GR 192694 2023

BASES CONVERSION AND G.R. No.
192694
DEVELOPMENT AUTHORITY and
JOHN HAY MANAGEMENT Present:
CORPORATION,
Petitioners,
LEONEN, J, Chairperson,
LAZARO-JAVIER,
-versus- LOPEZ,M.,
LOPEZ, J., and
KHO, JR.,JJ
'! ! :. I-,_
CITY GOVERNMENT OF BAGUIO
CITY, as represented by its Mayor,
City Treasurer, and City Legal
Officer, Promulgated:
Respondent. FEB 22 2023
X ---------------------------------------------------------------- . -- .. --------- X
DECISION
LEONEN,J.:
The payment of fees for the issuance of business permits is regulatory

in nature under the local government unit's police power. It is not a tax for
revenue generation. Tax-exempt entities, therefore, cannot claim to be
exempted from paying fees for business permits.
This Court resolves a Petition for Review on Certiorari 1 assailing the

Decision2 and Order3 of the Regional Trial Court, which up~eld Baguio/
Rollo, pp. 50-107. The Petition is erroneously captioned as a "Petition for Crrti?rari." The body,
however, states that it is a Petition for Review on Certiorari under Rule 45. ·
2
Id. at 108--140. The May 13, 2010 Decision was penned by Presiding Judge Cletq R., Villacorta III of
Branch 6, Regional Trial Court, Baguio City.
Id. at 141-146. The June 24, 2010 Order is penned by Presiding Judge Cleto R,ViJ]acorta III of
Branch 6, Regional Trial Court, Baguio City.
. : .·:=:i
Decision 2 G.R. No. 192694
.City Administrative Order No. 102, series of 2009. 4 Administrative Order

No. 102 required establishments within the John Hay Special Economic
Zone to secure business permits and pay the corresponding fees to continue
their business operations.
:On March. 13, 1992, Congress enacted Republic Act No. 7227, or the
B'ases Conversion and Development Act of 1992, which created the Bases
Conversion and Development Authority (the Authority) to develop and
, 9onvert former United States military bases in the country to productive
c1vilia.n use. 5
, Camp John Hay 6 was one of these former military bases. In 1993,
,- Jo11p):::Iay Development Corporation, later called the John Hay Poro Point
,L.,,Deye'kipment Corporation, was created. As a subsidiary of the Authority,7
"ihe corporation became its implementing arm in converting Camp 'John Hay
into a' "tourism, human resource development center[,] and multiple[-]use
forest watershed reservation[.]" 8 In 2002, it would later be renamed as the
John Hay Management Corporation. 9
L, ',,,,:,Earlier, on July 5, 1994, then President Fidel V. Ramos had issued

Proclamation No. 420. 10 Among others, it designated a special economic
zone on a portion of Camp John Hay, known as the John Hay Special
Economic Zone, to be administered by the John Hay Poro Point
•D·evelopment Corporation. 11 The Proclamation provides, among others, that
the tax incentives available to the Subic Special Economic Zone, which was
created under Section 12 of Republic Act No. 7227, would also be available
to the John Hay Special Economic Zone. 12 Section 3 of Proclamation No.
420 reads:
SECTION 3. Investment Climate in Jolm Hay Special Economic

Zone. -Pursuant to Sections 5 (m) Section 15 of Republic Act No. 7227,
the Jolm Hay Poro Point Development Corporation shall implement all
necessary policies, rules, and regulations governing the zone, including
investment incentives, in consultation with pertinent government
. , . i departments. Among others, the zone shall have all the applicable
:: jncentives of the Special Economic Zone under Section 12 of Republic
·•Id, 'at 161-163. Entitled "An Order Creating a Task Force to Implement Tax Ordinance 2000-01 lo All
Business Establishments/Locators Operating Inside the John Hay Special Economic Zone and
/
· Prnviding Guidelines for the Purpose."
' • Republic Act No. 7227 (1992), sec. 2.
6 Also refe1Ted in laws and other issuances as Club John Hay.
7 See Executive Order No. 103 (1993). Authorizing the Establishment of the John Hay Development
Corporation as the Implementing Aim of the Bases Conversion Development Authority for Clu_bJohn
Hay, and Directing All Heads of Departments, Bureaus, Offices, Agencies and Instrumentaht1es of
'00\1.emment to Support the Program.
Executive Order No. l 02 (1993), Fourth Whereas Clause.
' · Executive Order No. 132 (2002).
10 . Entitled "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."
11 ,., Proclamation No. 420 (l 994), sec. 2.
12 . Proclamation No. 420 (l 994), sec. 3.
Decision 3
Act No. 7227 and those applicable incentives granted in th~ Export
Processing Zones, the Omnibus Investment Code of 1987, the,. f8rejg~
Investment Act of 1991, and new investment laws that may here'jriafi:lc'r pe
enacted. ' · ,.,·
, . -~
1J<JJ,'"
....
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Under Proclamation No. 420, establishments inside Jofm Hay the
Special Economic Zone shall, instead of paying taxes, remit 3% of all gross
income to the national government, 1% to the local government units
affected, and 1% for the development of contiguous areas. 13 The Omnibus
Investments Code of 1987 14 likewise provides for additional incentives, such
as exemption from local taxes and licenses: ·
ARTICLE 78. Additional Incentives. - A zone registered

enterprise shall also enjoy all the incentive benefits provided in Article 39
hereof under the same terms and conditions stated therein. In addition
zone registered enterprises shall also be entitled to the following:
(a) Exemption from Local Taxes and Licenses.

Notwitl1standing the provisions of law to the contrary, zone
registered enterprise shall, to the extent of their construction',''
operation or production inside the zone be exempt 'ftorri'~'e 1' ·
payment of any and all local government impo~ts,. f~~f "
licenses or taxes except real estate taxes which°. sh,al( qe
collected by the Province/City/Municipality responsible· for the
collection thereof under the provisions of the Real Property Tax··
Code: Provided, That machineries owned by zone -registered ·
enterprises which are actually installed and operat.e,g, iA ti.!t..
Zone for manufacturing, processing or for industrial purpose§.
shall not be subject to the payment of real estate taxes Jot the
first three (3) years of operation of such machineries: Provided,
further, That fifty percent (50%) of the proceeds of the real
estate taxes collected from all real properties located in the
Zone and such other areas owned or administered by the
Authority shall be remitted to the Authority by the
province/city/municipality responsible for the collection of
such taxes under the provisions of the Real Property Tax Code.
All real estate taxes accruing to the Authority as herein
provided shall be expanded for such community facilities,
utilities and/or services as the Authority may determine.
In line with Proclamation No. 420, the Baguio City government's
13 See Republic Act No. 7227 (1992), sec. 12(c), which states:
The provisions of existing laws, rules and regulations to the contrary notwithstruJ:ding, 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%):e~ch to the local
government units affected by the declaration of the zone in proportion to their ·population area, and
other factors. ln 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 development of municipalities outside the City of Olongapo and the Mu~i.cipality of
Subic, and other municipalities contiguous to be base areas. ' ·1·
. , In case of conflict between national and local laws with respect to tax exemptioii,:Pfiviliges in the
·, Subic Special Economic Zone, the same shall be resolved in favor of the latter[-J. -~;-, ,.. ,, 7
14 :Executive Order No. 226 (1987). .,.__
S•angguniang Panlungsod passed Resolution No. 362, series of 1994, 15

setting the conditions for the Authority in formulating the Master
Development Plan for Camp John Hay. Under Condition 9 of Resolution
16
1}'Np, J.62, an equitable sharing agreement shall be provided between the
_'A,.i,+thority and the Baguio City government from the gross income obtained
from the operations within the John Hay Special Economic Zone,
particularly: 3% for the national government, 3% for the Baguio City
government, and 1% for the community development fund jointly
administered by the Baguio City government and the Authority. In addition,
Condition 10 provides that the Authority shall allocate 25% of John Hay
Poro Point Development Corporation's lease rentals or 30% of its net
income from operations within the John Hay Special Economic Zone,
whichever is higher, to be used for development projects. 17
On February 24, 1995, Congress enacted Republic Act No. 7916, or

the Special Economic Zone Act of 1995. Among others, the Act provided
for t~:exemptions to special economic zones. Section 24 states:
SECTION 24. Exemption from Taxes Under the National Internal

Revenue Code. - Any provision of existing laws, rules and regulations to
the contrary notwithstanding, no taxes, local and national, shall be
imposed on business establishments operating within the ECOZONE. In
lieu of paying taxes, five percent (5%) of the gross income earned by all
, '; ·. businesses and enterprises within the ECO ZONE shall be remitted to the
De • /.national government. This five percent (5%) shall be shared and
: _distributed as follows:
(a) Three percent (3%) to the national government;
(b) One percent ( 1%) to the local government units affected by the
declaration of the ECOZONE in proportion to their population,
land area, and equal sharing factors; and
(c) One percent(!%) for the establishment of a development fund

to be utilized for the development of municipalities outside and
contiguous to each ECOZONE: Provided, however, That the
respective share of the affected local government units shall be
determined on the basis of the following formula:
1
'
16
Rollo, pp. 147-149.
Baguio City Resolution No. 362 (1994), sec. 9 states:
. _. 9 .• ~EYENUE EARNJNG_FOR THE CITY GOVERNMENT
1. ··
1
_ __
Thg BCDA shall provide for an equitable sharing arrangement for the Bagmo Crty Goyernrnent from
/
!he-gross income of operations within the Zone, subject to Presidential or Congressional au~horization,
if warranted, under the following income apportionment:
a. 3% for the National Government
b.- 3% for the Baguio City Government . ·,
c. J % for the community development fund jointly administered by the Baguio City Government and
the B'CDA.
17 B!lguio City Resolution No. 362 (1994), sec. 10 states:
10. ADDITIONAL EARNINGS FOR THE C!TY GOVERNMENT
-In addition to the above-cited provision, the BCDA shall allocate 25% from JPDC's lease rentals, or
30% from JPDC's net income from all operations within the Zone, whichever is higher, at any giv~n
· · time durino- the lease period to be used for development projects such as basic infrastructure, socialized
· · ··,~. houslno-
o, p:ace and order measures and environmental preservation under the joint management of the
JPDC and the Baguio City Government.
Decision 5
.' G.RNi;,,
, .~ . 192694
'
. ';. ,.'
::-,,,...
. .
(!)Population-fifty percent (50%);
(2) Land area- twenty-five percent (25%); and
(3) Equal sharing-twenty-five percent (25%).
On June 1, 1999, Congress enacted Republic Act No. 8748, which

amended Republic Act No. 7916. Section 24 now reads:
··,·(
SECTION 4. Chapter III, Section 24 of Republic Act No. 7916 is

hereby amended to read as follows:
"SEC. 24. Exemption from National and Local Taxes. -- Excipt

for real property taxes on land owned by developers, no taxes, focral iam1\l\- ._-
national, shall be imposed on business establishments operating wj'lfl~p-\1/\i\;
ECOZONE. In lieu thereof, five percent (5%) of the gross incomie earn~
by all business enterprises within the ECOZONE shall be paid. ~Jr
s;l'·
remitted as follows:
"(a) Three percent (3%) to the National Government;
"(b) Two percent (2%) which shall be directly remitted'hy.··tli_i( -

business establishments to the treasurer's office· of the
municipality or city where the enterprise is located."! 8• L
Section 50, however, limits Republic Act No. 8748's applicatior{ to

economic zones created after Republic Act No. 7227:
SECTION 50. Non-Applicability on Areas Covered by Republic

Act. No. 7227. -This Act shall not be applicable to economic zones and
areas already created or to be created under Republic Act No. 7227 or
other special laws, and governed by authorities constituted pursuant
thereto.
On October 24, 2003, this Court, in John Hay Peoples Alternative

Coalition v. Lim, 19 nullified the second sentence20 of Proclamation No. 420,
Section 3, insofar as it granted tax exemptions and financial· iRcen~ves to
businesses in the John Hay Special Economic Zone. This Cotri\-li.b'wever,
- stated that if the statutory basis for the grant of these ex.einpd8rts and
incentives exists, qualified persons may avail ofit. ·
On March 20, 2007, Congress enacted Republic Act No, 9399 and ;Y
Republic Act No. 9400. Republic Act No. 9399 provided a orie t~e tax 0
/
2
" Republic Act No. 8748 (1999), sec. 4. ,.,
19
_460 Phil. 530 (2003) [Per J. Carpio Morales, En Banc]. ~l , '
20
The second sentence states:
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.
amnesty to all registered business enterprises operating within the specia:l

economic zones and freeports created under Republic Act No. 7227 before
the law took effect. Its Section 1 provides:
SECTION l. Grant of Tax Amnesty. - Registered business

enterprises operating prior to the effectivity of this Act within the special
' economic zones and freeports created pursuant to Section 15 of Republic
· Act No. 7227, as amended, such as the Clark Special Economic Zone
created under Proclamation No. 163, series of 1993; Poro Point Special
Economic and Freeport Zone created under Proclamation No. 216, series
of 1993; John Hay Special Economic Zone created under Proclamation
No. 420, series of 1994; and Morong Special Economic Zone created
under Proclamation No. 984, series of 1997, may avail themselves of the
benefits of remedial tax amnesty herein granted on all applicable tax and
duty liabilities, inclusive of fines, penalties, interests and other additions
thereto, incmTed by them or that might have accrued to them due to the
rulings of the Supreme Court in the cases of John Hay People's [sic J
Coalition v. Lim, et al., G.R. No. 119775 dated 23 October 2003 and
Coconut Oil Refiners Association, Inc. v. Torres, et al., G.R. No. 132527
dated 29 July 2005, by filing a notice and return in such form as shall be
prescribed by the Commissioner of Internal Revenue and the
Commissioner of Customs and thereafter, by paying an amnesty tax of
, ' Twenty-five thousand pesos (P25,000.00) within six months from, the
effectivity of this Act: Provided, That the applicable tax and duty liabilities
to be covered by the tax amnesty shall refer only to the difference
· u · · •c, between: (i) all national and local tax impositions under relevant tax Jaws, ·.
,,c ·rules and regulations; and (ii) the five percent (5%) tax on gross income
, 1'· ;earned by said registered business enterprises as determined under
relevant revenue regulations of the Bureau of Internal Revenue and
memorandum circulars of the Bureau of Customs during the period
covered: Provided, however, That the coverage of the tax amnesty herein
gFanted shall not include the applicable taxes and duties on articles, raw
materials, capital goods, equipment and consumer items removed from the
ipecial economic zone and freeport and entered in the customs territory of
the Philippines for local or domestic sale, which shall be subject to the
usual taxes and duties prescribed in the National Internal Revenue Code
(NIRC) of 1997, as amended, and the Tariff and Customs Code of the
Philippines, as amended.
Republic Act No. 9400, on the other hand, amended several portions
of Republic Act No. 7227. It provided that all registered business
enterprises within the John Hay Special Economic Zone would be entitled to
the same tax and duty incentives under Republic Act No. 7916. John Hay
Management Corporation would only engage in "acquiring, holding,
administering, or leasing real properties," since the Philippine Economic
Zone Authority would remain the entity that would "register, regulate, and
supervise" all registered business enterprises within the special economic /
zone. 21':In case national or local law conflicts with the grant of these special
tax e~emption privileges, doubt would be resolved in favor of the special
e1;;onomic zone. 22 · · ·
21 Republic Act No. 9400 (2007), sec. 5.

