions exercised by the Export Processing Zone Authority pursuant to Presidential Decree No. 66 as amended. The policies to govern and regulate the Clark Special Economic Zone shall be determined upon consultation with the inhabitants of the local government units directly affected which shall be conducted within six (6) months upon approval of this Act. Similarly, subject to the concurrence by resolution of the local government units directly affected, the President shall create other Special Economic Zones, in the base areas of Wallace Air Station in San Fernando, La Union (excluding areas designated for communications, advance warning and radar requirements of the Philippine Air Force to be determined by the Conversion Authority) and Camp John Hay in the City of Baguio. Upon recommendation of the Conversion Authority, the President is likewise authorized to create Special Economic Zones covering the Municipalities of Morong, Hermosa, Dinalupihan, Castillejos, and San Marcelino. (Emphasis supplied)

Intervenor CJH Development Corporation (CJHDC): by authorizing the President to create SEZs "in accordance with the policies as herein provided insofar as applicable," the first paragraph of Section 15 refers to the policies enumerated in Section 12, including exemption from local and national taxes; SC disagrees: allusion to "the policies as herein provided" can by no means be considered an explicit or unequivocal conferment of the tax exemptions and other incentives set forth in Section 12 on other SEZs; Notably, the preceding portions of R.A. No. 7227 make mention of two sets of "policies:" (1) the general "policies" (Section 2) that the law is intended to further and (2) the above-quoted "policies" governing the Subic SEZ; Considering that the subject matter of the first paragraph of Section 15 is the authority of the President to create other SEZs in the former base lands, it stands to reason that the same should be exercised "in accordance with the policies" which provide the rationale for the law as laid down in Section 2 of R.A. No. 7227; In contradistinction, a provision authorizing the President to define the metes and bounds of other SEZs "in accordance with" the tax and financial incentives of the Subic SEZ would be nonsensical. These tax and financial incentives provide neither direction nor guidance to the President in his determination (subject to the concurrence of the affected local government units) of the geographic composition of the SEZs; In any event, whether it is Section 12 or Section 15 of R.A. No. 7227 which is scrutinized, the result is the same. There is no express extension of the incentives or benefits granted to the Subic SEZ to the other SEZs still to be created via presidential proclamation; CJHDC's argument: President's "power to create Special Economic Zones carries with it the power to provide for tax and financial incentives," SC: No. It is the legislative branch which has the inherent power not only to select the subjects of taxation but to grant exemptions.[16] Paragraph 4, Section 28 of Article VI of the Constitution is crystal clear: "[n]o law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress; CJHDC's argument: contends that the Court should "apply, at least by analogy, the principle that strict construction is not applicable where the grantee of the exemption is a political subdivision or instrumentality; It says: the grant of tax exemption privileges to the [John Hay SEZ] was addressed primarily to public respondent BCDA in order to achieve its mandate for an accelerated conversion of the former baselands into economically productive uses, at the least cost and exposure to the government. SC: no application; o Absolutely nothing in R.A. No. 7227 which can be considered a grant of tax exemption in favor of public respondent BCDA; the beneficiaries of the tax exemptions and other incentives in Section 12 (the only provision in R.A. No. 7227 which expressly grants tax exemptions) are clearly the business enterprises located within the Subic SEZ; o The liberal construction of tax exemptions in favor of the government is premised on their resulting only in a reduction in infra-governmental fund transfers, but not government revenue. Evidently, this rationale does not apply, whether by analogy or otherwise, in favor of private business enterprises, such as respondent-in-intervention CJHDC Argument: tax exemptions are "inherent" in the term "special economic zone"; SC: No. Tax exempt character of an SEZ proceeds from the statutory provisions expressly conferring such exemptions, not vice-versa. The tail does not wag the dog. A careful scrutiny of the Senate deliberations does not disclose a clear intention on the part of the law making power to make the tax exemptions and financial incentives in Section 12 applicable in the other SEZs As CJHDC admits, "Senator Paterno's proposal that 'the policies applicable to all special economic zones be specified here (in what would eventually be Section 15) and those which relate only to Subic be put in a standard for the Subic economic zone' was not carried out, as Section 15 as finally passed does not contain an enumeration of policies specific only to non-Subic SEZs." Argument: Decision of October 24, 2003 "tie the hands" of executive or administrative agencies from implementing any present or future legislation which affords tax or other financial incentives to qualified persons doing business in the John Hay SEZ or elsewhere; SC: No.

Section 3 of Proclamation No. 420 was declared null and void only insofar as it purported to grant, by executive proclamation and without statutory basis