Carlos Superdrug Corp Vs DSWD, G.R. No. 166494, 06 - 29 - 2007

Case Name CARLOS SUPERDRUG CORP VS DSWD
Topic Tax Deduction

Case No. | Date G.R. No. 166494 | June 29, 2007
Ponente Azcuna J.
Doctrine
Link G.R. No. 166494 (lawphil.net)
RELEVANT FACTS:
On February 26, 2004, R.A. No. 9257, amending R.A. No. 7432. The DSWD approved and adopted
the Implementing Rules and Regulations of R.A. No. 9257
RA 9257, Sec. 4(a) of the Act states that the senior citizens shall be entitled to 20% discount from all
establishments relative to the utilization of services in hotels and similar lodging establishments,
restaurants and recreation centers, and purchase of medicines in all establishments for the exclusive
use or enjoyment of senior citizens, including funeral and burial services for the death of senior
citizens; and, the establishment may claim the discounts as tax deduction based on the net cost of
the goods sold or services rendered. (which abandoned the tax credit scheme under the previous
law)
Petitioners are domestic corporations and proprietors operating drugstores in the Philippines.
Petitioners assail the constitutionality of Sec. 4(a) of RA 9257 (Expanded Senior Citizens Act of 2003)
based on the grounds that
(1) the law is confiscatory;
(2) it violates the equal protection clause; and,
(3) The 20% discount on medicines violates the constitutional guarantee in Article XIII, Section 11
that makes "essential goods, health and other social services available to all people at
affordable cost."
Additional contentions:
● The permanent reduction in their total revenues is a forced subsidy corresponding to the taking
of private property for public use or benefit. This constitutes compensable taking for which
petitioners would ordinarily become entitled to a just compensation.
● Section 4(a) of the law is unconstitutional because it constitutes deprivation of private property.
Compelling drugstore owners and establishments to grant the discount will result in a loss of
profit and capital because 1) drugstores impose a mark-up of only 5% to 10% on branded
medicines; and 2) the law failed to provide a scheme whereby drugstores will be justly
compensated for the discount.
ISSUE: Whether or not RA 9257 or Expanded Senior Citizens Act of 2003 is unconstitutional.
RULING: NO, it is constitutional.
The 20% discount is a valid exercise of police power. Thus, even if the current law, through its tax
deduction scheme, does not provide for a peso for peso reimbursement of the 20% discount given
by private establishments, no constitutional infirmity obtains because, being a valid exercise of
police power, payment of just compensation is not warranted.
A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it would
not meet the definition of just compensation. The law is a legitimate exercise of police power which
has general welfare for its object. When the conditions so demand as determined by the
legislature, property rights must bow to the primacy of police power because property rights,
though sheltered by due process, must yield to general welfare.
For purposes of reimbursement, the law states that the cost of the discount shall be deducted from
gross income, the amount of income derived from all sources before deducting allowable
expenses, which will result in net income. Here, petitioners tried to show a loss on a per
transaction basis, which should not be the case. An income statement, showing an accounting of
petitioners’ sales, expenses, and net profit (or loss) for a given period could have accurately
reflected the effect of the discount on their income. Absent any financial statement, petitioners
cannot substantiate their claim that they will be operating at a loss should they give the discount. In
addition, the computation was erroneously based on the assumption that their customers consisted
wholly of senior citizens. Lastly, the 32% tax rate is to be imposed on income, not on the amount of
the discount.
In the absence of evidence demonstrating the alleged confiscatory effect of the provision in
question, there is no basis for its nullification in view of the presumption of validity which every
law has in its favor.
RULING
Petition is DISMISSED for lack of merit.
NOTES

Carlos Superdrug Corp Vs DSWD, G.R. No. 166494, 06 - 29 - 2007

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Carlos Superdrug Corp Vs DSWD, G.R. No. 166494, 06 - 29 - 2007

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Case Name CARLOS SUPERDRUG CORP VS DSWD

Topic Tax Deduction

Petition is DISMISSED for lack of merit.

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