22 Republic Act No. 9400 (2007), sec. 6.
.. :L'-}: .. z•.
' -
Decision 7 G.R. No.192694
Since 1994, priority and other related projects of the Baguio City
government called the Baguio, La Trinidad, Itogon, Sablan, and Tuba
(BLIST) Projects have been financed by the Authority. 23 The amount
remitted for the BLIST Projects were the proceeds of the lease rentals that
the local government received from its locator, Camp John Hay
Development Corporation. 24 Locators are sole proprietorships, partiiersh.ips,
corporations, or other entities duly registered with special economic z6ri.es. 25
Camp John Hay Development Corporation, in the me;~~~~1~t~r,ed

into subleases with other locators and business entities within, th~
jgfui HiiY
Special Economic Zone. The lease payments from these sublessees were not
.included in what the Authority remitted to the Baguio City government. 26
,on August 6, 2004, the Baguio City government, throug]J the~ Mayor
Braulio D. Yaranon, issued a Memorandum 27 holding in abm1aI1c.-ce, tile
prqcessing and issuance of business permits to Camp,, ;fplaµr_):{ay
Development Corporation until it has complied with Condition 10 of
Resolution No. 362, that is, to remit 25% of its lease rentals from its
sublessees to the Baguio City government.
As a result, the Authority formed the One Stop Action, Center to

accredit and regulate business establishments within the John Hay Special
Economic Zone. From then on, locators have secured their certificates of
28
accreditation and permits to operate from the One Stop Action Center.
On June 15, 2009, the Baguio City government issued Administrative

Order No. 102, series of 2009, 29 creating the John Hay Special Economic
3
Zone Task Force to implement City Tax Ordinance No. 2000-001. ~ City
Tax Ordinance No. 2000-001 has been requiring establishi1i~.µ~,;inside
Baguio City to secure business permits or licenses from the city gov;ifiiment.
,Administrative Order No. 102 now included businesses within the Jonn Hay
Special Economic Zone. 31
On July 28, 2009, the Baguio City government, thropgh its City
Treasurer Thelma B. Manaois (Manaois), wrote Ma. Cristina .R. Corona,
then president and chief operating officer of John Hay. M11nagement
Corporation, requesting a list of all business establishments within Camp
23
Rollo, p. 633.
24
Id.
25 Customs Administrative Order No. 11-2019 (2019), sec. 3.5.
26
Id. at 345-346.
27
Id. at l 60.
28
Id. at 634.
29
Id. at !61-163.
30 Id. at 442-452.
31 Id. at 161-162.
John Hay. 32
·.. On October 15, 2009, John Hay Management Corporation, through its
Qperji.lions Group Manager Frank L. Daytec, Jr., informed Manaois that her
r.e,qti~st could not be acted upon as the issue of the legality of Administrative
OrderNo. 102 was being endorsed to the Office of the Government
. Corporate Counsel. 33
_, . This prompted Atty. Melchor Carlos R. Rabanes, the Baguio City

legal.officer, to issue a Legal Opinion34 dated June 12, 2008. He opined that
business establishments and locators operating within the John Hay Special
Economic Zone were not exempt from securing business permits from the
city government since their fiscal incentives only extended to national and
l?cal taxes, and not to local business or license fees and charges. 35
On' January 21, 2010, Manaois wrote John Hay Management

Corporation again, asserting that her office would implement Administrative
Order No. 102 and warning that it would inspect the businesses and close
down those without business permits. 36
· The Authority alleged that the city mayor had advised John Hay
Management Corporation that he would not issue any closure orders pending
the iss:uance of the Office of the Government Corporate Counsel's legal
o.pirti?_ry-.6n Administrative Order No. 102. 37 But on February 16, 2010, tlie
Wutnur'i:ty's locators in the John Hay Special Economic Zone received
Notices to Stop Business Operation38 from the Office of the City Treasurer.·,
. )j ':~ :· ·c ,
. This was the same day that the Authority issued its third check for
PB.P 50 million to the Government Service Insurance System to partially
~ettle tire purchase of the Baguio Convention Center. 39 The payment was
pi:itsuant to a February 18, 2003 Memorandum of Agreement40 and a January
23; 20'04 Supplemental Agreement41 that the Baguio City government had
entered into with the Government Service Insurance System to purchase the
Baguio Convention Center for PHP 250 million, charged against the Baguio
City government's 25% share in the lease rentals over Camp John Hay. 42
Under the terms, PHP 50 million would be paid upon its signing, then PHP
35 million every year for 11 years, including a 12% interest on the
32
33
34
Id. at
ld'. at
164.
165.
I
Id. at 166-172.
35
Id. at 170.
36
Id.at 173.
37
Id. at 72 l.
,·, Id. at 198-223.
3~ Id.atl97.
40
.•. ld:.,ai.180-182. ·h.
zr/ _\ '
i~\~::t~l 85.
.!. L'•- l ,- ,,
fj(
Decision 9 G.R. No. 1'92694
diminishing balance. 43 Two other PHP 50 million checks had been issued
earlier, on February 11, 2004 and August 3, 2008 .44
However, the Government Service Insurance System did not accept

the check issued by the Authority due to the Baguio City govengnent's
failu:e to pay its yearly amortizations from 2005 to 200~, ;»'!Ji~b1 was
considered a breach of the Memorandum of Agreement. 45 :·· ,c' . tbc: "
1
On March 12, 2010, the Authority and John Hay Management

Corporation filed before the Regionru Trial Court of Baguio City•it1Petitiott46
for declaratory relief, with a prayer for a writ of preliminary injtlnctidh. ·
. .
. _. On March 17, 2010, the Regional Trial Court issued an Orcle!"47 stating
that, the parties have agreed that the Baguio City govemmerifC'woufcf send
notices to the locators to secure their business permits within a week from
receipt of the notice. The city mayor may only issue a closure order if the
locators fail to comply with the notices. 48
On March 22, 2010, the Baguio City govennnent issued Notices to

Secure Business Permit49 to the Authority's locators.
The Authority later filed an Amended Petition,50 to which the Baguio

City government filed its Comment/Answer. 51
On May 13, 2010, the Regional Trial Court rendered a Decision52

dismissing the Petition. It held that business permits and the payment of
fees to the local government unit are of a different character than that of
taxes and duties, 53 as revenue generation was not their sole or primary
purpose. 54 Moreover, these were so minimal that they could ohlYbe _used to
defray the expenses for regulatory purposes. 55 The trial court concluded that
the John Hay Special Economic Zone was exempt from paying local and
national taxes, but not from the requirement of business permits. 56 · .-
The trial court further held that neither the Authority n.6r Jolin Hay
at r84.
/
43
Id.
44 Id. at 72 I.
45
Id. at I 94.
46 Id. at 248-275.
47
Id. at 303. The Order was penned by Judge Cleto R. Villacorta Ill of Branch 6, Regional Trial Court,
Baguio City.
48
Id. at 303.
49
Id. at 224-247.
50
Id. at 308-334.
51
Id. at 339-366.
52
Id. at 108-140.
53
Id. at 120.
54
Id. at 127.
55 Id. at 129-130.
56
Id. at 130.
Management Corporation possessed any police power. 57 Thus, they were

not exempted from the local government units' power to require business
permits and exact regulatory fees for their issuance. 58
The Authority and John Hay Management Corporation filed a Motion

for Reconsideration, 59 but the Regional Trial Court later issued a June 24,
2010 Order60 denying it. Aggrieved, they filed before this Court a Petition
for ~eview on Certiorari61 against the Baguio City government.
' ·, "
After the parties had filed their respective Memoranda, 62 petitioners

filed a Motion with Leave of Court for the Issuance of a Status Quo Order
,~d/q~,}njunction. 63 In it, petitioners sought to enjoin respondent from
~~,~uing building pem1its and all other licenses on establishments operating
,w,i'thi111 the John Hay Special Economic Zone while awaiting this Court's
Jesolution on the Petition. 64 They claimed that respondent kept on issuing
b1-1ilding permits and occupancy permits to enterprises inside the John Hay
Special Economic Zone even if the Philippine Economic Zone Authority
should be the one enforcing the provisions of the National Building Code. 65
This act, petitioners said, "invalidly encroaches upon the powers and
prerogatives given by law to [the Philippine Economic Zone Authority]." 66
Respondent countered that the Petition was only dealing with the
issuance of business permits, not other permits. 67 They also pointed out that
the-real party-in-interest to question the city building official's acts was the
Philippine Economic Zone Authority, not petitioner Authority. 68
· ;On August 5 2013, this Court denied the Motion with Leave of Colirt
for'th&''rssuance of~ Status Quo Order and/or Injunction. 69 .
y;,. ?:~-\: '
In their Memorandum, 70 petitioners argue that the issuance of business

permits under City Tax Ordinance No. 2000-001 is "primarily revenue-
ra'.ising"71 since before it can be issued, establishments must· pay the
;app'ircable fees based on their "gross receipts for the fiscal year[.]" 72
1~;.:~1.;,;'.-.:.:.t-;
i-B:;,1,.,_,",11·
·57 Id't!'0
11;-i.:,•':S: ',~-fl , ,·:' .
:s:r•,•,.<,td.~'~t 134.
I
"' : Id. 531-539. at
60 Id. at 141-146. The Order is penned by Presiding Judge Cleto R. Villacorta Ill of Branch 6, Regional
Trial Court, Baguio City.
61 'Id. at 50-107.
62
Id. at 616-{i60, 661-703.
63
Id. at 755-764.
64
Id. at 762.
65
Id. at 756-757.
66
Id. at 761.
67
Idcat783.
68
Id.
69
Id. at 797. The Motion was denied with finality on February 5, 2014.
70
Id, at 620-{i60.
71
Id. at 645.
72 Id.
Petitioners further claim that the regulation of establishments inside the John
Hay Special Economic Zone is exercised by the Philippine E\_:onoroi~ZQ.ue
Authority, not the local government unit. 73 .,,trirF, .),
Petitioners insist that establishments in the John Hay Special

Economic Zone have preferential tax treatment under the law, "neither
subject to internal revenue laws and regulations nor to any Jocal/,tax." 74
They refer to Republic Act No. 7916, which exempts all estaplismnents
operating within special economic zones from paying taxes, 75 ancLRepu:blit;:
Apt No. 9399, which declared a one-time amnesty on certain t§1¥ 1~'1,.~duty
liabilities, inclusive of fees, fines, penalties, and interest, to certaiR bU;Sir1ess
enterprises operating within special economic zones. 76 They also point out
that Republic Act No. 9400 categorically granted tax exemptions to the John
Hay Special Economic Zone. 77
Petitioners maintain that in lieu of paying taxes, they practice an

income-sharing arrangement with respondent. Through this arrangement,
respondent was allegedly able to acquire the Baguio Convention Center and
fund its BLIST Projects. 78 They argue that respondent cannot avail of its
share in the arrangement and impose business taxes at the same time. 79
Respondent, on the other hand, claims that the Petition must be denied
for raising questions of fact that cannot be addressed in a petition for review
on certiorari. 80 It also points out that petitioners violated the doctrine of
hierarchy of courts since they should have first brought the case before the
Court of Appeals. 81
Respondent asserts that the business permit fees were regulatory in

nature since their main purpose "is to regulate trade for efficient and
effective goven1ance, and for the promotion of the general welfare[.]" 82 It
maintains that since Republic Act No. 7227 did not grant poliqe poweT to
petitioner Authority, respondent has police power over establishments in
Baguio City, including establishments in Camp John Hay. 83 Respondent
concludes that all businesses within its jurisdiction without business permits
are illegally conducting their operations. 84
73
From these arguments, this Court first resolves the procedural issue of f
Id. at 649.
74
Id. at 652.
75
Id. at 653.
76
Id. at 629.
77
Id. at 653.
78
Id. at 654.
79
Id. at 655.
80
Id. at 676.
81
Id. at 682.
82
Id. at 684.
83 Id. at 690--<i92.
84
Id. at 692.
;
whether the Petition for Review on Certiorari should be denied for

presenting questions of fact and violating the doctrine of hierarchy of courts.
As to the substantive issues, this Court resolves the following:
first, whether statutory exemptions cover exemptions from business

permits and license fees;
. second,· whether the exactions under City Tax Ordinance No. 2000-
00 ( a~. implemented by Administrative Order No. 102, series of 2009, is a
.)ax;,.#9t a regulatory fee; and
_. ·,_ . '\,.x,>- .. ":
finally, assuming that the exactions under City Tax Ordinance No.
2000~001 are fees, whether the Baguio City government has waived
:,S?lle9tions by vi1iue of Resolution No. 362, series of 1994 .
. I,
.;,_ ~-: ._:_,

