SC: Baguio can tax John Hay traders
PROFIT CENTER | Some 200 hectares of the 600-ha Camp John Hay have been developed into a tourism estate and a special economic zone featuring a technology hub, making it one of the most viable economic centers in Baguio City. (Photo by NEIL CLARK ONGCHANGCO)
BAGUIO CITY, Benguet, Philippines — The Supreme Court has ruled that Baguio City can collect business taxes and enforce documentary requirements like building permits or the mayor’s permit on businesses operating inside Camp John Hay.
The decision ended 14 years of legal battle between Baguio City and the Bases Conversion and Development Authority (BCDA) over local taxation on locators at the 247-hectare buildup area of the 600-ha Camp John Hay.
John Hay Management Corp. (JHMC), BCDA’s estate manager which oversees this former American rest and recreation baseland, went to court to stop the city government from levying fees on business locators of the John Hay Special Economic Zone (JHSEZ), arguing that economic zones are governed by different fiscal rules and exempt from local taxation.
JHMC elevated the dispute to the high court after a Baguio Regional Trial Court (RTC) ruled in 2010 that Camp John Hay had not been spared from “the local government units’ power to require business permits and exact regulatory fees for their issuance.”
But in its Feb. 22 decision posted in the Supreme Court website only in late April, the court’s Second Division affirmed the RTC’s 2010 ruling. The decision, penned by Senior Associate Justice Marvic Leonen, concluded that “taxes, fees, and charges for business permits within Baguio City are regulatory in nature,” and were therefore “valid regulatory issuances” of the local government.
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“It may seem that local government units impose business taxes primarily to generate revenue, which means they would fall under the power of taxation. However, this Court has clarified that business taxes are regulatory in nature, since they are essentially fees paid for the exercise of a privilege,” the court said.
Article continues after this advertisementFor example, “the mayor’s permit fee is not a tax that establishments within the John Hay Special Economic Zone are exempt from paying,” it said.
The city, however, may only apply its business tax rules on Camp John Hay enterprises that are not registered with the Philippine Economic Zone Authority (Peza). BCDA administers all economic zones within former US baselands, but Peza alone has police powers over these zones.
“Only business enterprises within the [JHSEZ] that are registered with [Peza] shall enjoy the tax and duty exemption privileges under Republic Act No. 7916 (the 1995 Special Economic Zone Act) and Republic Act No. 9400 (the amended BCDA law). All unregistered business enterprises within [JHSEZ] shall pay all relevant national and local taxes, duties, and fees as may be imposable under national and local laws,” the Supreme Court said.
“According to [Peza], its registered locators within the John Hay Special Economic Zone as of March 16, 2010 are only petitioner John Hay Management Corporation and Hillford Property Corporation (which operates the Ayala-owned buildings housing business process outsourcing companies). All 26 locators ordered by respondent (Baguio City government) to secure business permits were not entities registered with [Peza],” the decision noted.
To date, the restaurants, hotels, and service providers inside JHSEZ have since multiplied to 120 enterprises. It was not clear if all these businesses are Peza-registered.
The high court has yet to resolve another pending case between BCDA and its developer, Camp John Hay Development Corp. (CJHDevco), which may affect businesses inside the JHSEZ.
Arbitration
A 2015 arbitral ruling said BCDA and CJHDevco violated their 1996 lease agreement to convert Camp John Hay into a tourism estate, and directed the developer to vacate and turn over all structures to the government. The arbitration tribunal also ordered BCDA to return CJHDevco’s investments and expenses amounting to P1.4 billion.
The dissolution of the John Hay lease would have placed all CJHDevco-controlled hotels and businesses under JHMC’s exclusive supervision.
But BCDA asked the Supreme Court to intervene after the Court of Appeals (CA) ruled in 2015 that CJHDevco may leave only when it receives the P1.4 billion from the government. The CA also stopped the eviction of “third-party” residents composed of families and corporations that leased Camp John Hay homes from CJHDevco.
