G.R. No.

L-29059 December 15, 1987

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
CEBU PORTLAND CEMENT COMPANY and COURT OF TAX
APPEALS, respondents.

CRUZ, J.:

 By virtue of a Commissioner of Internal Revenue was ordered to

refund to the Cebu Portland Cement Company the amount of P
359,408.98, representing overpayments of ad valorem taxes on
cement produced and sold by it after October 1957. 1
 Both the petitioner and the private respondent, the latter moved for a
writ of execution to enforce the said judgment . 2
 The motion was opposed by the petitioner on the ground that the
private respondent had an outstanding sales tax liability to which the
judgment debt had already been credited. In fact, it was stressed,
there was still a balance owing on the sales taxes in the amount of P
4,789,279.85 plus 28% surcharge. 3
 Court of Tax Appeals * granted the motion, holding that the alleged
sales tax liability of the private respondent was still being questioned
and therefore could not be set-off against the refund. 4
 Commissioner of Internal Revenue claims that the refund should be
charged against the tax deficiency of the private respondent on the
sales of cement under Section 186 of the Tax Code. His position is
that cement is a manufactured and not a mineral product and
therefore not exempt from sales taxes. He adds that enforcement of
the said tax deficiency was properly effected through his power of
distraint of personal property under Sections 316 and 318 5 of the
said Code and, moreover, the collection of any national internal
revenue tax may not be enjoined under Section 305, 6 subject only to
the exception prescribed in Rep. Act No. 1125. 7 This is not
applicable to the instant case. The petitioner also denies that the
sales tax assessments have already prescribed because the
prescriptive period should be counted from the filing of the sales tax
returns, which had not yet been done by the private respondent.
 Private respondent disclaims liability for the sales taxes, on the
ground that cement is not a manufactured product but a mineral
product. 8 As such, it was exempted from sales taxes under Section
188 of the Tax Code after the effectivity of Rep. Act No. 1299 on June
16, 1955, in accordance with Cebu Portland Cement Co. v. Collector
of Internal Revenue, 9 decided in 1968. Here Justice Eugenio
Angeles declared that "before the effectivity of Rep. Act No. 1299,
amending Section 246 of the National Internal Revenue Code,
cement was taxable as a manufactured product under Section 186, in
connection with Section 194(4) of the said Code," thereby implying
that it was not considered a manufactured product afterwards. Also,
the alleged sales tax deficiency could not as yet be enforced against
it because the tax assessment was not yet final, the same being still
under protest and still to be definitely resolved on the merits. Besides,
the assessment had already prescribed, not having been made within
the reglementary five-year period from the filing of the tax returns. 10

 Our ruling is that the sales tax was properly imposed upon the private
respondent for the reason that cement has always been considered a
manufactured product and not a mineral product.

 This matter was extensively discussed and categorically resolved

in Commissioner of Internal Revenue v. Republic Cement
Corporation, 11 decided on August 10, 1983, where Justice Efren L.
Plana, after an exhaustive review of the pertinent cases, declared for
a unanimous Court:

From all the foregoing cases, it is clear that cement qua cement

was never considered as a mineral product within the meaning
of Section 246 of the Tax Code, notwithstanding that at least
80% of its components are minerals, for the simple reason that
cement is the product of a manufacturing process and is no
longer the mineral product contemplated in the Tax Code (i.e.;
minerals subjected to simple treatments) for the purpose of
imposing the ad valorem tax.

What has apparently encouraged the herein respondents to

maintain their present posture is the case of Cebu Portland
Cement Co. v. Collector of Internal Revenue, L-20563, Oct. 29,
1968 (28 SCRA 789) penned by Justice Eugenio Angeles. For
 some portions of that decision give the impression that
Republic Act No. 1299, which amended Section 246,
reclassified cement as a mineral product that was not subject to
sales tax. ...

xxx xxx xxx

After a careful study of the foregoing, we conclude that reliance

on the decision penned by Justice Angeles is misplaced. The
said decision is no authority for the proposition that after the
enactment of Republic Act No. 1299 in 1955 (defining mineral
product as things with at least 80% mineral content), cement
became a 'mineral product," as distinguished from a
"manufactured product," and therefore ceased to be subject to
sales tax.

The above views were reiterated in the resolution 12 denying

reconsideration of the said decision, thus:

The nature of cement as a "manufactured product" (rather than

a "mineral product") is well-settled. The issue has repeatedly
presented itself as a threshold question for determining the
basis for computing the ad valorem mining tax to be paid by
cement Companies. No pronouncement was made in these
cases that as a "manufactured product" cement is subject to
sales tax because this was not at issue.