I
The Petition does not present questions of fact.
Generally, a petition for review on certiorari under Rule 45 of the

Rules of Court must only present questions of law. 85 The exceptions to this
rule are stated in Medina v. Mayor Asistio, Jr. :86
(1) When the conclusion is a finding grounded entirely on speculation,

surmises or conjectures; (2) When the inference made is manifestly
mistaken, absurd or impossible; (3) Where there is a grave abuse of
discretion; (4) When the judgment is based on a misapprehension of facts;
(5) When the findings of fact are conflicting; (6) When the Court of
,. Appeals, in making its findings, went beyond the issues of the case and the
.,, ~ame is contrary to the admissions of both appellant and appellee; (7) -The
\'':·findings of the Court of Appeals are contrary to those of the trial court; (8)
When the findings of fact are conclusions without citation of specific
evidence on which they arc based; (9) When the facts set forth in the
petition as well as in the petitioners' main and reply briefs are not disputed
by the respondents; and (10) The finding of fact of the Court of Appeals is
•· premised on the supposed absence of evidence and is contradicted by the
•·. evidence on record. 87 (Citations omitted)
85
.. See RULES OF COURT, Rule 45, sec. 1, which states:
SECTION I. Filing of petition with the Supreme Court - A party desiring to appeal by certiorari
I
from a judgment, final order or resolution of the Court of Appeals, the Sandiganbayan, the Court of
Tax Appeals, the Regional Trial Court or other courts, whenever authorized by law, may file with the
''supreme Court a verified petition for review on certiorari. The petition may include an application for
a writ of preliminary injunction or other provisional remedies and shall raise only questions of law
which must be distinctly set forth. The petitioner may seek the same provisional remedies by verified
··motion filed in the same action or proceeding at any time during its pendency.
86 269 Phil. 225 (I 990) [Per J. Bidin, Third Division].
87 · Id. ·at 232.
Decision 13
Respondent points out that the Petition requires a review of the gross
receipts used to compute the license fees. 88
The issue in this case, however, is whether the payment of fe~s for a
business permit in a special economic zone amounts to a pay~6iit, of local
taxes. .Its resolution requires the examination of applicable laws,; }l~viewing
gross receipts to resolve whether entities in a special economic zone are
required to pay the fees is unnecessary.
In any case, this Court has full discretion to deny a petition in due
course. Rule 45, Section 5 of the Rules of Court states:
SECTION 5. Dismissal or denial of petition. - ...
The Supreme Comi may on its own initiative deny the petition on
the ground that the appeal is without merit, or is prosecuted manifestly for
delay, or that the questions raised therein are too unsubstantial to require
consideration.
A petition under Rule 45 of the Rules of Court is denomi1iia~i:,d as a

petition for review on certiorari, where this Court's review Js,·completely
discretionary. Kumar v. People89 explains: , '.('
. [Q]uestions raised in a Rule 45 Petition must be of such substance as. to

· warrant consideration is to say that judicial review shall proceed "only
· · when there are special and important reasons." The use of the conjunctive
"and" vis-a-vis the adjectives "special" and "important" means·.that the
reasons invoked for review must be of distinctly significant consequence
and value. Rule 45, Section 6 (a) and (b) illustrate the gravity of reasons
which would move this Court to act:
(a) When the court a quo has decided a question of

substance, not theretofore determined by the Supreme
Court, or has decided it in a way probably not in accord
with law or with the applicable decisions of the Supreme
Court; or
(b) When tl1e court a quo has so far departed from the
accepted and usual course of judicial proceedings, or so far
sanctioned such departure by a lower court, as to call for an
exercise of the power of supervision.
From these, this Court is better advised to stay its hand and not
entertain the appeal when there is no novel legal question involved, or
when a case presents no doctrinal or pedagogical value whereby,., it js
opportune for this Court to review and expound on, rectify, modify and/or
clarify existing legal policy, or lay out novel principles and delve into
unexplored areas of law.
88
Rollo, p. 678.
89
G.R. No. 247661, June 15, 2020 [Per J. Leonen, Third Division].
)',',
Decfsi'on 14 G.R. No. 192694
·'\,
This Court may decline to review cases when all that are involved
are settled rules for which nothing remains but their application. Also,
when there is no manifest or demonstrable departure from legal provisions
and/or jurisprudence. So too, when the court whose ruling is assailed has
not been shown to have so wantonly deviated from settled procedural
norms or otherwise enabled such deviation.
Litigants may very well aggrandize their petitions, but it is

precisely this Court's task to pierce the veil of what they purport to be
questions wa.rranting this Court's sublime consideration. It remains in this
Court's exclusive discretion to determine whether a Rule 45 Petition is
attended by the requisite important and special reasons. 90 (Citation
omitted)
. _ I"-.
, , ., -·'
. Nonetheless, since this Petition only presents questions of law, a
' . , _- '
.. me
, ·.• ·' ,,
re;,Rert;to Rule 45 of the Rules of Court is proper.
. ,_ ;c. ~ .,,;.,,
Respondent, however, takes exception to petitioners' direct recourse

to th.i's Court, arguing that they should have first come to the Court of
Appeals to question the Regional Trial Court's ruling. 91
Under the principle of hierarchy of courts, regional trial court

....d~cisions are generally appealable to the Court of Appeals, either through an
i ordinary appeal under Rule 41 of the Rules of Court or a petition for review
under Rule 42. 92 Aala v. Uy93 explains the rationale:
The doctrine on hierarchy of courts is a practical judicial policy

designed to restrain parties from directly resorting to this Court when
relief may be obtained before the lower courts. The logic behind this
policy is grounded on the need to prevent "inordinate demands upon the
Court's time and attention which are better devoted to those matters within
its exclusive jurisdiction," as well as to prevent the congestion of the
Court's dockets. Hence, for this Court to be able to "satisfactorily perform
the functions assigned to it by the fundamental charter[,]" it must remain
as a "court oflast resort." This can be achieved by relieving the Court of
the "task of dealing with causes in the first instance." 94 (Citations
omitted)
. ~~\\ ·:: ;_,_ '
I
This principle applies especially in pet1t1ons that present primarily
questions of fact or even mixed questions of fact and law. While the t.~~al
court, the Court of Appeals, and this Court share original and concurre.nt
Jurisdiction over petitions for certiorari,9 5 each court has a specific and clear
90 Id._ at 6~7. This pinpoint citation refers to the copy of the Decision uploaded to the Supreme Court
(~e ,vfk-bSite.
91
· . . Rollo, p. 682.
92 See Barcenas v. Spouses Tomas, 494 Phil. 565 (2005) [Per J. Panganiban, Third Division].
93
803 Phil. 36 (2017) [Per J. Lconen, En Banc].
94
Id. at 54-55.
95
Batas Pambansa Blg. I 29 (I 98 J), secs. 9 and 21. The Judiciary Reorganization Act of 1980.
Decision 15 G.R. No. I 92694
a.
task under the constitutional order. In Diocese ofBacolod v. C0r;;~i}sion on
Elections: 96 ,
The doctrine that requires respect for the hierarchy of courts was
created by this court to ensure that every level of the judiciary performs its
designated roles in an effective and efficient manner. Trial courts do not
only detennine the facts from the evaluation of the evidence presented
before them. They are likewise competent to determine issues of law
which may include the validity of an ordinance, statute, or even an
executive issuance in relation to the Constitution. To effectively perform
these functions, they are territorially organized into regions and then into
branches. Their writs generally reach within those territorial boundaries.
Necessarily, they mostly perform the all-important task of inferring the
facts from the evidence as these are physically presented before them.- In
many instances, the facts occur within their territorial jurisdiction, which
properly present the 'actual case' that makes ripe a determination of the
constitutionality of such action. The consequences, of course, would be
national in scope. There are, however, some cases where resort to, COJ:!lj1'~e •
at their level would not be practical considering their decisions <::ql\ld ~.11,.- 0
be appealed before the higher courts, such as the Court of Appeals. • , :21 ,, •
The Court of Appeals is primarily designed as an appellate court

that reviews the determination of facts and law made by the trial courts. It
is collegiate in nature. This nature ensures more standpoints in the re'!ie~
of the actions of the trial court. But the Court of Appeals also has 9Figinal
jurisdiction over most special civil actions. Unlike the trial coutts, its
writs can have a nationwide scope. It is competent to determine facts ani.l,
ideally, should act on constitutional issues that may not necessarily be
novel unless there are factual questions to determine.
This court, on the other hand, leads the judiciary by breaking new
ground or further reiterating - in the light of new circumstances or in the
light of some confusions of bench or bar - existing precedents. Rather
than a court of first instance or as a repetition of the actions of the Court of
Appeals, this court promulgates these doctrinal devices in order that it
truly performs that role. 97 (Citation omitted)
As this Court is not a trier of facts, parties should not resort to us at

the first instance in cases where the trial court and the Court of Appeals are
better suited to address the factual issues.
The principle of hierarchy of courts, however, is not an ui;ijiielding

rule of law. Parties may resort directly to this Court "wheI/, t)iere are
compelling reasons clearly set forth in the petition, or when what israised is
99
/J
a pure question of law." 98 In Barcenas v. Spouses Tomas: . · ·· /
'. •._' 'I
Section 1 of Rule 45 clearly states that the following, may ~e

appealed to the Supreme Court through a petition for review by ce]j,jorar):
,,
96 751 Phil. 301 (2015) [Per J. Leanen, En Banc].
97 Id. at' 329-330.
98 A ala v. Uy, 803 Phil. 36, 57(2017) [Per J. Leanen, En Banc]. (Citations omitted)
99 494 Phil. 565 (2005) [Per J. Panganiban, Third Division].
,.,r;"• -
16 G.R. No. 192694
· · · 1) judgments; 2) final orders; or 3) resolutions of the Court of Appeals, the

,·,Sandiganbayan, the Regional Trial Court or similar courts, whenever
, authorized by law. The appeal must involve only questions oflaw, not of
fact.
This Court has, time and time again, pointed out that it is not a triet
·, 0f facts; and that, save for a few exceptional instances, its function is not
to analyze or weigh all over again the factual findings of the lower courts.
There is a question of law when doubts or differences arise as to what law
pertains to a certain state of facts, and a question of fact when the doubt
pertains to the truth or falsity of alleged facts.
Under the principle of the hierarchy of courts, decisions, final

orders or resolutions of an MTC should be appealed to the RTC exercising
territorial jurisdiction over the former. On the other hand, RTC
judgments, final orders or resolutions are appealable to the CA through
either of the following: an ordinary appeal if the case was originally
decided by the RTC; or a petition for review under Rule 42, if the case
was decided under the RTC's appellate jurisdiction.
Nonetheless, a direct recourse to this Court can be taken for a

review of the decisions, final orders or resolutions of the RTC, but only on
· . ,.questions of law. Under Section 5 of Article VIII of the Constitution, the
, ,Supreme Court has the power to
(2) Review, revise, reverse, modify, or affirm on appeal or

certiorari as the law or the Rules of Court may provide,
final judgments and orders oflower courts in:
(e) All cases in which only an error or question of law is

involved.
This kind of direct appeal to this Court of RTC judgments, final

orders or resolutions is provided for in Section 2(c) of Rule 41, which
reads:
SEC. 2. Modes of appeal. -
(c) Appeal by certiorari. - In all cases where only

questions of law are raised or involved, the appeal shall be
to the Supreme Court by petition for review on certiorari in
accordance vVith Rule 45. 100 (Emphasis supplied, citations
omitted)
.. , ,The doctrine of hierarchy of courts likewise applies in the immediate

, and direct resort to this Court, excluding all other tribunals capable of giving
f
relief.
100
Id. at 576-577.
Decision 17 G.~.N6. 192694
Here, however, petitioners invoked this Court's appellate jurisdiction

through a petition for review on certiorari under Rule 45 of the Rules of
Court. They had previously resorted to the Regional Trial Court. Thus, the
principle of hierarchy of courts would have limited applicability here.
II
Police power and taxation, together with eminent domain, ar.e inherent
State powers. 101 These powers may be delegated to local government units
through the Constitution or law. 102
Article X, Section 5 of the Constitution grants local governme:gt units

the power to levy taxes. The provision reads: · t'l,;i
SECTION 5. Each local government unit shall have the power to

create its own sources of revenues and to levy taxes, fees, and charges·,
subject to such guidelines and limitations as the Congress may_ provide,
consistent with the basic policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the local governments. ·
The Local Government Code, 103 meanwhile, grants local go;~mment

units the powers necessary to promote the general welfare. Section 16
provides:
SECTION 16. General Welfare. - Every local government unit

shall exercise the powers expressly granted, those necessarily implied
therefrom, as well as powers necessary, appropriate, or incidental for its
efficient and effective governance, and those which are essential to the
promotion of the general welfare. Within their respective territorial
jurisdictions, local government units shall ensure and support, among
other things, the preservation and enrichment of culture, promote health
and safety, enhance the right of the people to a balanced ecology,
encourage and support the development of appropriate and s~!Freli8?t
scientific and technological capabilities, improve public morals; enhl:m:ce
economic prosperity and social justice, promote full employment 'ani6l1g
their residents, maintain peace and order, and preserve the comfort 'lif;J.d
convenience of their inhabitants. ,,
Not only can local government units levy local taxes, but they can also
impose all other fees necessary to promote the general welfare.
In this case, to resolve the issue of whether a tax-exemp(e~tity can be /

statutorily exempt from paying business permits or license fee_s to the local
JOI See Land Transportation Office v. City of Butuan, 379 Phil. 887, 900 (2000) [Per J. Vitug, Third
Division].
102
Id.
"' RepublicActNo. 7160(1991).
· ·'govermnent, it is first necessary to distinguish taxes, business permits, and

