CAMP JOHN HAY VS. LIM G.R. No. 119775 MARCH 29, 2005 Taxation, Tax exemption


Petitioners filed their Petition for prohibition, mandamus and declaratory relief assailing

(1) the constitutionality of Proclamation No. 420 and

(2) the legality of the Memorandum of Agreement and Joint Venture Agreement previously entered into between public respondent BCDA and private respondents.

Section 3 of Proclamation No. 420 was declared NULL AND VOID and is accordingly declared of no legal force and effect.

Intervener Camp John Hay Development Corp. (CJHDC) filed a Motion for Leave to Intervene alleging that it, together with its consortium partners, entered into a Lease Agreement with respondent BCDA for the development of the John Hay SEZ; and that it “stands to be most affected” by this Court’s Decision “invalidating the grant of tax exemption and other financial incentives” in the John Hay Special Economic Zone (SEZ) since “[i]ts financial obligations and development and investment commitments under the Lease Agreement were entered into upon the premise that these incentives are valid and subsisting.”

CJHDC, proffering grounds parallel to those of public respondents, prays that: (1) it be granted leave to intervene in this case; (2) its attached Motion for Reconsideration in Intervention be admitted; and (3) this Court’s Decision of October 24, 2003 be reconsidered and petitioners’ petition dismissed.

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


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



CJHDC’s argument that the President’s “power to create Special Economic Zones carries with it the power to provide for tax and financial incentives,” does not lie. It is the legislative branch which has the inherent power not only to select the subjects of taxation but to grant exemptions.

Paragraph 4, Section 28 of Article VI of the Constitution is crystal clear: “[n]o law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress.”

Hence, it is only the legislature, as limited by the provisions of the Constitution, which has full power to exempt any person or corporation or class of property from taxation. The Constitution itself may provide for specific tax exemptions or local governments may pass ordinances providing for exemption from local taxes, but, otherwise, it is only the legislative branch which has the power to grant tax exemptions, its power to exempt being as broad as its power to tax.

There is absolutely nothing in R.A. No. 7227 which can be considered a grant of tax exemption in favor of public respondent BCDA. Rather, the beneficiaries of the tax exemptions and other incentives in Section 12 (the only provision in R.A. No. 7227 which expressly grants tax exemptions) are clearly the business enterprises located within the Subic SEZ.

Contrary to public respondents’ interpretation, the Decision of October 24, 2003 does not “tie the hands” of executive or administrative agencies from implementing any present or future legislation which affords tax or other financial incentives to qualified persons doing business in the John Hay SEZ or elsewhere. The second sentence of Section 3 of Proclamation No. 420 was declared null and void only insofar as it purported to grant tax exemptions and other financial incentives to business enterprises located in John Hay SEZ. However, where there is statutory basis for exemptions or incentives, there is nothing to prevent qualified persons from applying for and availing thereof.

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