The decision sought to be reconsidered here referred to the

legislative history of Republic Act No. 1299 which introduced a
definition of the terms "mineral" and "mineral products" in Sec.
246 of the Tax Code. Given the legislative intent, the holding in
the CEPOC case (G.R. No. L-20563) that cement was subject
to sales tax prior to the effectivity f Republic Act No. 1299
cannot be construed to mean that, after the law took effect,
cement ceased to be so subject to the tax. To erase any and all
misconceptions that may have been spawned by reliance on
the case of Cebu Portland Cement Co. v. Collector of Internal
Revenue, L-20563, October 29, 1968 (28 SCRA 789) penned
by Justice Eugenio Angeles, the Court has expressly overruled
 it insofar as it may conflict with the decision of August 10, 1983,
now subject of these motions for reconsideration.

 On the question of prescription, the private respondent claims that the

five-year reglementary period for the assessment of its tax liability
started from the time it filed its gross sales returns on June 30, 1962.
Hence, the assessment for sales taxes made on January 16, 1968
and March 4, 1968, were already out of time. We disagree. This
contention must fail for what CEPOC filed was not the sales returns
required in Section 183(n) but the ad valorem tax returns required
under Section 245 of the Tax Code.
 As Justice Irene R. Cortes emphasized in the aforestated resolution:

In order to avail itself of the benefits of the five-year prescription

period under Section 331 of the Tax Code, the taxpayer should
have filed the required return for the tax involved, that is, a
sales tax return. (Butuan Sawmill, Inc. v. CTA, et al., G.R. No.
L-21516, April 29, 1966, 16 SCRA 277). Thus CEPOC should
have filed sales tax returns of its gross sales for the subject
periods. Both parties admit that returns were made for the ad
valorem mining tax. CEPOC argues that said returns contain
the information necessary for the assessment of the sales tax.
The Commissioner does not consider such returns as
compliance with the requirement for the filing of tax returns so
as to start the running of the five-year prescriptive period.

We agree with the Commissioner. It has been held in Butuan

Sawmill Inc. v. CTA, supra, that the filing of an income tax
return cannot be considered as substantial compliance with the
requirement of filing sales tax returns, in the same way that an
income tax return cannot be considered as a return for
compensating tax for the purpose of computing the period of
prescription under Sec. 331. (Citing Bisaya Land Transportation
Co., Inc. v. Collector of Internal Revenue, G.R. Nos. L-12100
and L-11812, May 29, 1959). There being no sales tax returns
filed by CEPOC, the statute of stations in Sec. 331 did not
begin to run against the government. The assessment made by
the Commissioner in 1968 on CEPOC's cement sales during
the period from July 1, 1959 to December 31, 1960 is not
barred by the five-year prescriptive period. Absent a return or
 when the return is false or fraudulent, the applicable period is
ten (10) days from the discovery of the fraud, falsity or
omission. The question in this case is: When was CEPOC's
omission to file tha return deemed discovered by the
government, so as to start the running of said period? 13

 The argument that the assessment cannot as yet be enforced

because it is still being contested loses sight of the urgency of the
need to collect taxes as "the lifeblood of the government." If the
payment of taxes could be postponed by simply questioning their
validity, the machinery of the state would grind to a halt and all
government functions would be paralyzed. That is the reason why,
save for the exception already noted, the Tax Code provides:

Sec. 291. Injunction not available to restrain collection of tax. —

No court shall have authority to grant an injunction to restrain
the collection of any national internal revenue tax, fee or charge
imposed by this Code.

G.R. Nos. L-49839-46             April 26, 1991

JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,

vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROÑO, in their
capacities as appointed and Acting Members of the CENTRAL BOARD
OF ASSESSMENT APPEALS; TERESITA H. NOBLEJAS, ROMULO M.
DEL ROSARIO, RAUL C. FLORES, in their capacities as appointed and
Acting Members of the BOARD OF ASSESSMENT APPEALS of
Manila; and NICOLAS CATIIL in his capacity as City Assessor of
Manila, respondents.

Barcelona, Perlas, Joven & Academia Law Offices for petitioners.

PARAS, J.:
This is a petition for review on certiorari to reverse the June 10, 1977
decision of the Central Board of Assessment Appeals 1 in CBAA Cases
Nos. 72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et al. v. Board of
Assessment Appeals of Manila and City Assessor of Manila" which affirmed
the March 29, 1976 decision of the Board of Tax Assessment Appeals 2 in
BTAA Cases Nos. 614, 614-A-J, 615, 615-A, B, E, "Jose Reyes, et al. v.
City Assessor of Manila" and "Edmundo Reyes and Milagros Reyes v. City
Assessor of Manila" upholding the classification and assessments made by
the City Assessor of Manila.