A\,>Ece1!:ise fees from one another.
· In Manila Electric Company v. El Auditor General y La· Comision de

Servicios Publicos, 104 this Court defined "taxes" as "an enforced
contribution of money or other property assessed in accordance with some
reasonable rule of apportionment by authority of a sovereign state, on
. persons or property within its jurisdiction, for the purpose of defraying the
;,JP!iLQlic expenses" 105 or "a rate or sum of money assessed on the person or
property of a citizen by govermnent for the use of the nation or state;
burdens or charges imposed by the legislative power upon persons or
property to raise money for public purposes." 106 Meanwhile, it defined
"fees" as "a reward or compensation allowed by law to an officer for
specific services performed by him in the discharge of his official duties; a
sum certain given for a particular service; the sum prescribed by law as
charge for services rendered by public officers." 107
Compafiia General de Tabacos de Filipinas v. City of Manila 108

further refined these definitions:
The term "tax" applies - generally speaking - to all kinds of

•··: exactions which become public funds. The term is often loosely .used to
. ;i;-, i.include levies for revenue as well as levies for regulatory purposes. Thus
license fees are commonly called taxes. Legally speaking, however,
Jicense fee is a legal concept quite distinct from tax; the former is imposed
in the exercise of police power for purposes of regulation, while the latter
js imposed under the taxing power for the purpose of raising revenues. 109 .
!'e .... · · In that case, the City of Manila had issued several ordinances:
Gr'dirtahce No. 3358 required municipal license fees for the privilege to
g:l±giigein selling liquor or alcoholic beverages, while Ordinance Nos. 3634,
3301; and 3816 imposed taxes on the sales of general merchandise, whether
wholesale or retail. Tabacalera, a company duly licensed as a wholesale and
retail liquor seller, filed for a refund in what it believed was an overpayment,
since it had paid both license fees under Ordinance No. 3358 and ·sales taxes
of its general merchandise under Ordinance Nos. 3634, 3301, and 3816. uo
This Court explained that the fees exacted in Ordinance No. 3358
were different from those exacted in Ordinance Nos. 3634, 3301, and 3816.
Ordinance No. 3358 imposed license fees, which are "for purposes of
regulation, and are justified, considering that the sale of intoxicating liquor
104 .
I
73, Pl).iL 128 (1941) [Per J. Diaz, En Banc].
IDS af
Id. j33 citing26 R. CL., par. 2, page 13.
·106 .Jd_'.Cltil1g61 c. 1., 65.
107
Id. citing25 C. l, 1009.
108 118 Phil. 380 (I 963) [Per J. Dizon, En Banc].
109 at
Id. 383 citing MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p. 26.
110 'Id. ai'381.
~' ..
is, potentially at least, harmful to public health and morals, and must be
subject to supervision or regulation by the state and by. cities and
municipalities authorized to act in the premises." 111 Meanwhile, sales taxes
imposed under the other ordinances were "revenue measures enacted by the
Municipal Board of Manila by virtue of its power to tax dealers for the sale
of such merchandise." 112 Both could be validly imposed on a single entity:
That Tabacalera is being subjected to double taxation ·is· more

apparent than real. As already stated, what is collected under {Jtdi-11.ali.c<e
No. 3358 is a license fee for the privilege of engaging in the sale,ofiiquor\
a calling in which - it is obvious - not anyone or anybody tn:ay fr.eely
engage, considering that the sale of liquor indiscriminately may ,endanger
public health and morals. On the other hand, what the three ordinances
mentioned heretofore impose is a tax for revenue purposes based on the
sales made of the same article or merchandise. It is already settled ·in this
· connection that both a license fee and a tax may be imposed on, the,same
business or occupation, or for selling the same article, this not being in
violation of the rule against double taxation. This is preciselyi the: case
with the ordinances involved in the case at bar. 113 (Citation omitted}. ,;
This Court has likewise explained that the nomenclature in a. statute

given to an exaction is not necessarily indicative of whether it is a tax or a
fee. In Calalang v. Lorenzo: 114
The charges prescribed by the Revised Motor Vehicle Law for the
registration of motor vehicles are in section 8 of that law called "fees".
But the appellation is no impediment to their being considered taxes if
taxes they really are. For not the name but the object of the charge
determines whether it is a tax or a fee. Generally speaking, taxes are for
revenue, whereas fees are exactions for purposes of regulation and
inspection and are for that reason limited in amount to what is necessary to
cover the cost of the services rendered in that connection. Hence, "a
charge fixed by statute for the service to be perfonned by an officer, whe~e
the charge has no relation to the value of the services performed and
where the amount collected eventually finds its way into the treasury of
the branch of the government whose officer or officers collected the
charge, is not a fee but a tax."
From the data submitted in the court below, it appears that the
expenditures of the Motor Vehicle Office are but a small portion -· about
5 per centum - of the total collections from motor vehicle registration
fees. And as proof that the money collected is not intended for the
expenditures of that office, the law itself provides that all such money
shall accrue to the funds for the construction and maintenance of public
roads, ~treets and bridges. It is thus obvious that the fees are not co!lected
for regulatory purposes, that is to say, as an incident to the enforcement -of
regulations governing the operation of motor vehicles on public highways,
for their express object is to provide revenue with which the Government
I
u I Id. at 384. (Citations omitted)
112 Jd. citing MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p. 445.
113 Id. at 384-385 citing Bentley Gray Dry Goods Co. vs. City of Tampa, 137 Fla. 641, !88 So. 758 and
MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p. 83.
114 97 Phil. 212 (1955) [Per J. A. Reyes, En Banc].
is to discharge one of its principal functions - the construction and

maintenance of public highways for everybody's use. They are veritable
ta,xes, riot merely fees. 115
., , J?epublic v. Philippine Bus Lines 116 likewise clarifies that regulatory

fees '.ar_e a manifestation of police power, rather than of taxation:
As distinguished from other pecuniary burdens, the differentiating

: factor is that the purpose to be subserved is the raising of revenue. A tax
then is neither a penalty that must be satisfied or a liability arising from
contract. Much less can it be confused or identified with a license or a fee
. a~ a manifestation of an exercise of the police power. It has been settled
. :i,.;. ,_)aw in this jurisdiction as far back as Cu Unjieng v. Patstone, decided in
:, ·" ' · 1962, that this broad and all-encompassing governmental competence to
' ' 'restrict rights of liberty and property carries with it the undeniable power
to collect a regulatory fee. Unlike a tax, it has not for its objectthe raising
of revenue but looks rather to the enactment of specific measures that
govern the relations not only as between individuals but also as between
private parties and the political society. To quote from Cooley anew:
"Legislation for these purposes it would seem proper to look upon as
being made in the exercise of that authority . . . spoken of as the police
power." 117 (Citations omitted)
. In Progressive Development Corporation v. Quezon City, 118 Quezon

City adopted Ordinance No. 9236, series of 1972, which imposed upon
public market operators a 5% tax on gross receipts on rentals in privately
owned public markets in the city. Progressive Development Corporation,
the operator of Farmers Market & Shopping Center, contested this ta).(,
a)s'.gµiµg that it was a tax on income, which, under the Local Autonomy Act
~ff959, Quezon City had no power to do. 119 ·
This Court held that under the Local Autonomy Act of 1959, local
governments had. "broad taxing authority extending to almost 'everything,
excepting those which are mentioned therein,' provided that the tax levied is
'for public plll-p.oses, just and uniform,' does not transgress any
constitutional provision and is not repugnant to a controlling statute." 120 It
bonclrided that the 5% tax on gross receipts was not a "tax," but a license fee
for the regulation of the business that the payee was engaged in:
To be considered a license fee, the imposition questioned must

relate to an occupation or activity that so engages the public interest in
h.ealth morals safetv and development as to require regulation for the
f
' ' ,
protection and promotion of such public interest; the imposition must also
bear a reasonable relation to the probable expenses of regulation, taking
' 15 Id. at 213-214 citing Cooley on Taxafon. Vol. 1, 4th ed., p. 110.
116 143 Phil. 158 (!970) [Per J. Fernando, En Banc].
:! 7 Id. at 163.
i,s 254 Phil. 635 (1989) [Per J. Feliciano, Third Division].
'n9 Id. 2tt 642-643.
<!o Id: a:! 642. (Citation omitted)
'.:lj ~1t,li_ < , (
.,
,')' :)s·-·;
Decision 21 G.R'. No. 192694
into account not' only the costs of direct regulation but also its incidental
consequences as well. When. an activity, occupation or profession is- of
such a character that inspection or supervision by public officials is
reasonably necessary for the safeguarding and furtherance. of public
health, morals and safety, or the general welfare, the legislature ma9'
provide that such inspection or supervision or other form of regulatfoh
shall be carried out at the expense of the persons engaged . iii such
occupation or performing such activity, and that no one shall engage in the'
occupation or carry out the activity until a fee or charge sufficient to' covet
the cost of the inspection or supervision has been paid. Accor.dingly;i.a
charge of a fixed sum which bears no relation at all to the. cost of
inspection and regulation may be held to be a tax rather than an exercise of
the police power.
In the case at bar, the "Farmers Market & Shopping Cen'\er'ir:was

built by virtue of Resolution No. 7350 passed on 30 January 196'7 b,i
respondents' local legislative body authorizing petitioner to establish .and
operate a market with a permit to sell fresh meat, fish, poultry and· other
foodstuffs. The same resolution imposed upon petitioner, as a condition
for continuous operation, the obligation to "abide by and comply with the
ordinances, rules and regulations prescribed for the establishment,
operation and maintenance of markets in Quezon City."
.The "Farmers Market and Shopping Center" being a public market

in the sense of a market open to and invitfog the patronage of the general
public, even though privately owned, petitioner's operation thereof
required a license issued by the respondent City, the issuance of which,
applying the standards set forth above, was done principally in the
exercise of the respondent's police power. The operation of a privately
owned market is, as correctly noted by the Solicitor General, equivalent to
or quite the same as the operation of a government-owned market; bol!h
are established for the rendition of service to the general public, v,rhiql,
warrants close supervision and control by the respondent City, ·for the
protection of the health of the public by insuring, e.g., the maintenance of
sanitary and hygienic conditions in the market, compliance of all food
stuffs sold therein with applicable food and drug and related standards, for
the prevention of fraud and imposition upon the buying public, and so
forth.
We believe and so hold that the five percent (5%) tax imposed in
Ordinance No. 9236 constitutes, not a tax on income, not a city income tax
(as distinguished from the national income tax imposed by the National
Internal Revenue Code) within the meaning of Section 2 (g) of the Local
Autonomy Act, but rather a license tax or fee for the regulation of the
business in which the petitioner is engaged. While it is true that the
amount imposed by the questioned ordinances may be considered in
deten11ining whether the exaction is really one for revenue or prohibition,
instead of one of regulation under the police power, it nevertheless will be
presumed 'to be reasonable. Local governments are allowed wide
discretion in determining the rates of imposable license fees even in cases /
of purely police power measures, in the absence of proof as to particular
municipal conditions and the nature of the business being taxed as well as
other detailed factors relevant to the issue · of arbitrariness or
m1reasonableness of the questioned rates. 121 (Citations omitted) ,
121
Id. at 643-MS.
The power to tax may also be exercised in the performance of a police

power, if done so to raise revenue. Regulatory fees may still be considered
taxes if their purpose was primarily to generate revenue. In Philippine
Airlines v. Edu: 122
Fees may be properly regarded as taxes even though they also

serve as an instrument of regulation. As stated by a former presiding
judge of the Court of Tax Appeals and writer on various aspects of taxes:
•._;' C ,•
"It is possible for an exaction to be both tax and

regulation. License fees are often looked to as a source of
revenue as well as a means of regulation. This is true, for
example, of automobile license fees. In such case, the fees
may properly be regarded as taxes even though they also
serve as an instrument of regulation. If the purpose is
primarily revenue, or if revenue is at least one of the real
and substantial purposes, then the exaction is properly
called a tax."
Indeed, taxation may be made the implement of the state's police

power.
If the purpose is primarily revenue, or if revenue is, at least, one of

the real and substantial purposes, then the exaction is properly called a
tax. 123 (Citations omitted)
However, taxes that accrue to a special fund, while denominated as

