PEZA lease affirms Camp John Hay’s tax-free status

The Bases Conversion and Development Authority (BCDA) has leased to the Philippine Economic Zone Authority (PEZA) 6.5 hectares of land for the development of the Baguio City Economic Zone. The lease effectively affirms Presidential Proclamation 1191 issued on Dec. 11, 2006 which declared John Hay as a special tourism economic zone and restoring fiscal incentives for businesses locating at the former United States rest and recreation facility. The proclamation was a mitigating measure pending the passage of a new law that would restore the privilege to special economic zones. In a ruling on July 29, 2005, the Supreme Court removed all fiscal perks in special economic zones that were declared under the Bases Conversion and Development Act. "While Section 12 of Republic Act No. 7227 of 1992 expressly provides for the grant of incentives to the Subic zone, it fails to make any similar grant in favor of other economic zones, including the Clark zone," said the court ruling. RA 7227 stated, among others, the conversion of the Clark and Subic military camps and their extensions into special economic zones to promote economic and social development in Central Luzon. Since tax- and duty-free incentives are in the nature of tax exemptions, its basis should be categorically and unmistakably expressed from the language of that law, the court said. In a statement Friday, the BCDA said it leased a portion of the Camp John Hay Military Reservation to PEZA via its subsidiary, John Hay Management Corp., for 25 years. The additional land will allow PEZA to accept new businesses in the saturated export zone and encourage existing businesses to expand. The agreement was signed by Lilia de Lima, PEZA director-general; and Lyssa Pagano-Calle, John Hay vice-president and chief operating officer, on Dec. 22. Both sides have the option to renew the contract for another 25 years. PEZA’s income from the lease area will be remitted to BCDA through John Hay Management based on either PEZA’s published rate (P21.82/square meter/month for 2006) with a 5% annual escalation; or based on a fixed monthly lot lease rental rate of $0.35 for 25 years. Under the agreement, BCDA has to provide basic infrastructure such as perimeter fence, downgrading of road to Kadaclan village, construction of interior roads, reinforced pipe culvert drainage, sewer lines leading to BCEZ sewerage treatment plant, earthworks, retaining wall, and main gate and guard outpost. All improvement should be delivered within five years from the start of the contract and the cost should not exceed P28 million. PEZA has agreed to provide improvements for tenants to include construction of elevated water tank, deep wells, tank and pipelines, hydrants, power lines, transformers, metering facility and load-end substations. Subsequent expenses for the upkeep and maintenance of improvements will be on the account of PEZA. — Kristine L. Alave/BusinessWorld