John Hay Peoples Alternative Coalition, et al. vs.

Victor Lim, President,

Bases Conversion Development Authority (BCDA); John Hay Poro Point
Development Corp, City of Baguio, Tuntex Co., Ltd., Asiaworld
Internationale Group, Inc., DENR

G.R. No. 119775, October 24, 2003

Carpio-Morales, J.:

FACTS: Herein petitioners assail the validity of Presidential Decree No. 420, Series
of 1994, 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. R.A. 7227 is 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.
R.A. 7227 provides for the conversion into alternative productive uses of former
military bases in the Philippines, such as Clark and Subic military reservations and
their extensions including John Hay Station (Camp John Hay). RA 7227 created
BCDA to carry out the objectives of the law, and the Subic Special Economic (and
Free Port) Zone (Subic SEZ), the metes and bounds of which were to be delineated
in a Presidential Proclamation.
Subic SEZ was granted by R.A. 7227 incentives ranging from tax and duty-free
importations, exemption of businesses therein from local and national taxes, to
other hallmarks of a liberalized financial and business climate. R.A. No. 7227
expressly gave authority to the President to create, through executive proclamation,
subject to the concurrence of the local government units directly affected, other
SEZs in areas such as Camp John Hay.
BCDA entered into a Joint Venture Agreement with private respondents Tuntex and
Asiaworld for the development of Poro Poin in La Union and Camp John Hay as
premier tourist destinations and recreation centers. The Baguio City government
passed several resolutions regarding the actions taken by BCDA. Among these
involve the exclusion of barangays located within the camp from BCDAs
development programs, a development program that affords protection to the
environment, family-oriented tourist destinations, priority for Baguio residents in
employment opportunities, and liability for local taxes of businesses to be
established within the camp. The Sangguniang Panlungsod of Baguio finally passed
a resolution supporting P.D. 420 issued by President Ramos, declaring a portion of
the camp as a SEZ.

P.D. 420 also declared among others that Camp John Hay SEZ is likewise entitled to
all applicable incentives of SEZ under Section 12 of RA 7227 such as the tax
exemptions aforementioned. Herein petitioners challenged among others this
provision of PD 420 on tax exemption for being invalid as it is an unconstitutional
exercise by the president of a power granted only to the legislature, and that it
violates the rule that taxes should be uniform and equitable. Hence, this application
to the Supreme Court for temporary restraining order and/or writ of preliminary
injunction against respondents for implementation of PD 420.

ISSUES: Whether or not PD 420 is constitutional by providing for national and local
tax exemption within and granting other economic incentives to John Hay SEZ.

RULING: NO. The Court observed that nowhere in RA 7227 is there a grant of tax
exemption to SEZs yet to be established in base areas. The tax exemption provision
of Section 12 of RA 7227 only applies exclusively to Subic SEZ, as confirmed by the
deliberations of the Senate during the reading of the bill of RA 7227 with respect to
investment policies that would govern Subic SEZ.
It is clear that under said Section 12, 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.
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 John Hay SEZ
cannot be sustained. The incentives under R.A. 7227 are exclusive only to the Subic
SEZ, hence, the extension of the same to the John Hay SEZ finds no support therein.
Neither does the same grant of privileges to the John Hay SEZ find support in the
other laws specified under Section 3 of Proclamation No. 420.
Petitioners are correct in concluding that the grant of tax exemption to John Hay
SEZ 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. 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. 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; it
must be expressly granted in a statute stated in a language too clear to be
mistaken. Tax exemption cannot be implied as it must be categorically and

unmistakably expressed. 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 R.A. No. 7227.
In view of the foregoing, the second sentence of Section 3 of PD 420 is declared
NULL AND VOID and of no legal force and effect. The remaining provisions thereof
remains valid and effective.

OTHER THINGS to note in the case (baka maitanong ni mam):

1. When questions of constitutional significance are raised, the court can exercise
its power of judicial review only if the following requisites are present: (1) the
existence of an actual and appropriate case; (2) a personal and substantial interest
of the party raising the constitutional question; (3) the exercise of judicial review is
pleaded at the earliest opportunity; and (4) the constitutional question is the lis
mota of the case. These are present in the case, thus, SC has jurisdiction to try and
decide the case, despite the fact that that RA 7227 actually gives it the jurisdiction
to enjoin or restrain implementation of projects for conversion of the base areas.
Petitioners also have locus standi to institute this action as they have real interest
over the subject matter.
2. The SC can void an act or policy of the political departments of the government
on either of two groundsinfringement of the Constitution or grave abuse of
discretion.
3. 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.