"tax" and may incidentally earn revenue, are not necessarily taxes if the
exaction. was due to a primarily regulatory purpose in the exercise of police
power. In Gaston v. Republic Planters Bank, 124 the issue was whether
stabilization fees levied against sugar producers were in the nature of a levy
in the exercise of the power to tax. This Court held:
The stabilization fees collected are in the nature of a tax, which is

within the power of the State to impose for the promotion of the sugar
industry. They constitute sugar liens. The collections made accrue to a
"Special Fund," a "Development and Stabilization Fund," almost identical
to the "Sugar Adjustment and Stabilization Fund" created under Section 6
of Commonwealth Act 567. The tax collected is not in a pure exercise of
the taxing power. It is levied with a regulatory purpose, to provide means
for the stabilization of the sugar industry. The levy is primarily in the
~xercise of the police power of the State.
"The protection of a large industry constituting one

of the great sources of the state's wealth and therefore
directly or indirectly affecting the welfare of so great a
portion of the population of the State is affected to such m1
extent by public interests as to be within the police power
of the sovereign."
122
247 Phil. 283 (1988) [Per J. Gutie1Tez, Jr., En Banc].
123 Id at 292 .
..'24 242 Phil. 377 (1988) [Per J. Melencio-Herrera, En Banc].
The stabilization fees in question are levied by the State u~on s~~
millers, planters and producers for a special purpose - that of ":fuianci~g
the growth and development of the sugar industry and all its comp,oµen/,,
stabilization of the domestic market including the foreign .market." The
fact that the State has taken possession of moneys pursuant to law is
sufficient to constitute them state funds, even though they are held for a
special purpose. Having been levied for a special purpose, the revenues
collected are to be treated as a special fund, to be, in the languag"' of the
statute, "administered in trust" for the purpose intended. Once the £-H'1/0se
has been fulfilled or abandoned, the balance, if any, is to be transferred to
the general funds of the Government. That is the essence of the trust
intended. 125 (Citations omitted)
This Court resolved a similar issue in Osmena v. Orb()~,i 26 which

resolved whether the Energy Regulatory Board's order to increase pump
prices of petroleum products to answer for the deficits in the. oil price
stabilization fund was in the nature of taxation. This included the issue of
whether the oil price stabilization fund was a tax levied for revenue raising
measures. This Court, however, clarified:
[I]t seems clear that while the funds collected may be referred to as taxes,
they are exacted in the exercise of the police power of the State.'
Moreover, that the OPSF is a special fund is plain from the special
treatment given it by E. 0. 13 7. It is segregated from the general fund; and
while it is placed in what the law refers to as a "trust liability account," the·
fund nonetheless remains subject to the scrutiny and review of the COA.
The Court is satisfied that these measures comply with the constitutional
description of a "special fund." Indeed, the practice is not \lvithout
precedent.
What petitioner would wish is the fixing of some definite,

quantitative restriction, or "a specific limit on how much to tax." The·
Court is cited to this requirement by the petitioner on the premise that
what is involved here is the power of taxation; but as already discussed,
this is not the case. What is here involved is not so much the power of
taxation as police power. Although the provision authorizing the ERB to
impose additional amounts could be construed to refer to the power of
taxation, it cannot be overlooked that the overriding consideration· is to
enable the delegate to act with expediency in carrying out the objectives of
the law which are embraced by the police power of the State. 127 cc· ·
1tat1011
omitted)
Gerochi v. Department of Energy128 summarizes the distinction

between a tax and a fee: f
125 Id. at 382-383.
12' 292-A Phil. 848 (I 993) [Per CJ. Narvasa, En Banc].
127 Id. at 856-857.
1" 554 Phil. 563 (2007) [Per J. Nachura, En Banc].
24 G.R. No. 192694
The power to tax is an incident of sovereignty and is unlimited in

its range, acknowledging in its very nature no limits, so that security
against its abuse is to be found only in the responsibility of the legislature
· which imposes the tax on the constituency that is to pay it. It is based on
the principle that taxes are the lifeblood of the government, and their
prompt and certain availability is an imperious need. Thus, the theory
behind the exercise of the power to tax emanates from necessity; without
taxes, government caimot fulfill its mandate of promoting the general
welfare and well-being of the people.
On the other hand, police power is the power of the state to

promote public welfare by restraining and regulating the use of liberty and
property. It is the most pervasive, the least !imitable, and the most
demai1ding of the three fundamental powers of the State. The justification
, is- found in the Latin maxims salus populi est suprema lex (the welfare of
,;:;. ' ,,:the'people is the supreme law) and sic utere tuo ut alienum non laedas (so
'""''use your property as not to injure the property of others). As an inherent
;:-, ·attribute of sovereignty which virtually extends to all public needs, police
'<I ·,· 'pbwer grai1ts a wide pai1oply of instruments through which the State, as
·•l' p'arens patriae, gives effect to a host of its regulatory powers. We have
' held that the power to "regulate" means the power to protect, foster,
·promote, preserve, and control, with due regard for the interests, first and
· foremost, of the public, then of the utility ai1d of its patrons.
t):x
The conservative and pivotal distinction between these two powers
· rests in the purpose for which the charge is made. If generation of revenue
is the primary purpose and regulation is merely incidental, the imposition
is a tax; but if regulation is the primary purpose, the fact that revenue is
incidentally raised does not make the imposition a tax. 129 (Citations
omitted)
For a fee to be a valid exercise of police power, therefore, the revenue

incidentally generated must not exceed the cost of regulation. In Ferrer v.
Bautista, 130 this Court nullified a Quezon City ordinance imposing a garbage
collection fee, even if it was for a legitimate regulatory purpose, since the
ordinance did not consider "factors that could truly measure the arriount of
wastes generated and the appropriate fee for its collection": 131
Lf.-
]!though a special charge, tax, or assessment may be imposed by _a
•p;iunicipal corporation, it must be reasonably commensurate to the cost ~f
:providing the garbage service. To pass judicial scrutiny, a regulatory fee
:must not produce revenue in excess of the cost of the regulation because
such fee will be construed as an illegal tax when the revenue generated by
\he regulation exceeds the cost of the regulation. 132 (Citations omitted)
Therefore, as a test to determine if an exaction is a fee or a tax, one

rii'tlst look into the purpose of its collection. If the exaction is made to raise /
revenue for the government to discharge its principal functions, the exaction
1s a tax. If the exaction is primarily regulatory, it is a fee, even if it
129 Id. at 579-580.
130 ·762 Phil. 233 (2015) [Per J. Peralta, Jr., En Banc].
131
Id. at.292.
132
Id. at 283.
l'-' . '..' ·[P
Decision 25 G,R. No. 192694
incidentally raises revenue, as long as the revenue generated does not exceed
the cost of regulation. If the revenue exceeds the regulatory costs,jt fa:11 tax.
·. ' ' '·it:" ,' .
In this case, what is involved is the payment of a business pennit

issued by the city mayor. The Local Government Code allows, cities to
"levy the taxes, fees, and charges which the province or munkipality may
impose[.]" 133 Under Section 143 of the Local Government Code,
municipalities may impose taxes on various businesses. Petron Corporation
v. Tiangco 134 explains:
The power of a municipality to impose business taxes derives from

Section 143 of the LGC that specifically enumerates several types of
business on which it may impose taxes, including manufacturers,
wholesalers, distributors, dealers of any article of commerce of whatever
nature; those engaged in the export or commerce of essential commodities;
retailers; contractors and other independent contractors; banks and
financial institutions; and peddlers engaged in the sale of any merchandise·
or article of commerce. This obviously broad power is .furth,er,
supplemented by paragraph (h) of Section 143 which authotizes,J!)~::
sanggunian to impose taxes on any other businesses not othe'i'.wi's?'-
specified under Section 143 which the sanggunian concerned may deem
proper to tax. 135 (Citations omitted) ·
Petron Corporation further explains that the power to impose business

taxes arises from a local government unit's power under the Constitution to
create its own sources of revenue and to levy the appropriate fees and taxes:
This ability of local government units to impose business or other

local taxes is ultimately rooted in the 1987 Constitution. Section 5, Article
X assures that "[eJach local government unit shall have the power to create
its own sources of revenues and to levy taxes, fees and charges," though
the power is "subject to such guidelines and limitations as the Congress
may provide." There is no doubt that following the 1987 Constitution and
the LGC, the fiscal autonomy of local government units has received
greater affirmation than ever. Previous decisions that have been skeptical
of the viability, if not the wisdom of reposing fiscal autonomy to local
government units have fallen by the wayside. 136
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 ex,er9ise of a /
privilege. In Mobil Philippines v. City Treasurer of Makati: 137
133
LOCAL GOVT CODE, sec. l 5 I.
134 574 Phil. 620 (2008) [Per J. Tinga, Second Division].
135
Id. at 632.
136. Id. at 632-633.
137 501 Phil. 666 (2005) [Per J. Quisumbing, First Division].
.Qecision. 26 G.R..No. 192694
Business taxes imposed in the exercise of police power for

·· 'rggulatory purposes are paid for the privilege of carrying on a business in
Cthe year the tax was paid. It is paid at the beginning of the year as a fee to
' · aUow the business to operate for the rest of the year. It is deemed a
· pi'erequisite to the conduct ofbusiness. 138
The confusion is apparent since the imposition of a regulatory fee may

s'orlietime manifest as one for revenue generation. In Procter & Gamble v.
Municipality of Jagna, 139 the Municipality of Jagna had imposed "storage
fees" for the all-exportable copra stored in its bodegas. Procter & Gamble, a
corporation manufacturing "soap, edible oil, margarine[,] and other similar
products," maintained a bodega for the shipment of its copra from Jagna to
its manufacturing areas, and was thus charged with storage fees. 140 The
company questioned this, saying that it was not exporting copra, but was
using its copra to manufacture its products.
,~ , ,:;;Jftis Court held that while the storage fees were in the nature of a
''.license tax," the exaction was for a regulatory purpose, and hence, was in
the exercise of police power:
Under [Section 1 of Commonwealth Act No. 432], a municipality

is authorized to impose three kinds of licenses: (I) a license for regulation
.,{)fuseful occupation or enterprises; (2) license for restriction or regulation
. Cil non-useful occupations or enterprises; and (3) license for revenue. It is
1:l:li.!s unnecessary, as plaintiff wonld have us do, to determine whether the
,. subject storage fee is a tax for revenue purposes or a license fee to
reimburse defendant Municipality for service of supervision because
defendant Municipality is authorized not only to impose a license fee but
also to tax for revenue purposes.
The storage fee imposed under the question Ordinance is actually a

municipal license tax or fee on persons, firms and corporations, like
plaintiff, exercising the privilege of storing copra in a bodega within. the
Municipality's territorial jurisdiction. For the term "license tax" has not
. acquired a fixed meaning It is often used indiscriminately to designate
impositions exacted for the exercise of various privileges. In many
·instances, it refers to "revenue-raising exactions on privileges or
activities."
Not only is the imposition of the storage fee auth01ized by the

general grant of authority under section 1 of CA No. 472. Neither is the
. :.,.~torage fee in question prohibited nor beyond the power of the municipal
: ;,ef,:'oouncils and municipal district councils to impose, as listed in section 3 of
t, .said CA No. 472.
Moreover, the business of buying and selling and storing copra is

prope1iy the subject of regulation within the police power granted to
municipalities under section 2238 of the Revised Administrative Code or
the "general welfare clause[.]" ... I
·1,,, Id. at 672.
tj 9 J 83 Phil. 453 (I 979) [Perl Melencio-Herrera, First Division].
140 ·1d. at'455.
Decision 27 O.R'.No; 192694
For it has been held that a warehouse used for keeping or storing .
copra is an establishment likely to endanger the public safety or likely to ·
give rise to conflagration because the oil content of the copra when ignited
is difficult to put under control by water and the use of chemicals ·is
necessary to put out the fire. And as the Ordinance itself states, all
exportable copra deposited within the municipality is "part of the
surveil!ance and lookout of municipal authorities." 141 (Emphasis supplied,
citations omitted)
Thus, while the power to impose business taxes is rooted in a local

government unit's power to generate its own sources of revenue, the
imposition itself is in the exercise of its police power. Acebedo" Optical
Clinic v. Court ofAppeals 142 further explains: ·
The scope of police power has been held to be so comprehensive

as to encompass almost all matters affecting the health, safety; peace,
order, morals, comfort and convenience of the community. Police power
is essentially regulatory in nature and the power to issue licenses or grant
business permits, if exercised for a regulatory and not revenue-rajsing
purpose, is within the ambit of this power. 143
Business taxes, being a prerequisite to the issuance of mayor's a

permit to conduct business, are only one aspect of the issuance.
Nonpayment of business taxes will surely hinder the issuance of the maror's
permit, but the Local Government Code itself does not prohibit the local
government unit from imposing other conditions before its issuance. In
Acebedo Optical Clinic:
[T]he power to issue licenses and permits necessarily includes the

corollary power to revoke, withdraw or cancel the same. And the power
to revoke or cancel, likewise includes the power to restrict through the
imposition of certain conditions. In the case of Austin-Hardware, Inc. vs.
Court of Appeals, it was held that the power to license carries with it the
authority to provide reasonable terms and conditions under which the.
licensed business shall be conducted. As the Solicitor General puts: it:
If the City Mayor is empowered to grant or refuse to

grant a license, which is a broader power, it stands to
reason that he can also exercise a lesser power that is
reasonably incidental to his express power, i.e. to restrict a
license through the imposition of certain conditions,
especially so that there is no positive prohibition to the
141
exercise of such prerogative by the City Mayor, nor is there •
I
Id. at 459-460.
142
385 Phil. 956 (2000) [Per J. Purisima, En Banc].
143
Id. at 969 citing Procter & Gamble v. Municipality of Jagna, I 83 Phil. 453 (1979) [Per J. Melencio-
Herrera, First Division].
any particular official or body vested with such

authority. 144 (Citations omitted)
_ .. __. _Business "taxes," thus, are a species of license fees that may be
,1,111pose(i by the local government unit. While incidentally revenue-earning,
.foes fo·r a mayor-issued business permit are primarily regulatory, since the
fo·cal · government is not precluded from imposing conditions other than the
payment of business taxes before the permit is issued. Issuances of business
permits are in the exercise of police power.
The question to be resolved, therefore, is whether statutory tax

exemptions apply even to those exactions made in the exercise of police
power.
_ _ Since taxes are the lifeblood of the State, tax exemptions are construed
strictly against the claimant. In Commissioner of Internal Revenue v.
Guerrero: 145
The rule applied with undeviating rigidity in the Philippines is that for a
,J~ exemption to exist, it must be so categorically declared in words that
.admit of no doubt. No such language may be found in the Ordinance. It
furnishes no support, whether express or implied, to the claim of
respondent Administrator for a refund.
From 1906, in Catholic Church vs. Hastings to 1966, in Essa

