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[G.R. No. 119775.
JOHN HAY vs. LIM
EN BANC
Sirs/Mesdames:
Quoted hereunder, for your information, is a resolution of this
Court dated
G.R. No. 119775 (JOHN HAY PEOPLES ALTERNATIVE COALITION, MATEO CARI �O FOUNDATION INC., CENTER FOR ALTERNATIVE SYSTEMS FOUNDATION INC., REGINA VICTORIA A. BENAFIN REPRESENTED AND JOINED BY HER MOTHER MRS. ELISA BENAFIN, IZABEL M. LUYK REPRESENTED AND JOINED BY HER MOTHER MRS. REBECCA MOLINA LUYK, KATHERINE PE REPRESENTED AND JOINED BY HER MOTHER ROSEMARIE G. PE, SOLEDAD S. CAMILO, ALICIA C. PACALSO ALIAS "KEVAB," BETTY I. STRASSER, RUBY C. GIRON, URSULA C. PEREZ ALIAS "BA-YAY," EDILBERTO T. CLARAVALL, CARMEN CAROMINA, LILIA G. YARANON,DIANE MONDOC vs. VICTOR LIM, PRESIDENT, BASES CONVERSION DEVELOPMENT AUTHORITY; JOHN HAY PORO POINT DEVELOPMENT CORPORATION, CITY OF BAGUIO, TUNTEX (B.V.I.) CO. LTD., ASIAWORLD INTERNATIONALE GROUP, INC., DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES.)
By their separate motions for reconsideration, public respondents Bases Conversion Development Authority (BCDA) John Hay Management Corporation (JHMC) [1] cralaw and Victor Lim, and respondent-in-intervention CJH Development Corporation (CJHDC) seek the reconsideration of this Court's Decision of October 24, 2003 [2] cralaw ` which invalidated the second sentence of Section 3 of Proclamation No. 420 insofar as it granted tax exemptions and incentives to the John Hay Special Economic Zone (SEZ).
It may be recalled that on March 13, 1992, Republic Act No. 7227, [3] cralaw otherwise known as the "Bases Conversion and Development Act of 1992," was enacted with the declared policy of accelerating "the sound and balanced conversion into alternative productive uses of the Clark and Subic military reservations and their extensions" -including the John Hay Station. [4] cralaw
To this end, R.A. No. 7227 created public respondent BCDA, [5] cralaw the Subic SEZ [6] cralaw and the Subic Bay Metropolitan Authority. [7] cralaw
R.A. No. 7227 likewise authorized the President, subject to the concurrence of the local government units directly affected, to create through executive proclamation other SEZs in the areas covered respectively by the Clark military reservation, the Wallace Air Station in San Fernando, La Union, and the Camp John Hay in Baguio. And upon recommendation by the BCDA, the law also authorized the President to create SEZs in the municipalities of Morong, Hermosa, Dinalupihan, Castillejos, and San Marcelino. [8] cralaw
On July 5, 1994, then President Ramos, on the request of the Sangguniang Panlungsod of Baguio City, [9] cralaw issued Proclamation No. 420 establishing the John Hay SEZ:
PROCLAMATION NO. 420
CREATING AND DESIGNATING A PORTION OF THE AREA COVERED BY THE FORMER CAMP JOHN [HAY] AS THE JOHN HAY SPECIAL ECONOMIC ZONE PURSUANT TO REPUBLIC ACT NO. 7227
Pursuant to the powers vested in me by the law and the resolution of concurrence by the City Council of Baguio, I, FIDEL V. RAMOS, President of the Philippines, do hereby create and designate a portion of the area covered by the former John Hay reservation as embraced, covered, and defined by the 1947 Military Bases Agreement between the Philippines and the United States of America, as amended, as the John Hay Special Economic Zone, and accordingly order:
SECTION 1. Coverage of John Hay Special Economic Zone. - The John Hay Special Economic Zone shall cover the area consisting of Two Hundred Eighty Eight and one/tenth (288.1) hectares, more or less, of the total of Six Hundred Seventy-Seven (677) hectares of the John Hay Reservation, more or less, which have been surveyed and verified by the Department of Environment and Natural Resources (DENR) as defined by the following technical description:
A parcel of land, situated in the City of Baguio, Province of Benguet, Island of Luzon, and particularly described in survey plans Psd-131102-002639 and Ccs-131102-000030 as approved on 16 August 1993 and 26 August 1993, respectively, by the Department of Environment and Natural Resources, in detail containing :
Lot 1, Lot 2, Lot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 13, Lot 14, Lot 15, and Lot 20 of Ccs-131102-000030
- and-
Lot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 8, Lot 9, Lot 10, Lot 11, Lot 14, Lot 15, Lot 16, Lot 17, and Lot 18 of Psd-131102-002639 being portions of TCT No. T-3812, LRC Rec. No. 87.
