SC upholds John Hay SEZ but voids its tax exemption

The Supreme Court recently upheld the establishment in 1994 by then President Fidel Ramos of a portion of Camp John Hay in Baguio City as a special economic zone (SEZ) under Presidential Proclamation No. 420.

However, it declared as null and void for being unconstitutional the second sentence of Section 3 of the proclamation granting tax exemption and financial incentives to the John Hay SEZ similar to those enjoyed by the Subic SEZ under Republic Act No. 7227 or the Bases Conversion and Development Act of 1992.

In the 27-page decision penned by Associate Justice Conchita Carpio-Morales, the High Court en banc held that only the legislature has the full power to exempt any person or corporation or class of property from taxation unless the Constitution itself provided for such a privilege.

It said the nature of most of the assailed privileges of the John Hay SEZ is one of tax exemption.

"The challenged grant of tax exemption would circumvent the Constitution’s imposition that a law granting any tax exemption must have the concurrence of a majority of all the members of Congress," it said.

The High Court held that only the Subic SEZ was granted by Congress with tax exemption, investment incentives and the like under RA 7227.

It said there was no express extension of these benefits to other SEZs still to be created at the time via presidential proclamations.

It also noted that Senate deliberations on RA 7227 confirm the exclusivity to the Subic SEZ of privileges which include tax exemption from tariff or customs duties, national and local taxes of business entities, free market and trade of specified goods or properties, liberalized banking and finance, and relaxed immigration rules for foreign investors.

Ecozone Area

The High Court, however, also ruled that the delineation and declaration of 288.1 hectares of the area covered by Camp John Hay as a SEZ was well within the powers of the President to do so by means of a proclamation pursuant to RA 7227.

It found that the requisite prior concurrence by the Baguio City government to such a proclamation appears to have been complied with through a resolution by its Sanggunian.

"Where part of a statute is void as contrary to the Constitution, while another part is valid, the valid portion, if separable from the invalid, may stand and be enforced. This Court finds that the other provisions in Proclamation No. 420 converting a delineated portion of Camp John Hay into the John Hay SEZ are separable from the invalid second sentence of Section 3 thereof, hence they stand," it said.

The High Court also upheld Proclamation No. 420’s naming of the Bases Conversion and Development Authority (BCDA) as the governing body of the John Hay SEZ on the ground that such merely emphasizes or reiterates the statutory role or functions of the BCDA under RA 7227.

The case stemmed from the petition of Baguio City residents led by the John Hay People’s Alternative Coalition, questioning, among others, the constitutionality of Proclamation No. 420.

The petitioners also assailed the memorandum of agreement and joint venture agreement between the government, through the BCDA, and private respondents Tuntex (B.V.I.) Co. Ltd. (Tuntex) and Asiaworld Internationale Group (Asiaworld), to carry out the development of the John Hay SEZ. These agreements, however, were subsequently revoked.