BAGUIO CITY, Philippines – The Baguio City Council urged the executive department to take more aggressive action in requiring businesses within the John Hay Special Economic Zone (JHSEZ) to obtain business permits from the city government and in collecting their corresponding regulatory fees.
The city council also reiterated the need for a more aggressive stance in collecting the unpaid dues from the Bases Conversion and Development Authority (BCDA) and Camp John Hay Management Corporation (CJHMC).
During the city councilโs regular session on August 12, 2024, the local legislators urged the City Legal Office to urgently initiate appropriate legal or administrative procedures to facilitate the collection of what is owed to the city.
๐พ๐ค๐ก๐ก๐๐๐ฉ๐๐ค๐ฃ ๐ค๐ ๐๐๐๐ช๐ก๐๐ฉ๐ค๐ง๐ฎ ๐๐๐๐จ
With the Supreme Court’s final ruling in favor of the city government in its case against the BCDA, the city government now has the legal right to require businesses within the JHSEZ to obtain business permits and pay the applicable regulatory fees.
In the said decision, the Supreme Court (SC) emphasized that the payment for business permits is regulatory and not a form of taxation, thus, businesses within JHSEZ cannot claim exemptions based on tax-exempt status.
The legal dispute arose when the city government issued an administrative order requiring businesses in the JHEZ to secure business permits and pay the mayorโs permit fees as imposed by the cityโs tax ordinance (Tax Ordinance No. 2000-01).
The BCDA argued that such fees are contrary to Republic Act No. 7916 which exempts businesses in special economic zones from local taxes and that the mayorโs permit fee should not apply.
However, on February 2, 2023, the SC ruled that the mayorโs permit fee, as part of the local business permit process, is not considered a local tax but rather a regulatory fee.
The BCDA filed a motion for reconsideration, but on April 14, 2024, the SC denied it with finality, stating that no further pleadings or motions would be entertained in this case.
During the August 12 regular session, City legal officer Althea Alberto informed the city council about an ongoing negotiation with the board of Camp John Hay Management Corporation (CJHMC).
The negotiation focuses on CJHMCโs proposal to draft a memorandum of agreement with the city government for the conduct of an inventory of businesses in JHEZ and the processing of necessary business permits, given that CJHMC has its own zoning and building officials.
To date, the City Legal Office has not yet received the draft MOA from CJHMC despite their commitment to submit it two weeks after their meeting on July 10, 2024.
Alberto said that the discussions about the MOA began as early as June 2023 but were set aside due to the BCDAโs motion for reconsideration.
With the recent SC decision, they resumed discussions on July 10, 2024.
Councilor Jose Molintas asserted that, in compliance with the SC decision, all businesses in JHEZ should now get business permits from the city government.
He expressed hope that full compliance will be achieved next year.ย
Molintas suggested that the city government should not focus on the proposed MOA until it is received but should instead proceed with implementing aggressive mechanisms to collect the dues from BCDA/JHMC.
Vice Mayor Faustino Olowan suggested that the city government should take the matter to court with a proposal for a compromise agreement.
He emphasized that coordination should now be between the City Legal Office and the court, following proper legal procedures, rather than through direct negotiations between the city government and the BCDA outside the court’s purview.
“I believe we don’t need a memorandum of agreement. Instead, we should go to court. You represent the city and secure the best possible outcome,” Olowan told Alberto.
Councilor Betty Lourdes Tabanda likewise questioned the need to await the crafting and execution of a MOA between the city government and BCDA/JHMC when this might be unnecessary given the SC decision.
Alberto explained that the pursuit of a MOA was based on the instructions from Mayor Benjamin Magalong after his engagements with BCDA President Joshua Bingcang.
As Alberto understood it, the intent of the MOA was to reduce any “combative energy” between the city government and BCDA/JHMC, aiming for a more amicable approach.
Due to the urgency of the situation, Alberto suggested that they may draft the MOA themselves, have it reviewed by the city council first, then submit it to JHMC for their review.
However, Olowan and Tabanda pointed out that the city council might not be the proper body to review such a document.
They emphasized that the court should be involved in this process.
Tabanda advised setting a deadline for the drafting and execution of the MOA with an alternative action to proceed with court action if the MOA is not feasible within that time frame.
๐๐พ ๐๐ช๐ก๐๐ฃ๐ ๐๐๐ข๐๐ฉ๐จ ๐๐๐ญ ๐๐ญ๐๐ข๐ฅ๐ฉ๐๐ค๐ฃ๐จ ๐ฉ๐ค ๐๐๐๐ผ-๐๐๐๐๐จ๐ฉ๐๐ง๐๐ ๐ฝ๐ช๐จ๐๐ฃ๐๐จ๐จ๐๐จ
The SC further ruled that only businesses officially registered with the Philippine Economic Zone (PEZA) and operating within the JHSEZ are entitled to tax and duty exemptions.