With a combined area of TWO HUNDRED EIGHTY EIGHT AND ONE/TENTH HECTARES (288.1 hectares); Provided that the area consisting of approximately Six and two/tenth (6.2) hectares, more or less, presently occupied by the VOA and the residence of the Ambassador of the United States, shall be considered as part of the SEZ only upon turnover of the properties to the government of the Republic of the Philippines.
Sec. 2. Governing Body of the John Hay Special Economic Zone. - Pursuant to Section 15 of Republic Act No. 7227, the Bases Conversion and Development Authority is hereby established as the governing body of the John Hay Special Economic Zone and, as such, authorized to determine the utilization and disposition of the lands comprising it, subject to private rights, if any, and in consultation and coordination with the City Government of Baguio after consultation with its inhabitants, and to promulgate the necessary policies, rules, and regulations to govern and regulate the zone thru the John Hay Poro Point Development Corporation, which is its implementing arm for its economic development and optimum utilization.
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.
Sec. 4. Role of Departments, Bureaus, Offices, Agencies and Instrumentalities. - All Heads of departments, bureaus, offices, agencies, and instrumentalities of the government are hereby directed to give full support to Bases Conversion and Development Authority and/or its implementing subsidiary or joint venture to facilitate the necessary approvals to expedite the implementation of various projects of the conversion program.
Sec. 5. Local Authority. - Except as herein provided, the affected local government units shall retain their basic autonomy and identity.
Sec. 6. Repealing Clause. - All orders, rules, and regulations, or parts thereof, which are inconsistent with the provisions of this Proclamation, are hereby repealed, amended, or modified accordingly.
Sec. 7. Effectivity. This proclamation shall take effect immediately.
Done in the City of Manila, this 5th day of July, in the year of Our Lord, nineteen hundred and ninety-four.
On April 25, 1995, petitioners filed their Petition for prohibition, mandamus and declaratory relief assailing (1) the constitutionality of Proclamation No. 420 and (2) the legality of the Memorandum of Agreement and Joint Venture Agreement previously entered into [10] cralaw between public respondent BCDA and private respondents Tuntex (B.V.I.) Co., Ltd. (TUNTEX) and Asiaworld Internationale Group, Inc. (ASIAWORLD).
The questions regarding the validity of the agreements between BCDA and TUNTEX and ASIAWORLD were rendered moot and academic [11] cralaw by BCDA's revocation of these agreements by letter of November 21, 1995. [12] cralaw
On October 24, 2003, this Court promulgated its Decision, which disposed as follows:
WHEREFORE, the second sentence of Section 3 of Proclamation No. 420 is hereby declared NULL AND VOID and is accordingly declared of no legal force and effect. Public respondents are hereby enjoined from implementing the aforesaid void provision.
Proclamation No. 420, without the invalidated portion, remains valid and effective.
SO ORDERED.
In their Motion for Reconsideration with Manifestation filed on December 29, 2003, public respondents, through the Office of the Government Corporate Counsel, submit the following grounds for reconsideration:
I
THE HONORABLE COURT ERRED IN RULING THAT SECTION 3 OF PROCLAMATION NO. 420 IS NULL AND VOID AS THE JOHN HAY SPECIAL ECONOMIC ZONE ENJOYS EXEMPTION FOR (sic) TAXES, AS WELL AS OTHER FINANCIAL INCENTIVES GRANTED TO THE SUBIC SPECIAL ECONOMIC ZONE, IN THAT:
A.�� THE LAW, CONSIDERED IN ITS ENTIRETY SUPPORTS THE CONCLUSION THAT THE JOHN HAY SPECIAL ECONOMIC ZONE ENJOYS THE SAME PRIVILEGES AS THE SUBIC SPECIAL ECONOMIC ZONE.
