CAMP JOHN HAY VS. LIM G.R. No.

119775 MARCH 29, 2005

Taxation, Tax exemption
FACTS:

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 between public respondent BCDA and private respondents.
Section 3 of Proclamation No. 420 was declared NULL AND VOID and is accordingly
declared of no legal force and effect.

Intervener Camp John Hay Development Corp. (CJHDC) filed a Motion for Leave to
Intervene alleging that it, together with its consortium partners, entered into a Lease
Agreement 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 Special Economic Zone (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, 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.

CJHDC’s Motion for leave to Intervene was granted and noted its Motion for
Reconsideration in Intervention.

ISSUE:

Whether the tax exemptions and other financial incentives granted to the Subic SEZ
under Section 12 of R.A. No. 7227 (Bases Conversion and Development Act of 1992),
are applicable to the John Hay SEZ.

RULING:

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,” 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.

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 or local governments
may pass ordinances providing for exemption from local taxes, 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.
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.

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 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.