Vol. XXII, No. 26 [ BusinessWorld Online ]
Monday, September 1, 2008 | MANILA, PHILIPPINES
THE PHILIPPINE Economic Zone Authority (PEZA) is not liable to pay real property taxes for its economic zone in Bataan, the Court of Appeals said.
As a consequence, the appellate court set aside the P110.5-million deficiency tax assessment and subsequent collection proceedings against it by the local government of Bataan.
The appellate court did not categorically say if the ruling is one that is of general jurisdiction — or applicable to all ecozones under PEZA.
In a 12-page decision penned by Associate Justice Marlene Gonzales-Sison, the 11th division of the appellate court overturned the ruling of the Pasay trial court that favored Bataan’s government.
"After conscientiously weighing the merits of the arguments of the parties, we find sufficient grounds to rule that respondent judge acted with grave abuse of discretion in issuing the assailed orders," it said.
Prevailing laws support the fact that PEZA is indeed exempt from paying the real property taxes, it added.
The issue stemmed from the demand letter sent by the provincial treasurer to the agency in May 2003, assessing it of tax deficiencies worth P110.5 million for the lots located at the Bataan Economic Zone.
PEZA sought suspension of the billing, pending resolution of a separate petition with the same trial court that asked clarification on its supposed exemption from real property tax liabilities.
The local government, however, proceeded to issue a warrant of levy and a subsequent "notice of sale of real property" scheduled for October 17, 2007.
The trial court later favored the local government in dismissing the petition for injunction filed by PEZA.
The agency thereafter raised the case before the appellate court, which in turn issued a stay order.
The local government claimed it received a copy of the stay order a day after the scheduled bidding, after which it took over the assets after failing to attract bidders.
The appellate court nullified Bataan’s tax assessment, notice of tax delinquency and the auction.
In its decision, the appellate court noted that the predecessor of PEZA, the Export Processing Zone Authority, was exempted from paying "all taxes, franchise taxes, realty taxes, and all other kinds of taxes and licenses to be paid to the National Government, its provinces, cities, municipalities," as provided under Presidential Decree No. 66.
This decree is the same blueprint used in the drafting of Republic Act 7916, or the Philippine Special Economic Zone Act, it said.
While RA 7916 did not explicitly exempt PEZA zones from real property taxes, a clause in that law provided that all privileges granted to special economic zones under RA 7227, or the Bases Conversion and Development Act, should apply to PEZA zones. RA 7227 specifically provided that no tax, whether national or local, should be imposed on special economic zones.
An amendment to the PEZA Law later provided that, "except for real property taxes on land owned by developers, no taxes, local and national, shall be imposed on business establishments operating within the ecozone."
The appellate court stressed that Bataan could not consider PEZA as "a developer."
"This must be interpreted as due to private developers of economic zones and cannot pertain to PEZA," the appellate court ruled.
PEZA, in fact, is an "instrumentality of the national government," it stressed.
Another law, Republic Act 7160 or the Local Government Code, provides that a national government agency is exempt from paying real property taxes, the appellate court added.
"Consistent with our ruling that PEZA is exempt from paying real property taxthe assessment notice of delinquency the auction saleand the certificate of saleare all nullified," it said. — I. P. Pedrasa
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