B.�� THE GRANT OF TAX EXEMPTION AND OTHER FINANCIAL INCENTIVES IS INHERENT IN "SPECIAL ECONOMIC ZONES."
II
ASSUMING ARGUENDO THAT REPUBLIC ACT NO. 7227 DOES NOT GRANT TAX EXEMPTIONS TO SPECIAL ECONOMIC ZONES, THE SECOND SENTENCE OF SECTION THREE OF PROCLAMATION NO. 420 IS SUSCEPTIBLE OF OTHER PLAUSIBLE INTERPRETATIONS WHICH WOULD ADDRESS THE ALLEGED CONSTITUTIONAL INFIRMITY.
Ill
THE JOHN HAY SPECIAL ECONOMIC ZONE MAY BE GRANTED FINANCIAL INCENTIVES UNDER OTHER LAWS, AS IMPLEMENTED BY THE EXECUTIVE.
IV
THE HONORABLE COURT ERRED IN RULING THAT PETITIONERS HAVE LEGAL STANDING TO SUE.
Intervenor CJHDC filed on March 5, 2004 a Motion for Leave to Intervene alleging that it, together with its consortium partners Fil-Estate Management Inc. and Penta Capital Investment Corporation, entered into a Lease Agreement dated October 19, 1996 [13] cralaw with respondent BCDA for the development of the John Hay SEZ; and that it "stands to be most affected" by this Court's Decision "invalidating the grant of tax exemption and other financial incentives" in the John Hay SEZ since "[i]ts financial obligations and development and investment commitments under the Lease Agreement were entered into upon the premise that these incentives are valid and subsisting."
CJHDC, proffering grounds parallel to those of public respondents, [14] cralaw thus prays that: (1) it be granted leave to intervene in this case; (2) its attached Motion for Reconsideration in Intervention be admitted; and (3) this Court's Decision of October 24, 2003 be reconsidered and petitioners' petition dismissed.
By Order of May 25, 2004, this Court granted CJHDC's Motion for leave to Intervene and noted its Motion for Reconsideration in Intervention. [15] cralaw
At bottom, the controversy centers on 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.
Section 12 of R.A. No. 7227, which provides for the "policies" to govern and regulate the Subic SEZ, reads as follows:
SECTION 12. Subic Special Economic Zone. - Subject to the concurrence by resolution of the sangguniang panlungsod of the City of Olongapo and the sangguniang bayan of the Municipalities of Subic, Morong and Hermosa, there is hereby created a Special Economic and Free-port Zone consisting of the City of Olongapo and the Municipality of Subic, Province of Zambales, the lands occupied by the Subic Naval Base 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, and within the territorial jurisdiction of the Municipalities of Morong and Hermosa, Province of Bataan, hereinafter referred to as the Subic Special Economic Zone whose metes and bounds shall be delineated in a proclamation to be issued by the President of the Philippines. Within thirty (30) days after the approval of this Act, each local government unit shall submit its resolution of concurrence to join the Subic Special Economic Zone to the office of the President. Thereafter, the President of the Philippines shall issue a proclamation defining the metes and bounds of the Zone as provided herein.