_Standard Eastern, Inc. vs. Acting Commissioner of Customs, it has beeri
':. {he constant and uniform holding that exemption from taxation is not
: ; davored and is never presumed, so that if granted it must be strictly
loc,·, ,construed against the taxpayer. Affirmatively put, the law frowns on
e)(emption from taxation, hence, an exempting provision should be
. construed strictissimi Juris. The state of the law on the subject was aptly
summarized in the Essa Standard Eastern, Inc. by Justice Sanchez thus:
"The drive of petitioner's argument is that marketing of its gasoline
product 'is corollary to or incidental to its industrial operations.' But this
contention runs smack against the familiar rules that exemption from
taxation is not favored, and that exemptions in tax statutes are never
presumed. Which are but statements in adherence to the ancient rule that
exemptions from taxation are construed in strictissimi Juris against the
taxpayer and liberally in favor of the taxing authority. Tested by this
precept, we cannot indulge in expansive construction and write into the
law an exemption not therein set forth. Rather, we go by the re'asonable
assumption that where the State has granted in express terms certain
exemptions, those are the exemptions to be considered, and no more .... "
In addition to Justice Tracey, who first spoke for this Court in the
Hastings case in aimouncing "the cardinal rule of American jurisprudence
that exemption from taxation not being favored," and therefore "must be
strictly construed" against the taxpayer, two other noted American jurists,
Moreland and Street, who likewise served this Court with distinction,
I
144 Id. at_ 970-971.
145 12&1>hil. 197 (1967) [Per J. Fernando, En Banc].
···c :'.
Decision 29 G.R. No. I 92694
reiterated the doctrine in tenns even more emphatic. According to Justice

Moreland: "Even though the complaint in this regard were well founded, it
would have little bearing on the result of the litigation when we take into
consideration the universal rule that he who claims an exemption from his
share of the common burden of taxation must justify his claim by showing ,
that the Legislature intended to exempt him by words too plain to be
mistaken." From Justice Street: "Exemptions from taxation are highly
disfavored, so much so that they may almost be said to be odious to the
law. He who claims an exemption must be able to point to some positive
provision of law creating the right. It cannot be allowed to exist upon a
vague implication such as is supposed to arise in this case from the
, omission from Act No. 1654 of any reference to liability for taxi', TheV" :, ·
books are full of very strong expressions on this point." 146 (Citations
omitted)
The tax exemption claimed, therefore, must be categorically stated in

any statute or law. This rule becomes stricter with local taxes, 'sinee Section
193 of the Local Government Code provides:
SECTION 193. Withdrawal of Tax Exemption Privileges. -

Unless otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or -controlled corporations, except
local water districts, cooperatives duly registered under R.A. No. 6938,
non-stock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code.
In National Power Corporation v. City ofCabanatuan, 147 the National

Power Corporation, a government-owned and -controlled corporation,
protested the City ofCabanatuan' s assessment of franchise tax, arguing that
it was a tax-exempt entity. This Court, in finding that the levy of franchise
tax was proper, first pointed out that under Section 137 of the Local
Government Code, a local government unit may levy franchise taxes
"[n]otwithstanding any exemption granted by any law or other special
law." 148 This Court explained:
In its general signification, a franchise is a privilege conferred by

government authority, which does not belong to citizens of the country
generally as a matter of common right. In its specific sense, a franchise
may refer to a general or primary franchise, or to a special or secondary
franchise. The former relates to the right to exist as a corporation, by
virtue of duly approved articles of incorporation, or a charter pnrsuant to a
146
147
148
id. at 200-202.
449 Phil. 233 (2003) [Per J. Puno, Third Division].
LOCAL GOVT. CODE, sec. 13 7 states:
I
SECTION 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other special
law, the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty
percent (50%) of one percent (I%) of the gross annual receipts for the preceding calendar year based
on the incoming receipt, or realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent
(I%) of the capital investment. In the succeeding calendar year, regardless of when the business started
to operate, the tax shall be based on the gross receipts for the preceding calendar year, or any fraction
thereof, as provided herein.
Special law creating the corporation. The right under a primary or general
franchise is vested in the individuals who compose the corporation and not
in. the corporation itself. On the other hand, the latter refers to the right or
, .privileges conferred upon an existing corporation such as the right to use
· the streets of a municipality to lay pipes of tracks, erect poles or string
wires. The rights under a secondary or special franchise are vested in the
corporation and may ordinarily be conveyed or mortgaged under a general
power granted to a corporation to dispose of its property, except such
special or secondary franchises as are charged with a public use.
In section 13 I (in) of the LGC, Congress unmistakably defined a

franchise in the sense of a secondary or special franchise. This is to avoid
any confi1sion when the word fi'anchise is used in the context of taxation.
· As commonly used, a franchise tax is "a tax on the privilege of transacting
· · business in the state and exercising corporate franchises granted by the
state. " It is not levied on the corporation simply for existing as a
corporation, upon its property or its income, but on its exercise of the
rights or privileges granted to it by the government. Hence, a corporation
need not pay franchise tax from the time it ceased to do business and
exercise its franchise. It is within this context that the phrase "tax on
·businesses enjoying a franchise" in section 137 of the LGC should be
interpreted and understood. Verily, to determine whether the petitioner is
covered by the franchise tax in question, the following requisites should
concur: (1) that petitioner has a "franchise" in the sense of a secondary or
special franchise; and (2) that it is exercising its rights or privileges under
this franchise within the territory of the respondent city govemment. 149
(Emphasis supplied, citations omitted)
, While this Court did not explicitly state that a franchise tax under the
Local ···Government Code was in the exercise of police power, it
. unmistakably delineates the context by which the exaction was being
levied-while termed "franchise tax," it was not a levy on the corporation's
existence, or on its property or income, but on the exercise of a privilege. Its
regulatory purpose became even clearer as this Court observed:
. Doubtless, the power to tax is the most effective instrument to raise

needed revenues to finance and support myriad activities of the local
government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace, progress,
and prosperity of the people. As this Court observed in the Mactan case,
"the original reasons for the withdrawal of tax exemption privileges
granted to govermnent-owned or controlled corporations and all other
units of government were that such privilege resulted in serious tax base
erosion and distortions in the tax treatment of similarly situated
enterprises." With the added burden of devolution, it is even more
imperative for government entities to share in the requirements of
development, fiscal or otherwise, by paying taxes or other charges due
from them. 150 (Citation omitted)
I
149
National Power Corporation" City of Cabanatuan, 449 Phil. 233, 251-253 (2003) [Per}. Puna, Third
,,.Divis.ion].
150 "!ct. at261-262.
Since exactions levied by the local government unit under the power
of taxation are of a different legal concept from those levied in the exercise
of police power, they should also be treated differently when it comes to tax
exemptions under any statute.
,, ii,
Thus, "local taxes" in the context of tax exemption statutes should

only refer to those taxes levied by the local government unit primarily for
revenue generation. Exactions made in the exercise of police power, that is,
fees or "taxes" levied for a primarily regulatory purpose, are not focludel in
the exemption, unless the statute categorically provides otherwi~e. License
fees and business permit fees, therefore, are not "local taxes" irt tax
exemption statutes.
(",.
III
The mayor's permit fee is not a tax that establishments within the
John Hay Special Economic Zone are exempt from paying.
Republic Act No. 7227, or the Bases Conversion and Development

Act of 1992, created petitioner Authority. Section 15 151 of the law
authorized the president to create special economic zones in Camp John Hay
in Baguio City. Under Executive Order No. 103, series of 1993, the John
Hay Development Corporation-later renamed as John Hay Poro Point
Development Corporation, then John Hay Management Corporation-was
formed as a subsidiary of petitioner Authority to manage the forrri.er Camp
John Hay, 152 and whose powers and functions would be determined by
petitioner Authority. 153
Under Proclamation No. 420, series of 1994, the president created the
John Hay Special Economic Zone over a portion of Camp John Hay; Section
3 had stated that "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 InvestmentActof 1991, and
new investment laws that may hereinafter be enacted." 154
151
Republic Act No. 7227 (1992), sec. 15 states in part:
SECTION 15. Clark and Other Special Economic Zones. -
.. . .
...
I
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.
152
Executive Order No. 103 (1993), sec. l.
153
Executive Order No. l 03 (] 993), sec. 2.
154
Proclamation No. 420 (1994), sec. 3 states:
SECTION 3. Investment Climate in John Hay Special Economic Zone. -- Pursuant to Sections 5 (m)
Section l 5 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
John Hay Peoples Alternative Coalition v. Lim, 155 however, nullified

the .second sentence of Proclamation No. 420, Section 3, explaining:
As gathered from the earlier-quoted Section 12 of R.A. No. 7227,

the privileges given to Subic SEZ consist principally of exemption from
tariff or customs duties, national and local taxes of business entities
therein (paragraphs (b) and (c)), free market and trade of specified goods
or properties (parngraph d), liberalized banking and finance (paragraph f),
and relaxed immigration rules for foreign investors (paragraph g). Yet,
apart from these, Proclamation No. 420 also makes available to the John
Hay SEZ benefits existing in other laws such as the privilege of export
processing zone-based businesses of importing capital equipment and raw
juaterials free from taxes, duties and other restrictions; tax and duty
exemptions, tax holiday, tax credit, and other incentives under the
Omnibus Investments Code of 1987; and the applicability to the subject
,,1/ zone of rules governing foreign investments in the Philippines.
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 the John Hay SEZ cannot be sustained. The incentives under
R.A. No. 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, which laws were
already extant before the issuance of the proclamation or the enactment of
R.A. No. 7227.
More importantly, the nature of most of the assailed privileges is

one of tax exemption. 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 inay
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

Constitution's imposition that a law granting any tax exemption must have
the concurrence of a majority of all the members of Congress. In the same
vein, the other kinds of privileges extended to the John Hay SEZ are by
tradition and usage for Congress to legislate upon.
Contrary to public respondents' suggestions, 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
I
and unmistakably expressed.
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.
155 4·60 Phil. 530 (2003) [Per J. Carpio Morales, En Banc].
Ifit 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 wonlti
have so expressly provided in the R.A. No. 7227. 156 (Emphasis'supplr.b1al;
c1·1a1·10ns om1·tte d) · .,. .... .·•'"':,-
,....
To cushion the effects of John Hay Peoples Alternative Coalition,

Congress enacted two laws: Republic Act No. 9399 and Republic Act No.
9400. Republic Act No. 9399 provided a one-time tax amnesty to all
registered business enterprises operating within special economic zones
before the law took effect. 157
'~ ,.,.,.,
Republic Act No. 9400 sought to account for the gaps in Republic Act
No. 7227 as to the John Hay Special Economic Zone by, as pointed out in
John Hay Peoples Alternative Coalition, amending several portions of
Republic Act No. 7227: · ·
SECTION 5. A new Section 15-C is hereby inserted, amending

Republic Act No. 7227, as amended, to read as follows:
"Sec. 15-C. John Hay Special Economic Zone (JHSEZ). -

Registered business enterprises which will operate after the effectivity of .
this Act, within the JHSEZ created under Proclamation No. 420,. series of
1994, shall be entitled to the same tax and duty incentives as provided for
under Republic Act No. 7916, as amended: Provided, That for thepurpose
of administering these incentives, the PEZA shall register, regul3;te, :ai\A'
supervise all registered enterprises within the JHSEZ: Provideq; ~~~-: I:,~,
That the Conversion Authority and the John Hay Management :,
Corporation (JHMC) shall only engage in acquiring, owning, holding,
administering or leasing real properties, and in other activities incidental
thereto."
156
157
Id. at 550-552.
Republic Act No. 9399 (2007), sec. I states:
SECTION I. Grant of Tax Amnesty. - Registered business enterprises ope1iti"nfprfor to the
effectivity of this Act within the special economic zones and freeports created pursuant to SEC 15 of
I
Republic Act No. 7227, as amended, such as the Clark Special Economic Zone created under
Proclamation No. 163, series of 1993; Poro Point Special Economic and Freeport Zone created under
Proclamation No. 216, series of 1993; John Hay Special Economic Zone created under Proclamation
No. 420, series of 1994; and Morang Special Economic Zone created under Pioclamat'.ion No. 984,
series of 1997, may avail themselves of the benefits of remedial tax amnesty herein granted on all
applicable tax and duty liabilities, inclusive of fines, penalties, interests and other ad9:itions thereto,
incurred by them or that might have accrued to them due to the rulings of the Supreme Court in the
cases of John Hay People's [sic] Coalition v. Lim, et al., G.R. No. 119775 dated 23 October 2003 and
Coconut Oil Refiners Association, Inc. v. Torres, et al., G.R. No. 132527 dated 29 July 2005, by filing a
notice and return in such form as shall be prescribed by the Commissioner of Internal Revenue and the
Commissioner of Customs and thereafter, by paying an amnesty tax of Twenty-five thousand pesos
(P25,000.00) within six months from the effectivity of this Act: Provided. That the applicable tax and
duty liabilities to be covered by the tax amnesty shall refer only to the difference between: (i) ali
national and local tax impositions under relevant tax laws, rules and regulations; and (ii) the five
percent (5%) tax on gross income earned by said registered business enterprises as determined under
relevant revenue regulations of the Bureau of Internal Revenue and memorandum circuJars of the
Bureau of Customs during the period covered: Provided, however, That the. coverage 9f the tax
amnesty herein granted shaJI not include the applicable taxes and duties on articles, raw__materials,
capital goods, equipment and consumer items removed from the special economic zone and freeport
and entered in the customs ten-itory of the Philippines for local or domestic sale, ~h.ich shaII·be subject
tci the usual taxes and duties prescribed in the National Internal Revenue Code (NIRC) of 1997, as
amended, and the Tariff and Customs Code of the Philippines, as amended.
SECTION 6. In case of conflict between national and local laws

with respect to the tax exemption privileges in the CFZ, PPFZ, JHSEZ and
MSEZ, the same shall be resolved in favor of the aforementioned zones:
Provided, That the CFZ and PPFZ shall be subject to the provisions of
paragraphs (d), (e), (f), (g), (h), and (i) of Section 12 of Republic Act No.
7227, as amended.
SECTION 7. Business enterprises presently registered and granted

with tax and duty incentives by the Clark Development Corporation
(CDC), Poro Point Management Corporation (PPMC), JHMC, and Bataan
Technological Park Incorporated (BTPI), including such governing bodies,
shall be entitled to the same incentives until the expiration of their
· contracts entered into prior to the effectivity of this Act. (Emphasis
supplied)
· Tax exemptions for establishments operating within a special

econo1nic zone are provided for in Republic Act No. 7916, or the Special
Economic Zone Act of 1995, as amended. Section 24 provides:

