Primary Holding

The Supreme Court ruled that portions of Executive Order No. 97-A and related issuances were unconstitutional for allowing tax-free removal of goods from the Subic Special Economic Zone to other parts of the Philippines and extending incentives to Clark Special Economic Zone without statutory basis.

Background

Republic Act No. 7227 (Bases Conversion and Development Act of 1992) aimed to convert former U.S. military bases into productive economic zones to promote development in Central Luzon. It created the Subic Special Economic Zone (SSEZ) with tax incentives but did not explicitly extend these privileges to other zones like Clark. Several executive issuances, including Executive Orders No. 80 and 97-A, sought to implement these incentives in both SSEZ and CSEZ, prompting legal challenges from businesses outside these zones.

Facts

• 1. March 13, 1992: Republic Act No. 7227 enacted.
• 2. April 3, 1993: Executive Order No. 80 issued.
• 3. June 19, 1993: Executive Order No. 97-A issued.
• 4. February 23, 1998: Petition filed before the Supreme Court.
• 5. July 29, 2005: Decision promulgated by the Supreme Court en banc.

Arguments of the Petitioners

• 1. The issuances constituted executive lawmaking in violation of the separation of powers.
• 2. The tax exemptions violated the equal protection clause by favoring businesses inside economic zones over those outside.
• 3. The policies violated RA No. 7227 by allowing unauthorized tax-free importation and removal of goods.
• 4. The policies promoted unfair competition against local businesses.

Arguments of the Respondents

• 1. The executive issuances were consistent with RA No. 7227's objectives to promote investment in economic zones.
• 2. Petitioners lacked standing as they were not directly injured by the policies.
• 3. The petition was barred by laches for being filed too late.

Issues

• 1. Whether the challenged issuances constituted executive legislation.
• 2. Whether the issuances violated the equal protection clause.
• 3. Whether the policies contravened RA No. 7227's limitations on tax exemptions.
• 4. Whether the policies promoted unfair competition or violated constitutional principles.

Ruling

• 1. Executive Legislation: Certain provisions allowing tax-free removal of goods from SSEZ and extending incentives to CSEZ were invalid as they exceeded statutory authority under RA No. 7227.
• 2. Equal Protection Clause: The classification between businesses inside and outside economic zones was reasonable and germane to RA No. 7227's purpose.
• 3. Unfair Competition: The incentives were lawful tools to attract investment and did not constitute unfair competition.
• 4. Preferential Use Policy: Petitioners failed to prove that the policies violated constitutional preference for Filipino labor and goods.

Doctrines

• 1. Separation of Powers: Executive actions must conform strictly to legislative authority; any overreach constitutes executive legislation.
• 2. Equal Protection Clause: Reasonable classification is valid if it rests on substantial distinctions, is germane to legislative purpose, applies equally within a class, and is not limited to existing conditions.
• 3. Tax Exemptions Must Be Expressly Granted: Tax exemptions cannot be implied; they must be unmistakably expressed in law.

Precedents Cited

• 1. Tiu v. Court of Appeals - Upheld reasonable classification within economic zones under RA No. 7227.
• 2. John Hay Peoples Alternative Coalition v. Lim - Declared that tax exemptions under RA No. 7227 applied only to SSEZ unless explicitly extended by Congress.

Statutory and Constitutional Provisions

• 1. Section 12(b), Republic Act No. 7227 - Governs tax incentives within SSEZ.
• 2. Article III, Section 1 - Equal protection clause.
• 3. Article XII, Section 12 - Preferential use of Filipino labor and materials.