The abovementioned zone shall be subject to the following policies:
(a) Within the framework and subject to the mandate and limitations of the Constitution and the pertinent provisions of the Local Government Code, the Subic Special Economic Zone shall be developed into a self-sustaining, industrial, commercial, financial and investment center to generate employment opportunities in and around the zone and to attract and promote productive foreign investments;
b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory ensuring free flow or movement of goods and capital within, into and exported out of the Subic Special Economic Zone, as well as provide incentives such as tax and duty free importations of raw materials, capital and equipment. However, exportation or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines;
(c) The provisions of existing laws, rules and regulations to the contrary notwithstanding, 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 within the Subic Special Economic Zone shall be remitted to the National Government, 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. In case of conflict between national and local laws with respect to tax exemption privileges in the Subic Special Economic Zone, the same shall be resolved in favor of the latter;
(d) No exchange control policy shall be applied and free markets for foreign exchange, gold, securities and futures shall be allowed and maintained in the Subic Special Economic Zone;
(e) The Central Bank, through the Monetary Board, shall supervise and regulate the operations of banks and other financial institutions within the Subic Special Economic Zone;
(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 with minimum Central Bank regulation;
(g) Any investor within the Subic Special Economic Zone 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. They shall have freedom of ingress and egress to and from the Subic Special Economic Zone without any need of special authorization from the Bureau of Immigration and Deportation. The Subic Bay Metropolitan Authority 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. The names of aliens granted permanent residence status and working visas by the Subic Bay Metropolitan Authority shall be reported to the Bureau of Immigration and Deportation within thirty (30) days after issuance thereof;
(h) The defense of the zone and the security of its perimeters shall be the responsibility of the National Government in coordination with the Subic Bay Metropolitan Authority. The Subic Bay Metropolitan Authority shall provide and establish its own internal security and firefighting forces; and
(i) Except as herein provided, the local government units comprising the Subic Special Economic Zone shall retain their basic autonomy and identity. The cities shall be governed by their respective charters and the municipalities shall operate and function in accordance with Republic Act No. 7160, otherwise known as the Local Government Code of 1991. (Emphasis supplied)
In their first line of argument, respondents allege 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, including the John Hay SEZ, by Section 15 of R.A. No. 7227. Thus, public respondents argue:
That the privileges of tax exemption and other financial incentives were expressly provided under Section 12, constituting the SSEZ, is merely a result of the then reality that it is (sic) was only in Subic Bay where the precise metes and bounds of the SSEZ, as well as other relevant information, were then available to the Senate. But 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.
x x x
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. (Emphasis supplied; underscoring in the original)
A reading of Section 15 of R.A. No. 7227 does not, however, support this proposition. There is no doubt that under Section 15 (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:
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 hereinprovided 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)
Respondent-in-intervention CJHDC submits that 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.
This 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" that the law is intended to further, viz:
Sec. 2. Declaration of Policies. - It is hereby declared the policy of the Government to accelerate the sound and balanced conversion into alternative productive uses of the Clark and Subic military reservations and their extensions (John Hay Station, Wallace Air Station, O'Donnell Transmitter Station, San Miguel Naval Communications Station and Capas Relay Station), to raise funds by the sale of portions of Metro Manila military camps, and to apply said funds as provided herein for the development and conversion to productive civilian use of the lands covered under the 1947 Military Bases Agreement between the Philippines and the United States of America, as amended.
It is likewise the declared policy of the Government to enhance the benefits to be derived from said properties in order to promote the economic and social development of Central Luzon in particular and the country in general.,
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.
Moreover, the third and fourth paragraphs of Section 15 explicitly provide that the "policies to govern and regulate" the John Hay SEZ "shall be determined upon consultation with the inhabitants of the local government units directly affected," thereby implying that the governing policies of the John Hay SEZ, unlike that of the Subic SEZ, were yet to be specified and, thus, not provided for by R.A. No. 7227 itself.
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.
As for respondent-in-intervention CJHDC's argument that the President's "power to create Special Economic Zones carries with it the power to provide for tax and financial incentives," it does not lie. 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."
Hence, it is only the legislature, as limited by the provisions of the Constitution, which has full power to exempt any person or corporation or class of property from taxation. The Constitution itself may provide for specific tax exemptions [17] cralaw or local governments may pass ordinances providing for exemption from local taxes, [18] cralaw but, otherwise, it is only the legislative branch which has the power to grant tax exemptions, its power to exempt being as broad as its power to tax. [19] cralaw
Perhaps realizing that R.A. No. 7227 does not contain an express grant of tax exemptions and financial incentives covering the John Hay SEZ, respondents, as a second line of argument, implore the Court to construe the existence of such a grant pursuant to what they claim to be the legislative intent of the law. To this end, they posit that the Court should not apply the deeply-entrenched rule that tax exemptions cannot be implied but must be categorically and unmistakably expressed [20] cralaw in a language too clear to be mistaken. [21] cralaw
In this vein, respondent-in-intervention CJHDC, although acknowledging that "the law frowns against exemptions from taxation," [22] cralaw nevertheless argues that "[t]he 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." Thus, it 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."