Revenue Code. -Any provision of existing laws, rules and regulations to
the contrary notwithstanding, no taxes, local and national, shall be
imposed on business establishments operating within the ECOZONE. In
lieu of paying taxes, five percent (5%) of the gross income earned by all
businesses and enterprises within the ECOZONE shall be remitted to the
national govermnent. This five percent (5%) shall be shared and
distributed as follows:
(b) One percent (I%) to the local government units affected by the
land area, and equal sharing factors; and
(c) One percent (1 %) for the establishment of a development fund

to be utilized for the development of municipalities outside; and
determined on the basis of the following formula:
(1) Population -fifty percent (50%);
(2) Land area-twenty-five percent (25%); and
(3) Equal sharing -twenty-five percent (25%). 158
158 This has since been amended by Republic Act No. 8748 (1999). The provision now states:
SECTION 24. Exemption from National and Local Taxes. - Except for real property taxes on land
I
owned by developers, no taxes, local and national, shall be imposed on business establishments
operating within the ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all
· business enterprises within the ECOZONE shall be paid and remitted as follows:
a. Three percent (3%) to the National Government;
b. Two percent (2%) which shall be directly remitted by the business establishments to the treasurer's
office of the municipality or city where the enterprise is located.
The amended provision, however, is inapplicable in this case since Section 50 of the law limits its
application to economic zones created after Republic Act No. 7227:
• '•' ~--, 4 ,· '
Decision 35 ·. (IR:No.192694
·1 ;.,·, .Jr -re··. jF
The controversy in this case arose from respondent's issuance of

Administrative Order No. 102, series of 2009, 159 creating the ,John Hay
Special Economic Zone Task Force to implement City Tax Ordipance No.
2000-001. 160 The Ordinance required establishments inside~~_gui~ City to
secure business permits or licenses from the city government, including
those within the John Hay Special Economic Zone. Petitioner Authority
argues that the Ordinance requires it to pay business taxes, mayor's permit
fees, and other charges before a business permit may be issued, running
counter to Republic Act No. 7916, which exempts it from paying local tax.
Section 2(D) of the Ordinance partly reads:
D) ISSUANCE OF PERMIT: CONTENTS. - Every permit or license

required and authorized by this Ordinance shall be issued by the City
Mayor and the City Treasurer on a prescribed form before the business,
trade, calling or amusement may be commenced and upon payment of the
corresponding business tax, Mayor's permit fee, and such other f1ee or .·
charge provided for in this Ordinance. 161
As previously discussed, "local taxes" within the context of tax

exemption statutes only refer to those exactions made primarilyf(!)rJ_evenue
generation. It does not include any other "taxes" and fees that may ,l;lfe lev,ied
for a primarily regulatory purpose. ' · il' ·
Taxes, fees, and charges for business permits within Baguio City are
regulatory in nature. The purpose of requiring a business permit is outlined
in. Section 2(A) of City Tax Ordinance No.2000-001, which states:
A) REQUIREMENTS. - For the proper enforcement of existing laws

and ordinances and the supervision of businesses, trades, amusements and
others in Baguio City, it shall be unlawful for any person to engage in any
such business, trade, amusement and others of similar nature or have in
their possession any of the articles or commodities intended for sale,
exchange, storage, or display without first obtaining a pe~tt and paying
the taxes, fees, and such other charges required therefor. (Emphasis
supplied)
Fees for the issuance of a business permit are also of minimal amounts
and could not possibly be for revenue generation. Section 18 of City Tax
Ordinance No. 2000-001 provides for the rates of the mayor's permit fee on
business: ;(
','·;, ·, ·"i. :;:.;
SECTION 50. Non-Applicability on Areas Covered by Republic Act No. 7227. __:.,This .il:ft shall not
be applicable to economic zones and areas already created or to be created under Repub11c Act No.
7227 or other special Jaws. and governed by authorities constituted pursuant thereto.
159
Rollo, pp. 161-163,
160 Ict.· at 442--452.
161 Id. at 454.
162
Id. at 453.
Decision
' I :
36 G.R. No. 192694
t.n,c:. SECTION 18. MAYOR'S PERMIT FEE ON BUSINESS. -
Unless specifically provided in this Ordinance, the fees for the

issuance of Mayor's Permit for the operation of a business or in the pursuit
of a profession or calling shall be based on the amount of the tax or fee
paid by the taxpayer, as follows:
When the tax per annum is: Annual Fee

Less than P300.00 PS0.00
P301.00 or more but less than P500.00 P75.00
P501.00 or more but less than Pl,000.00 Pl25.00
Pl,001.00 or more but less than P2,000.00 P200.00
P2,001.00 or more but less than P3,000.00 P275.00
P4,001.00 or more but less than PS,000.00 P450.00
P8,001.00 or more but less than Pl 0,000.00 P950.00
Over Pl 0,000.00 · Pl,000.00 163
· Republic Act No. 7916 grants the Philippine Economic Zone

Aµthprity the power to register, regulate, and supervise the enterprises
wi.thin the special economic zone. Section 13(b) states:
SECTION 13. General Powers and Functions of the Authority .. -

The PEZA shall have the following powers and functions:
(b) To register, regulate and supervise the enterprises m the

ECOZONE in an efficient and decentralized manner[.]
In the exercise of its regulatory power, the Philippine Economic Zone

Authority issued Memorandum Circular No. 2004-024, which states that all
its registered locator enterprises entitled to fiscal incentives are exempted
from having to secure permits from the local government units. 164
According to the Philippine Economic Zone Authority, 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. 165 All 26 locators 166 ordered by respondent to secure business
permits .were not entities registered with the Philippine Economic Zone
Authority.
,'-.
Petitioner Authority insists that it was authorized to establish the One I

163
Id. ~1488.
164
ld.at518.
165
Id. at 397.
166
Id. at 224-247.
_.,,,.,~e.r.s - , ;;:;
Stop Action Center for the issuance of permits within .then,John• Hay
· z
E. .conomic 167 · . ,. . ..
one. Republic Act No. 9400, however, provides:, '/..· ·.:u ir:- :
· SECTION 5. A new Section 15-C is hereby inserted, amending

Republic Act No. 7227, as amended, to read as follows: • ..
"Sec. 15-C. John Hay Special Economic Zone (JHSEZ). -

Registered business enterprises which will operate after the effectivity of
this Act, within the JHSEZ created under Proclamation No. 420, series of
1994, shall be entitled to the same tax and duty incentives as provided for
under Republic Act No. 7916, as amended: Provided, That for the purpose
of administering these incentives, the P EZA shall register, regulate, and
supervise all registered enterprises within the JHSEZ: Provided, farther,
That the Conversion Authority and the John Hay Mana.gement
Corporation (JHMC) shall only engage in acquiring, owning, holding,
administering or leasing real properties, and in other activities incidental
thereto." (Emphasis supplied) ··
The law clearly states that the Philippine Economic Zon(\Alit~~rity is

the entity authorized to "register, regulate, and supervise." Pe~itioµ~r-9 "shall
only engage in acquiring, owning, holding, administering or leasing real
properties, and in other activities incidental thereto." 168
Indeed, only government entities possessing legislative powers can

exercise police power. In Metro Manila Development Authority v. Garin: 169
[P]olice power, as an inherent attribute of sovereignty, is the power vested

by the Constitution in the legislature to make, ordain, and establish all
manner of wholesome and reasonable laws, statutes and ordinances, either
with penalties or without, not repugnant to the Constitution, as they shall
judge to be for the good and welfare of the commonwealth, and for the
subjects of the same.
Having been lodged primarily in the National Legislature, it cannot

be exercised by any group or body of individuals not possessing
legislative power. The National Legislature, however, may delegate this
power to the president and administrative boards as well as the lawmaking
bodies of municipal corporations or local government units (LGUs). Once
delegated, the agents can exercise only such legislative powers as are
confe1Ted on them by the national lawmaking body.
Our Congress delegated police power to the LGUs in the. Local

Government Code of 1991. A local government is a "political subdivision
of a nation or state which is constituted by law and has substantial control
of local affairs." Local government units are the provinces, cities,
municipalities and barangays, which exercise police power throu1sh their
respective legislative bodies. 170 (Citations omitted) · · •. · ~•
167
Id. at 649.
168
Republic Act No. 9400 (2007), sec. 5.
169
496 Phil. 82 (2005) [Per J. Chico-Nazario, Second Division].
170
Id. at 91-92.
, .· Unless specifically stated in the statute creating it, a development

authority such as petitioner Authority is not automatically granted legislative
po,y.rer. simply by virtue of its creation. In Metro Manila Development
Authority v. Bel-Air Village Association, 171 this Court explained that the
Metro_ Manila Development Authority was not imbued by its charter to
s\xerci'se police power or any form of legislative power:
It will be noted that the powers of the MMDA are limited to the
following acts: formulation, coordination, regulation, implementation,
preparation, management, monitoring, setting of policies, installation of a
system and administration. There is no syllable in R.A. No. 7924 that
grants the MMDA police power, let alone legislative power. Even the
· Metro Manila Council has not been delegated any legislative power.
Unlike the legislative bodies of the local government units, there is no
provision in R.A. No. 7924 that empowers the MMDA or its Council to
"enact ordinances, approve resolutions and appropriate funds for the
general welfare" of the inhabitants of Metro Manila. The MMDA is, as
termed in the charter itself, a "development authority." It is an agency
created for the purpose of laying down policies and coordinating with the
various national govermnent agencies, people's organizations, non-
governmental organizations and the private sector for the efficient and
. expeditious delivery of basic services in the vast metropolitan area. All its.
D, · iL functions are administrative in nature and these are actually summed up in
the charter itself1.J 172 (Citation omitted)
'R:epublic Act No. 7227 created pet1t1oner Authority as a body

cotporate vested with corporate powers, 173 specifically:
/1:i-'.L:;-·._.;, ·,-- •"
·~X-- .· ... SECTION 5. Powers of the Conversion Authority. -To carry out its
objectives under this Act, the Conversion Authority is hereby vested with
the following powers:
(a) To succeed in its corporate name, to sue and be sued in such

corporate name and to adopt, alter and use a corporate seal
which shall be judicially noticed
(b) To adopt, amend and repeal its bylaws;
(c) To enter into, make, perform and carry out contracts of every
class, kind and description which are necessary or incidental to
the realization of its purposes with any person, firm or
corporation, private or public, and with foreign government
entities;
(d) To contract loans, indebtedness, credit and issue commerc.ial

papers and bonds, in any local or convertible foreign currency
from any international financial institutions, foreign
government entities, and local or foreign private commercial
banks or similar institutions under terms and conditions
prescribed by law, rules and regulations;
otr3sKPh'1L 586 (2000) [Perl. Puno, First Division].

I
it, 'rd. at'607--008.
l.)J ;Repub!lcActNo. 7227 (1992), sec. 3.
' ]1':
Decision 39 G.R: ,No.·'192694

: ·~ l
(e) To execute any deed of guarantee, mortgage, pledge, trust or

assignment of any property for the purpose of financing the
programs and projects deemed vital for the early attainment of
its goals and objectives, subject to the provisions of Article
VII, Section 20, and Article XII, Section 2, paragraphs (4) and
(5) of the Constitution;
(f) To construct, own, lease, operate and maintain public utilities

as well as infrastructure facilities;
(g) To reclaim or undertake reclamation projects as it may deem

necessary in areas adjacent or contiguous to the Conversion
Authority's lands described in Section 7 of this Act either by
itself or in collaboration with the Public Estates Authority
(PEA) established under Presidential Decree No. ;cd{t84pa:s
amended;
(h) To acquire, own, hold, administer, and lease real and personal
properties, including agricultural lands, property rights ,md ' ·
interests and encumber, lease, mortgage, sell, alien.ate-_ f)lt,
otherwise dispose of the same at fair market value it may, deem- .
d., •,• ;_·~,,
appropriate;
· . •:• ~, ·'; ~, · '-lD. '.
(i) To receive donations, grants, bequests and assistance ,tif. all' '
kinds from local and foreign government and private sectors
and utilize the same;
(j) To invest its funds and other assets other than those of the
Special Economic Zones under Sections 12 and 15 of this Act
in such areas it may deem wise;
(k) To exercise the right of eminent domain;
(I) To exercise oversight functions over the Special Economic

Zones declared under this Act and by subsequent presidential
proclamations within the framework of the declared policies of
this Act;
(m) To promulgate all necessary rules and regulations; and
(n) To perform such other powers as may be necessary and_ pro11er-

to carry out the purposes of this Act.
While pet1t1oner Authority's charter permits it to "promulgate all

necessary rules and regulations[,]" 174 these rules and regulations must be in
relation to and in the exercise of its corporate powers. Republic Act No.
9400 explicitly states that petitioner Authority "shall only engage in
acquiring, owning, holding, administering or leasing real propert}es, ,and in
other activities incidental thereto" 175 within the John Hay Special
Zone.
Economic
-. ' . ,
I
174
Republic Act No. 7227 (I 992), sec. 5.
175
Republic Act No. 9400 (2007), sec. 5.
·In Chevron Philippines v. Bases Conversion and Development