It further stressed that businesses operating within the said zone but are not registered with PEZA do not receive these exemptions but are instead required to pay all relevant national and local taxes, duties, and fees as mandated by national and local laws.
According to Allan Abayao, the head of the Permits and Licensing Division, as of July 2024, approximately 59 establishments within Camp John Hay have been issued business permits by the city government.
He confirmed that some establishments registered with PEZA are paying their taxes to PEZA, which then remits the due amount to the city government.
He also noted the presence of establishments that are neither registered with PEZA nor have obtained permits from the city government.
These establishments were given a โpermit to operateโ by CJHMC through their one-stop shop.
Abayao said their office plans to issue notices of violation to these unregistered establishments after the conduct of the inventory.ย
๐๐ฉ๐๐๐ง ๐๐ฃ๐ฅ๐๐๐ ๐ฟ๐ช๐๐จย
Aside from the imposed business permit fees, the BCDA also has unpaid financial obligations to the city government, totaling P225 million as of 2021.
The legal basis for imposing BCDAโs financial obligations to the city government is found in Sections 9 and 10 of City Council Resolution No. 362, Series of 1994 which set 19 conditionalities for the formulation of the master development plan by BCDA for Camp John Hay.
Section 9 (Condition No. 9) mandates that BCDA provides an equitable revenue-sharing arrangement, where the city government receives 3% of the gross income from operations within the John Hay Special Economic Zone (JHSEZ).
Additionally, 1% should be allocated to a community development fund jointly administered by the city government and BCDA.
This means that BCDA should allocate a total of 4% of the gross income from operations within the JHSEZ under Section 9 (Condition No. 9) in favor of Baguio City.
In addition to this revenue sharing, Section 10 (Condition No. 10) specifies that BCDA must allocate 25% of its lease rentals or 30% of its net income from its operations within JHSEZ, whichever is higher.
The amount to be paid by BCDA under Condition No. 9 is P56, 843,842.08. No payment has been done under this condition.ย
Meanwhile, an outstanding balance of P168,608,109.60 has yet to be collected under Condition No. 10.
This indebtedness was computed based on the lease payments of CJH Development Corporation (CJHDevCo) to BCDA, a far cry from the P930 million outstanding balance calculated by the City Treasurerโs Office up to 2020 based on the terms of the lease agreement between BCDA and CJHDevCo.
The BCDAโs financial obligation to the city government has been further complicated by a separate Supreme Court arbitral ruling in April 2024 concerning the dispute between CJHDevCo and BCDA.
The Court mandated CJHDevCo to return the leased property, including all improvements, to the BCDA, which, in turn, must refund CJHDevCo the P1.4 billion in previously paid rentals.
Tabanda earlier expressed concern about the implications of the said SC arbitral ruling, stating that the city government might potentially lose its legal right to any share of the lease rentals from the operations of JHSEZ.
If BCDA returns all rental payments to CJHDevCo, the city might no longer have a legal basis to claim its share of the revenue, Tabanda said.
She also raised concern whether the city government would be required to return or reimburse any amount it has already received from these lease rentals.
Since the SC ruling could potentially nullify the cityโs entitlement to these funds, Tabanda questioned whether the city government has the obligation to pay back any amounts previously disbursed.
Alberto recently affirmed the complexities of the situation.
She stated that while there is already a court order in the case between BCDA and the city government, no clear resolution has been reached in the case between BCDA and CJHDevCo.
๐พ๐๐ฉ๐ฎโ๐จ ๐๐ช๐ง๐จ๐ช๐๐ฉ ๐ค๐ ๐๐ฃ๐ซ๐๐ฃ๐ฉ๐ค๐ง๐ฎ ๐๐ฃ๐จ๐๐๐ ๐พ๐ ๐
In a recent development, Mayor Benjamin Magalong tasked the City Legal Office to notify CJHMC that the cityโs inspectorate team would soon conduct the inventory of businesses therein.ย
The inventory will help the city government to accurately calculate the receivables from BCDA/JHMC.
Should this plan push through, the city government will overcome a significant challenge in this situation.
Councilor Fred Bagbagen recalled that several years ago, the City Treasury Office and the Permits and Licensing Division attempted to conduct an inventory but were barred by the BCDA.
Alberto expressed optimism that CJHMC would be willing to allow the city government to conduct an inventory of businesses once the BCDA has reviewed the recent Supreme Court ruling.