Tax Digest

Southern Luzon Drug Corporation vs. The Department of Social Welfare and Development (DSWD), et al.

G.R. No. 199669, April 25, 2017

Reyes, J.


R.A. No. 7432, entitled “An Act to Maximize the Contribution of Senior Citizens to Nation-Building, Grant Benefits and Special Privileges and For Other Purposes,” was enacted. Under the said law, a senior citizen, who must be at least 60 years old and has an annual income of not more than P60,000.00, may avail of the privileges provided in Section 4 thereof, one of which is 20% discount on the purchase of medicines. R.A. No. 9257 was later enacted amending some provisions of R.A. No. 7432. The new law retained the 20% discount on the purchase of medicines but removed the annual income ceiling thereby qualifying all senior citizens to the privileges under the law. Further, R.A. No. 9257 modified the tax treatment of the discount granted to senior citizens, from tax credit to tax deduction from gross income, computed based on the net cost of goods sold or services rendered. On May 28, 2004, the DSWD issued the Implementing Rules and Regulations (IRR) of R.A. No. 9257. Article 8 of Rule VI of the said IRR provides “that the cost of the discount shall be allowed as deduction from gross income for the same taxable year that the discount is granted.

Meanwhile, R.A. No. 7277 pertaining to the “Magna Carta for Disabled Persons” was enacted, codifying the rights and privileges of PWDs. Thereafter, R.A. No. 9442 was enacted, amending R.A. No. 7277. One of the salient amendments in the law is the insertion of Chapter 8 in Title 2 thereof, which enumerates the other privileges and incentives of PWDs, including the grant of 20% discount on the purchase of medicines. Similar to R.A. No. 9257, covered establishments shall claim the discounts given to PWDs as tax deductions from the gross income, based on the net cost of goods sold or services rendered. Pursuant to the foregoing, the IRR of R.A. No. 9442 was promulgated by the DSWD, Department of Education, DOF, Department of Tourism and the Department of Transportation and Communications.

Petitioner filed a petition seeking to declare as unconstitutional (a) Section 4(a) of R.A. No. 9257, and (b) Section 32 of R.A. No. 9442 and Section 5.1 of its IRR, insofar as these provisions only allow tax deduction on the gross income based on the net cost of goods sold or services rendered as compensation to private establishments for the 20% discount that they are required to grant to senior citizens and PWDs.


Whether or not the 20% sales discount for Senior Citizens and PWDs is a valid exercise of police power


Yes. The duty to care for the elderly and the disabled lies not only upon the State, but also on the community and even private entities. As to the State, the duty emanates from its role as parens patriae which holds it under obligation to provide protection and look after the welfare of its people especially those who cannot tend to themselves. It is in the exercise of its police power that the Congress enacted R.A. Nos. 9257 and 9442, the laws mandating a 20% discount on purchases of medicines made by senior citizens and PWDs. It is also in further exercise of this power that the legislature opted that the said discount be claimed as tax deduction, rather than tax credit, by covered establishments.

Unlike in the exercise of the power of eminent domain, just compensation is not required in wielding police power. This is precisely because there is no taking involved, but only an imposition of burden.

The Court also entertains no doubt on the legality of the method taken by the legislature to implement the declared policies of the subject laws, that is, to impose discounts on the medical services and purchases of senior citizens and PWDs and to treat the said discounts as tax deduction rather than tax credit. The measure is fair and reasonable and no credible proof was presented to prove the claim that it was confiscatory. The effect of the subject laws in the financial standing of covered companies depends largely on how they respond and forge a balance between profitability and their sense of social responsibility. The adaptation is entirely up to them and they are not powerless to make adjustments to accommodate the subject legislations.

To reiterate, the subject provisions only affect the petitioner’s right to profit, and not earned profits. Unfortunately for the petitioner, the right to profit is not a vested right or an entitlement that has accrued on the person or entity such that its invasion or deprivation warrants compensation. Right to profits does not give the petitioner the cause of action to ask for just compensation, it being only an inchoate right or one that has not fully developed50 and therefore cannot be claimed as one’s own. It cannot claim deprivation of profit before the consummation of a sale and the purchase by a senior citizen or PWD.

Corollary, whether to treat the discount as a tax deduction or tax credit is a matter addressed to the wisdom of the legislature. After all, it is within its prerogative to enact laws which it deems sufficient to address a specific public concern.

To recognize all senior citizens as a group, without distinction as to income, is a valid classification. The Constitution itself considered the elderly as a class of their own and deemed it a priority to address their needs. When the Constitution declared its intention to prioritize the predicament of the underprivileged sick, elderly, disabled, women, and children, it did not make any reservation as to income, race, religion or any other personal circumstances. It was a blanket privilege afforded the group of citizens in the enumeration in view of the vulnerability of their class.

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