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Tiu v. Court of Appeals, GR 127410, 20 January 1999
On March 13, 1992, Congress, with the approval of the President, passed into law RA 7227. This was for the conversion of former military bases into industrial and commercial uses. Subic was one of these areas. It was made into a special economic zone.
In the zone, there were no exchange controls. Such were liberalized. There were also tax incentives and duty free importation policies under this law.
On June 10, 1993, then President Fidel V. Ramos issued Executive Order No. 97 (EO 97), clarifying the application of the tax and duty incentives. It said that:
On Import Taxes and Duties. — Tax and duty-free importations shall apply only to raw materials, capital goods and equipment brought in by business enterprises into the SSEZ
On All Other Taxes. — In lieu of all local and national taxes (except import taxes and duties), all business enterprises in the SSEZ shall be required to pay the tax specified in Section 12(c) of R.A. No. 7227.
Nine days after, on June 19, 1993, the President issued Executive Order No. 97-A (EO 97-A), specifying the area within which the tax-and-duty-free privilege was operative.
Section 1.1. The Secured Area consisting of the presently fenced-in former Subic Naval Base shall be the only completely tax and duty-free area in the SSEFPZ. Business enterprises and individuals (Filipinos and foreigners) residing within the Secured Area are free to import raw materials, capital goods, equipment, and consumer items tax and duty-free.
Petitioners challenged the constitutionality of EO 97-A for allegedly being violative of their right to equal protection of the laws. This was due to the limitation of tax incentives to Subic and not to the entire area of Olongapo. The case was referred to the Court of Appeals.
The appellate court concluded that such being the case, petitioners could not claim that EO 97-A is unconstitutional, while at the same time maintaining the validity of RA 7227.
The court also explained that the intention of Congress was to confine the coverage of the SSEZ to the "secured area" and not to include the "entire Olongapo City and other areas mentioned in Section 12 of the law”.
Whether the provisions of Executive Order No. 97-A confining the application of R.A. 7227 within the secured area and excluding the residents of the zone outside of the secured area is discriminatory or not owing to a violation of the equal protection clause.
WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision and Resolution are hereby AFFIRMED. Costs against petitioners.
The fundamental right of equal protection of the laws is not absolute, but is subject to reasonable classification. If the groupings are characterized by substantial distinctions that make real differences, one class may be treated and regulated differently from another. The classification must also be germane to the purpose of the law and must apply to all those belonging to the same class.
Classification, to be valid, must (1) rest on substantial distinctions, (2) be germane to the purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all members of the same class.
RA 7227 aims primarily to accelerate the conversion of military reservations into productive uses. This was really limited to the military bases as the law's intent provides. Moreover, the law tasked the BCDA to specifically develop the areas the bases occupied.
Among such enticements are: (1) a separate customs territory within the zone, (2) tax-and-duty-free importations, (3) restructured income tax rates on business enterprises within the zone, (4) no foreign exchange control, (5) liberalized regulations on banking and finance, and (6) the grant of resident status to certain investors and of working visas to certain foreign executives and workers. The target of the law was the big investor who can pour in capital.
Even more important, at this time the business activities outside the "secured area" are not likely to have any impact in achieving the purpose of the law, which is to turn the former military base to productive use for the benefit of the Philippine economy. Hence, there was no reasonable basis to extend the tax incentives in RA 7227.
It is well-settled that the equal-protection guarantee does not require territorial uniformity of laws. As long as there are actual and material differences between territories, there is no violation of the constitutional clause.
Besides, the businessmen outside the zone can always channel their capital into it.
RA 7227, the objective is to establish a "self-sustaining, industrial, commercial, financial and investment center”. There will really be differences between it and the outside zone of Olongapo.
The classification of the law also applies equally to the residents and businesses in the zone. They are similarly treated to contribute to the end goal of the law.