:;:YJ.uthofity, 176 Chevron Philippines (Chevron) challenged Clark Development
Gorpbration's imposition of royalty fees on its fuel deliveries to a locator
iriside the Clark Special Economic Zone. Chevron argued that nothing in the
·faw authorized Clark Development Corporation to charge such fees. This
Court, in resolving that the royalty fees were a regulatory fee in the exercise
of police power, explained:
· . Being the administrator of CSEZ, the responsibility of ensuring the safe,

· efficient and orderly distribution of fuel products within the Zone falls on
CDC. Addressing specific concerns demanded by the nature of goods or
products involved is encompassed in the range of services which
respondent CDC is expected to provide under the law, in pursuance of its
general power of supervision and control over the movement of all
supplies and equipment into the CSEZ.
Section 2 of Executive Order No. 80 provides:
SEC. 2. Powers and Functions of the Clark

Development Corporation. - The BCDA, as the
incorporator and holding company of its Clark subsidiary,
shall determine the powers and functions of the CDC.
Pursuant to Section 15 of RA 7227, the CDC shall have the
specific powers of the Export Processing Zone Authority as
provided for in Section 4 of Presidential Decree No. 66
...,j : ( 1972) as amended.
r:
,.,,
..
;,,
,'."1
Among those specific powers granted to CDC under Section 4 of
'P\-esidential Decree No. 66 are: ·
(a) To operate, administer and manage the

export processing zone established in the Port of Mariveles,
Bataan, and such other export processing zones as may be
established under this Decree; to construct, acquire, own,
lease, operate and maintain infrastructure facilities, factory
building, warehouses, dams, reservoir, water distribution,
electric light and power system, telecommunications and
transportation, or such other facilities and services
necessary or useful in the conduct of commerce or in the
attainment of the purposes and objectives of this Decree;
(g) To fix, assess and collect storage charges and

fees, including rentals for the lease, use or occupancy of
lands, buildings, structure, warehouses, facilities and other
properties owned and administered by the Authority; and to
fix and collect the fees and charges for the issuance of
permits, licenses and the rendering of services not
enumerated herein, the provisions of law to the contrary
notwithstanding;
176
. 645.PhiL 84 (20 I 0) [Per J. Villarama, Jr., Third Division].
(h) For the due and effective exercise of the

powers conferred by law and to the ... [extent] requisite
therefor, to exercise exclusive jurisdiction and sole police
authority over all areas owned or administered by the
Authority. For this purpose, the Authority shall have
supervision and control over the bringing in or taking out of
the Zone, including the movement therein, of all cargoes,
wares, articles, machineries, equipment, supplies or
merchandise of every type and description[.] 177 (Citation
omitted)
In contrast, nothing in Executive Order No. 103, series. 1993, ~f

authorizes petitioners to exercise exclusive jurisdiction and sole police
authority over all areas owned or administered by petitioner Authority. It
merely states:
·:.'.·tn
;,\"
. . SECTION l. Creation of John Hay Development CorponJ1:\Q,P;,j-· <J-.
A body corporate to be known as the John Hay Development Corporation
(JHDC) is hereby authorized to be formed as the operating ~d >.· '
implementing arm of the BCDA to manage the Club John Hay, fomierly •.
known as the John Hay Air Station or Camp John Hay.
The JHDC shall be a subsidiary corporation of the BCDA and shall

be formed in accordance with Philippine Corporation Law and existing
rules and regulations promulgated by the Securities and Exchange
Commission pursuant to Section 16 of RA 7227.
The JHDC shall be subject to the policies, rules and regulations of

the BCDA.
SECTION 2. Powers and Functions of the John Hay Development

Corporation. - The BCDA, as the incorporator and holding company of
its John Hay subsidiary, shall determine the powers and functjons of
JHDC.
The JHDC shall be exempt from the coverage of the Civil Service
laws, rules and regulations.
No statute authorizes petitioners to issue pennits or .regulate

businesses inside the John Hay Special Economic Zone. Neither can they
invoke the powers granted only to the Philippine Economic Zone Authority.
Without an express grant by law, respondent's police power prevails .. Thus,
locators within the John Hay Special Economic Zone not duly registered
with the Philippine Economic Zone Authority are liable to pay business
permit fees to respondent.
IV
Respondent did not waive its right to collect its income allocations or
177
Id. at 93-94.
to levy its regulatory fees when its Sangguniang Panlungsod passed

Resolution No. 362, series of 1994. Nor did it do so when it agreed to the
Memorandum of Agreement over Baguio Convention Center between it and
\petitioner Authority, as well as the Government Service Insurance System.
. Condition 9 of Resolution No. 362 provided for an equitable ·sharing

' '~gieen\.ent between petitioner Authority and respondent from the gross
income of operations within the John Hay Special Economic Zone. The
income apportionment was divided as follows: 3% for the national
government, 3% for the Baguio City government, and 1% for the community
development fund. Condition 10, meanwhile, states that petitioner Authority
1, ., ::shall also allocate 25% of John Hay Poro Point Development Corporation's
i~~se rentals or 30% of its net income from operations within the special
economic zone, whichever is higher, to be used for development projects.
Republic Act No. 7916, however, effectively amended the income

apportionments to account for the tax exemptions to be enjoyed by
establishments within the John Hay Special Economic Zone. Only 5% of
the businesses' gross income shall be remitted to the national government:

· Revenue Code. - Any provision of existing laws, rules and regulations to
.. the contrary notwithstanding, no taxes, local and national, shall be
. imposed on business establishments operating within the ECOZONE. In
Jieu of paying taxes, five percent (5%) of the gross income earned by all
businesses and enterprises within the ECOZONE shall be remitted to the
national government. This five percent (5%) shall be shared and
?istributed as follows:
(b) One percent ( 1%) to the local government units affected, by the
land area, a11d equal sharing factors; and
(c) One percent (1 % ) for the establishment of a development fund

to be utilized for the development of municipalities outside and
determined on the basis of the following fonnula:
(I) Population- fifty percent (50%);
(2) Land area -twenty-five percent (25%); and
(3) Equal sharing - twenty-five percent (25%). (Emphasis

supplied)
As earlier discussed, any local tax exemption enjoyed by duly

regist€red establishments under this provision only refers to local taxes
imposed in the exercise of taxation power. Exemptions for any exaction
I
levied in the exercise of police power are excluded.
Instead of paying national and local taxes, businesses and enterprises

within the John Hay Special Economic Zone must remit 5% .of their total
gross income to the national government, I% of which would be used for the
development of the municipality contiguous to the economic zone. ·1.
._ n
By petitioner Authority's admission, priority and other related projects

of respondent called the BLIST (Baguio, La Trinidad, Itogon,Sablan, and
Tuba) Projects were financed by it from the proceeds of the Zeds/rentals it
received from its registered locator, Camp John Hay Development
Corporation, not from the 1% of the 5% gross income of its locators within
the John Hay Special Economic Zone. 178 Likewise, petitioner' ·,Authority
voluntarily entered into a Memorandum of Agreement 179 for the purcha'se of
the Baguio Convention Center on respondent's behalf by using 25% of the
lease rentals it received from Camp John Hay:
WHEREAS, BCDA has agreed to assist the City Government in

the acquisition, repair and rehabilitation of the Baguio Convention Center
from the 25% share in the lease payments from the developer of Camp
John Hay. 180
Condition 10 of Resolution No. 362 explicitly states:
10. ADDITIONAL EARNINGS FOR THE CITY GOVERNMENT
In addition to the above-cited provision, the BCDA shall allocate 25%

from JPDC's lease rentals, or 30% from JPDC's net income from all
operations within the Zone, whichever is higher, at any given time during
the lease period to be used for development projects such as b,asic
infrastructure, socialized housing, peace and order measures and •
environmental preservation under the joint management of the JPDC and
the Baguio City Government. 181
Thus, petitioner Authority categorically committed to allocate, in

addition to the income allocation provided by law, 25% of its locators' lease
rentals for respondent's development projects. It likewise voluntarily
committed to using 25% of the lease rentals for the purchase of Baguio
Convention Center on respondent's behalf.
Republic Act No. 7916, Section 24 mandates that 5% of the gross

income shall be remitted to the national government in lieu of taxes. Only
I
1% of the 5% remittance would be allocated for the local government unit
i7s Rollo, p. 633.

179 Id. at 394-396.
180
Id. at 394.
181 Id. at 148.
and another 1% of the 5% would be allocated for the local government unit's
development projects. Petitioner Authority, however, agreed to pay 25% of
its total lease rentals from the John Hay Special Economic Zone, or more
that 1% of 5% to Government Service Insurance System for the purchase of
the Baguio Convention Center on respondent's behalf.
Considering that petitioner Authority's income-sharing arrangement

with respondent was not that which was contemplated by law, it is. deemed
:to have voluntarily entered into the agreement. Because it agreed to help
with the acquisition, it cannot now refuse to comply with a valid regulatory
issuance of respondent.
ACCORDINGLY, the Petition is DENIED for lack of merit. The

May 13, 2010 Decision and June 24, 2010 Order of the Regional Trial Court
in Civil Case No. 7124-R are AFFIRMED. Only business enterprises
"W:ithhi. the John Hay Special Economic Zone that are registered with the
0
:Phltippine Economic Zone Authority shall enjoy the tax and duty exemption
privileges under Republic Act No. 7916 and Republic Act No. 9400. All
unregistered business enterprises within the John Hay Special Economic
Zone shall pay all relevant national and local taxes, duties, and fees as may
be imposable under national and local laws.
SO ORDERED.
Senior Associate Justice
. .-,
WE'C'ONCUR:
iL~
AZ.<¥RO-JAVIER
ociate Justice
JHOSE~OPEZ
Associate Justice
~~<-...._
----- ~ffiNfo T. KHO, JR. ------------
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion a"f the
Court's Division. ·
Senior Associate Justice

Chairperson
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution and the

Division Chairperson's Attestation, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Court's Division.
A .GESMUNDO
,,.
.,_;_,

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BASES CONVERSION AND G.R. No.

The payment of fees for the issuance of business permits is regulatory

This Court resolves a Petition for Review on Certiorari 1 assailing the

.City Administrative Order No. 102, series of 2009. 4 Administrative Order

L, ',,,,:,Earlier, on July 5, 1994, then President Fidel V. Ramos had issued

SECTION 3. Investment Climate in Jolm Hay Special Economic

ARTICLE 78. Additional Incentives. - A zone registered

(a) Exemption from Local Taxes and Licenses.

In line with Proclamation No. 420, the Baguio City government's

S•angguniang Panlungsod passed Resolution No. 362, series of 1994, 15

On February 24, 1995, Congress enacted Republic Act No. 7916, or

SECTION 24. Exemption from Taxes Under the National Internal

(a) Three percent (3%) to the national government;

(c) One percent(!%) for the establishment of a development fund

(!)Population-fifty percent (50%);

(2) Land area- twenty-five percent (25%); and

(3) Equal sharing-twenty-five percent (25%).

On June 1, 1999, Congress enacted Republic Act No. 8748, which

SECTION 4. Chapter III, Section 24 of Republic Act No. 7916 is

"SEC. 24. Exemption from National and Local Taxes. -- Excipt

"(a) Three percent (3%) to the National Government;

"(b) Two percent (2%) which shall be directly remitted'hy.··tli_i( -

Section 50, however, limits Republic Act No. 8748's applicatior{ to

SECTION 50. Non-Applicability on Areas Covered by Republic

On October 24, 2003, this Court, in John Hay Peoples Alternative

amnesty to all registered business enterprises operating within the specia:l

SECTION l. Grant of Tax Amnesty. - Registered business

21 Republic Act No. 9400 (2007), sec. 5.

Camp John Hay Development Corporation, in the me;~~~~1~t~r,ed

As a result, the Authority formed the One Stop Action, Center to

On June 15, 2009, the Baguio City government issued Administrative

_, . This prompted Atty. Melchor Carlos R. Rabanes, the Baguio City

On' January 21, 2010, Manaois wrote John Hay Management

However, the Government Service Insurance System did not accept

On March 12, 2010, the Authority and John Hay Management

On March 22, 2010, the Baguio City govennnent issued Notices to

The Authority later filed an Amended Petition,50 to which the Baguio

On May 13, 2010, the Regional Trial Court rendered a Decision52

Management Corporation possessed any police power. 57 Thus, they were

The Authority and John Hay Management Corporation filed a Motion

After the parties had filed their respective Memoranda, 62 petitioners

In their Memorandum, 70 petitioners argue that the issuance of business

Petitioners insist that establishments in the John Hay Special

Petitioners maintain that in lieu of paying taxes, they practice an

Respondent asserts that the business permit fees were regulatory in

whether the Petition for Review on Certiorari should be denied for

As to the substantive issues, this Court resolves the following:

first, whether statutory exemptions cover exemptions from business

.;,_ ~-: ._:_,

The Petition does not present questions of fact.

Generally, a petition for review on certiorari under Rule 45 of the

(1) When the conclusion is a finding grounded entirely on speculation,

SECTION 5. Dismissal or denial of petition. - ...

A petition under Rule 45 of the Rules of Court is denomi1iia~i:,d as a

. [Q]uestions raised in a Rule 45 Petition must be of such substance as. to

(a) When the court a quo has decided a question of

Litigants may very well aggrandize their petitions, but it is

Respondent, however, takes exception to petitioners' direct recourse

Under the principle of hierarchy of courts, regional trial court