The Court is not persuaded.
True, it is a recognized principle that the rule on strictissimi juris does not apply in the case of exemptions in favor of a government political subdivision or instrumentality, [23] cralaw the rationale for which has been identified as follows:
"The basis for applying the rule of strict construction to statutory provisions granting tax exemptions or deductions, even more obvious than with reference to the affirmative or levying provisions of tax statutes, is to minimize differential treatment and foster impartiality, fairness, and equality of treatment among tax payers.
The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be handled by government in the course of its operations. For these reasons, provisions granting exemptions to government agencies may be construed liberally, in favor of non tax liability of such agencies." [24] (Emphasis supplied; italics in the original)
However, the foregoing finds no application to the present case.
First, there is absolutely nothing in R.A. No. 7227 which can be considered a grant of tax exemption in favor of public respondent BCDA. Rather, 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.
To be sure, nowhere in any of respondents' pleadings is it pretended that the legislature exempted the BCDA from taxation in order to accomplish its mandate. On the contrary, the alleged tax exemptions and financial incentives are plainly asserted to be in favor of private enterprises doing business in the John Hay SEZ.
Second, as noted above, 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.
Consequently, respondents' arguments for a liberal construction of R.A. 7227 in favor of tax exemptions and incentives to business enterprises in the John Hay SEZ must necessarily fail. As the Court, speaking through Mr. Justice Vicente V. Mendoza, in the recent case of Philippine Long Distance Telephone Company, Inc. v. City of Davao , [25] cralaw had occasion to stress:
. . . Along with the police power and eminent domain, taxation is one of the three necessary attributes of sovereignty. Consequently, statutes in derogation of sovereignty, such as those containing exemption from taxation, should be strictly construed in favor of the sate. A state cannot be stripped of this most essential power by doubtful words and of this highest attribute of sovereignty by ambiguous language. [26] (Emphasis supplied)
Necessarily, respondents' other arguments, dependent as they are on a liberal construction of tax exemptions, also fail.
Public respondents' argument that tax exemptions are "inherent" in the term "special economic zone" stands the concept on its head and cannot be accepted. The 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.
Moreover, 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.
The adoption of a single uniform set of tax exemptions and financial incentives for all SEZs in the former base lands was indeed suggested by Senator Paterno when Section 12 was under consideration in the Senate:
x x x
Senator Paterno: ��� Thank you Mr. President.
Now, with respect to "B," Mr. President, on items 1 to 6, [27] cralaw what are they supposed to be?Are these policies? Because in my reading, subparagraph, subparagraph "1" and subparagraph "6" refer to activities; namely, shipping and tourism-related; while sub-paragraphs "2, 3, 4, and 5" represent policies which shall apply within the zone.
Senator Shahani: �� think the intention here really was to specify the activities which should take place within this economic zone. But, on second reading, yes, I think there is a mix-up here of activities and policies.
Senator Paterno: �� Yes.
Senator Shahani: � Maybe some of these could be transferred to Section 13.
Senator Paterno: ��� Now, No. "1" and No. "6", are these authorizations to engage in these activities, or are they mandates for the special economic zone to engage in these activities?
Senator Shahani: �� Yes, this is an attempt to specify the features, the kind of specific activities which would be unique to the special economic zone of Subic. This is why shipping is given.
Senator Paterno:��� Yes. Then I would propose, Mr. President, that these two activities, namely "1" and "6," be segregated as being applicable to the Subic economic zone, because they will not be applicable, for example, in the Clark economic zone because there would be no shipping in Clark.
Senator Shahani: Mr. President, Section 12, refers exclusively to Subic. There is no attempt now in this BCDA to do anything for Clark. I think there is no time.
Senator Paterno:��� Yes. Yet, Mr. President, paragraph "C" authorizes the President of the Philippines to proclaim, delineate and specify the metes and bounds of other special economic zones with particular reference to Clark. We need to set up certain standards which the President would observe in setting up those zones.
