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G.R. No. J66494, 29 June 2007, Azcuna, J. (Ln Banc)
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Republic Act ¯432 ,Old Senior Citizens Act, pro·ides that the 20° discount írom
goods and ser·ices oí establishments íor the exclusi·e use and enjoyment oí the senior
citizens may be claimed by the establishments as tax credit. \ith the passage oí R.A. 925¯
,Lxpanded Senior Citizens Act oí 2003,, said discount may now be claimed by the
establishments as tax deduction based on the net cost oí the goods sold or ser·ices
rendered, pro·ided that the cost oí the discount shall be allowed as a deduction írom gross
income íor the same taxable year that the discount is granted. Under this new law, more
establishments were added such as: establishments pro·iding medical and dental ser·ices,
diagnostic and laboratory ser·ices, including proíessional íees oí attending doctors in all
pri·ate hospitals and medical íacilities, operators oí domestic air and sea transport ser·ices,
public railways and skyways and bus transport ser·ices.
Petitioners are domestic corporations and proprietors operating drugstores in the
Philippines, who assail the constitutionality oí the said law, alleging that they are entitled to
just compensation since the allowance oí the discount as a tax deduction amounts to
depri·ation oí property.
1, \hether or not Section 4,a, oí R.A. 925¯ is constitutional
2, \hether or not petitioners are entitled to just compensation
Certain diííerences oí tax deduction and tax credit can be deri·ed írom the two laws.
1he tax credit under R.A. ¯432 is a peso-íor-peso deduction írom a taxpayer`s tax liability
due to the go·ernment oí the amount oí discounts such establishment has granted to a
senior citizen. 1he establishment reco·ers the íull amount oí discount gi·en to a senior
citizen and hence, the go·ernment shoulders 100° oí the discounts granted. 1he tax
deduction under R.A. 925¯ is based on the net cost oí goods sold or ser·ices rendered.
Lííecti·ely, the go·ernment loses in terms oí íoregone re·enues an amount equi·alent to
the marginal tax rate the said establishment is liable to pay the go·ernment. Under a tax
deduction scheme, the tax deduction on discounts was subtracted írom net sales together
with other deductions which are considered as operating expenses beíore the tax due was
computed based on the net taxable income. Being a tax deduction, the discount does not
reduce taxes owed on a peso-íor-peso basis but merely oííers a íractional reduction in taxes
paid. Said treatment reduces the net income oí the establishments concerned. On the other
hand, under the tax credit scheme, the amount oí discounts which is the tax credit item, was
deducted directly írom the tax due amount.
Section 4(a) of R.A. 92S7 has constitutional basis.
R.A. 925¯ is in accord with the State`s policy to pro·ide social justice in all phases oí
national de·elopment and to adopt an integrated and comprehensi·e approach to health
de·elopment which shall endea·or to make essential goods, health and other social ser·ices
a·ailable to all people at aííordable cost. 1here shall be priority íor the needs oí the
underpri·ileged sick, elderly, disabled, women and children.
No just compensation is due.
Petitioners are not entitled to just compensation. Just compensation is the íull and
íair equi·alent oí the property taken írom its owner by the expropriator. 1he measure is not
the taker`s gain, but the owner`s loss. A tax deduction does not oííer íull reimbursement oí
the senior citizen discount. As such it would not meet the deíinition oí just compensation.
\hile the Constitution protects property rights, petitioner must accept the realities oí
business and the State, in the exercise oí police power, can inter·ene in the operations oí a
business which may result in an impairment oí property rights in the process. 1he right to
property can be relinquished upon the command oí the State íor the promotion oí the