So I would propose that the policies applicable to all economic zones be specified here, and those which relate only to Subic be put in a standard for the Subic economic zone.
Senator Shahani:�� Mr. President, I thought that this was the special concern of our Colleague from Cavite. I remember quite clearly that last night, some concern was expressed, including from this Representation, that there was no special attention being given to Clark. It think it was also Senator Enrile who said that Clark has specific features; it is landlocked, et cetera.
Senator Paterno:��� Yes.
Senator Shahani:�� So, to show that we are still interested in Clark and its development, and to avoid this very long process of legislating every detail of what a special economic zone should be, I thought it was agreed last night that we should authorize the President to create special economic zones with specific reference to Clark. This is why this appears in this form, Mr. President.
Senator Paterno:��� Yes. Without going into the crafting of the text, Mr. President, it was my thought that, perhaps, there could be a section which specifies the policies which shall apply to all special economic zones. Then there would be another section which, in effect, will create the Subic economic zone which would refer to those unique activities in Subic. Then there would be another section which would authorize the President to create other special economic zones, with particular reference to Clark, in which special economic zones, the standards set up in the first section would apply.
Senator Shahani:���� I take it that, that is just a matter of reordering this section.
Senator Paterno:���� Yes. In other words, I would like to suggest that the bill contain the features of any special economic zone, and then another section would contain the features unique to Subic as a special economic zone. [28] (Emphasis supplied)
However, as respondent CJHDC itself 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." (Underscoring supplied)
Instead, as previously noted, Section 15 of R.A. No. 7227 provides that the "policies to govern and regulate" the John Hay SEZ "shall be determined upon consultation with the inhabitants of the local government units directly affected."
Significantly, these policies need not be identical to those implemented in the Subic SEZ since there may be real and substantial differences in development priorities, local conditions and other relevant matters, as the consultations may reveal. However, insofar as these policies may include tax exemptions, paragraph 4, Section 28 of Article VI of the Constitution requires that any such exemptions must be in the form of legislation passed with the concurrence of a majority of all the Members of the Congress.
Finally, contrary to public respondents' interpretation, the Decision of October 24, 2003 does not "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.The second sentence of 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, tax exemptions and other financial incentives to business enterprises located in John Hay SEZ. However, where there is statutory basis for exemptions or incentives, there is nothing to prevent qualified persons from applying for and availing thereof. As stated in the dispositive portion of the decision, Proclamation No. 420, without the invalidated portion, remains valid and effective.
WHEREFORE, the motions for reconsideration are hereby DENIED with FINALITY.
Very truly yours.
(Sgd.) LUZVIMINDA D. PUNO
Clerk of Court
Endnotes:
[1] cralaw Respondent John Hay Poro Point Development Authority was renamed John Hay Management Corporation by Executive Order No. 132 issued on October 3, 2002.
[2] cralaw John Hay Peoples Alternative Coalition v. Lim, 414 SCRA 356 (2003).
[3] cralaw AN ACT ACCELERATING THE CONVERSION OF MILITARY RESERVATIONS INTO OTHER PRODUCTIVE USES, CREATING THE BASES CONVERSION AND DEVELOPMENT AUTHORITY FOR THIS PURPOSE, PROVIDING FUNDS THEREFOR AND FOR OTHER PURPOSES
[4] cralaw R.A. 7227, Section 2.
[5] cralaw Id., Sections 3-11, 14, 16-20.
[6] cralaw Id., Section 12.
[7] cralaw Id., Section 13.
[8] cralaw Id., Section 15.
[9] cralaw Through Resolution No. 255 (Series of 1994) vide John Hay Peoples Alternative Coalition v. Lim, supra at 363-365.
[10] cralaw On August 16, 1993 and December 16, 1993, respectively; vide John Hay Peoples Alternative Coalition v. Lim, supra at 363.
[11] cralaw John Hay Peoples Alternative Coalition v. Lim, supra 370.
[12] cralaw Id. at 368.
[13] cralaw Rollo at 827-852.
[14] cralaw Id. at 626-627.
[15] cralaw Id. at 896.
[16] cralaw Commissioner of Internal Revenue v. Lingayen Gulf Electric Power Co., Inc., et al., 164 SCRA 27, 33 (1988).
[17] cralaw Vide CONSTITUTION, Article VI, Section 28 (3).
[18] cralaw Vide R.A. No. 7160 (1992), sec. 192.
[19] cralaw 71 Am. Jur. 2d 309.
[20] cralaw National Development Company v. Commissioner of Internal Revenue, 151 SCRA 472 (1987); Commissioner of Internal Revenue v. Court of Appeals, 267 SCRA 557, 562 (1997); Davao Gulf Lumber Corp. v. Commissioner of Internal Revenue, 293 SCRA 76, 77 (1998).
[21] cralaw Commissioner of Internal Revenue v. Court of Appeals, 298 SCRA 83, 93 (1998); Philex Mining Corp. v. Commissioner of Internal Revenue, 306 SCRA 126, 132 (1999); Commissioner of Internal Revenue v. Solidbank Corp., 416 SCRA 436, 461 (2003).
[22] cralaw Vide Commissioner of Internal Revenue v. Mitsubishi Metal Corp., 181 SCRA 214, 223-224 (1990).
[23] cralaw Maceda v. Macaraeg, 197 SCRA 771, 799 (1991) citing 2 Cooley on the Law of Taxation, 4th edition, 1414 (1927) ; vide J.C. Vitug and E.D. Acosta, TAX LAW AND JURISPRUDENCE at 36-37 (2000 Ed.), which enumerates the instances when tax exemptions are construed liberally in favor of the grantee:
(1) when the law so provides for such liberal construction;
(2) exemptions from certain taxes granted under special circumstances to special classes of persons;
(3) exemptions in favor of the government, its political subdivisions or instrumentalities; and
(4) exemptions to traditional exemptees, such as those in favor of religious and charitable institutions
[24] cralaw Maceda v. Macaraeg, supra citing C. Dallas Sands, STATUTES AND STATUTORY CONSTRUCTION, Vol. 3, p. 207, citing Crosby vs. U.S., 292 F. Supp. 314; Pasadena vs. Los Angeles County, 187 p. 418 and other cases.
[25] cralaw 399 SCRA 442 (2003).
[26] cralaw Id. at 452; citing Memphis Gas-Light Co. v. Taxing district, 109 U.S. 398, 27 L.Ed. 976 (1883).
[27] cralaw At the time of this interpellation, Section 12 providing for a "Special Economic Zone and Free-Port" reads as follows:
����������������������� A. To accelerate the conversion into alternative productive use of the Subic military reservation and its extensions, a special economic zone is hereby constituted covering the areas of Olongapo City, Municipality of Subic, Province of Zambales and all the lands presently occupied by the Subic Naval Base and its extensions including all U.S. facilities thereat.
����������������������� B. The special economic zone herein provided shall be involved in the following:
1. Private shipping and related business, including private container terminals and maintenance of shipping register for ocean-going vessels; access to ports of ships of all sizes, descriptions, nationalities;
2. No exchange control policy shall be applied and free market for foreign exchange should be maintained;
3. Liberalized banking and finance with the establishment of foreign currency depository units of local commercial banks and offshore banking units of foreign banks with minimum central bank regulation;
4. Exemption from local and national taxes granted to business and enterprise operating within the zone, including taxes imposed on the sale, purchase and transfer of foreign exchange, bonds, debentures, securities or other evidences of indebtedness both as to principal and interest.However, three (3 percent) percent of the gross income earned by all persons, business and enterprise within the zone shall be remitted to the national government and one (1%) percent each to the local government units;
5. Grant of resident status to foreign investors operating in the zone in coordination with appropriated government agencies;
6. Operation of tourism related activities to include games and amusements, in coordination with the appropriate agencies of the national government, as well as the preservation of forested areas as national parks.
����������������������� C. The President of the Philippines is hereby authorized to proclaim, delineate and specify the metes and bounds of other special economic zones which may be created in the Clark military reservations and its extensions.
[28] cralaw Record of the Senate, Vol. III, No. 53, p. 87-88 (January 15, 1992).
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