The facts of the case are as follows:

 Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners

of parcels of land situated in Tondo and Sta. Cruz Districts, City of
Manila, which are leased and entirely occupied as dwelling sites by
tenants. Said tenants were paying monthly rentals not exceeding
three hundred pesos (P300.00) in July, 1971.
 National Legislature enacted Republic Act No. 6359 prohibiting for
one year from its effectivity, an increase in monthly rentals of dwelling
units or of lands on which another's dwelling is located, where such
rentals do not exceed three hundred pesos (P300.00) a month but
allowing an increase in rent by not more than 10% thereafter.
 The said Act also suspended paragraph (1) of Article 1673 of the Civil
Code for two years from its effectivity thereby disallowing the
ejectment of lessees upon the expiration of the usual legal period of
lease.
 Presidential Decree No. 20 amended R.A. No. 6359 by making
absolute the prohibition to increase monthly rentals below P300.00
and by indefinitely suspending the aforementioned provision of the
Civil Code, excepting leases with a definite period.
 P were precluded from raising the rentals and from ejecting the
tenants.
 In 1973, respondent City Assessor of Manila re-classified and
reassessed the value of the subject properties based on the schedule
of market values duly reviewed by the Secretary of Finance. The
revision, as expected, entailed an increase in the corresponding tax
rates prompting petitioners to file a Memorandum of Disagreement
with the Board of Tax Assessment Appeals. They averred that the
reassessments made were "excessive, unwarranted, inequitable,
confiscatory and unconstitutional" considering that the taxes imposed
 upon them greatly exceeded the annual income derived from their
properties. They argued that the income approach should have been
used in determining the land values instead of the comparable sales
approach which the City Assessor adopted (Rollo, pp. 9-10-A). The
Board of Tax Assessment Appeals, however, considered the
assessments valid
 Reyeses appealed to the Central Board of Assessment Appeals.They
submitted, among others, the summary of the yearly rentals to show
the income derived from the properties.
 Respondent City Assessor, on the other hand, submitted three (3)
deeds of sale showing the different market values of the real property
situated in the same vicinity where the subject properties of
petitioners are located.
 It was found in an ocular inspection that certain parcels of land were
below street level and were affected by the tides (Rollo, pp. 24-25).
 Central Board of Assessment Appeals rendered its decision, the
dispositive portion of which reads:

WHEREFORE, the appealed decision insofar as the valuation and

assessment of the lots covered by Tax Declaration Nos. (5835) PD-
5847, (5839), (5831) PD-5844 and PD-3824 is affirmed.

For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-
1509, 146 and (1) PD-266, the appealed Decision is modified by
allowing a 20% reduction in their respective market values and
applying therein the assessment level of 30% to arrive at the
corresponding assessed value.

SO ORDERED. (Decision of the Central Board of Assessment

Appeals, Rollo, p. 27)

 Petitioner's subsequent motion for reconsideration was denied,

hence, this petition.
 THE HONORABLE BOARD ERRED IN ADOPTING THE
"COMPARABLE SALES APPROACH" METHOD IN FIXING THE
ASSESSED VALUE OF APPELLANTS' PROPERTIES.
 The petition is impressed with merit.
 The crux of the controversy is in the method used in tax assessment
of the properties in question.
  Petitioners maintain that the "Income Approach" method would have
been more realistic for in disregarding the effect of the restrictions
imposed by P.D. 20 on the market value of the properties affected,
respondent Assessor of the City of Manila unlawfully and unjustifiably
set increased new assessed values at levels so high and successive
that the resulting annual real estate taxes would admittedly exceed
the sum total of the yearly rentals paid or payable by the dweller
tenants under P.D. 20. Hence, petitioners protested against the levels
of the values assigned to their properties as revised and increased on
the ground that they were arbitrarily excessive, unwarranted,
inequitable, confiscatory and unconstitutional (Rollo, p. 10-A).
 On the other hand, while respondent Board of Tax Assessment
Appeals admits in its decision that the income approach is used in
determining land values in some vicinities, it maintains that when
income is affected by some sort of price control, the same is rejected
in the consideration and study of land values as in the case of
properties affected by the Rent Control Law for they do not project
the true market value in the open market (Rollo, p. 21). Thus,
respondents opted instead for the "Comparable Sales Approach" on
the ground that the value estimate of the properties predicated upon
prices paid in actual, market transactions would be a uniform and a
more credible standards to use especially in case of mass appraisal
of properties (Ibid.). Otherwise stated, public respondents would have
this Court completely ignore the effects of the restrictions of P.D. No.
20 on the market value of properties within its coverage. In any event,
it is unquestionable that both the "Comparable Sales Approach" and
the "Income Approach" are generally acceptable methods of
appraisal for taxation purposes (The Law on Transfer and Business
Taxation by Hector S. De Leon, 1988 Edition). However, it is
conceded that the propriety of one as against the other would of
course depend on several factors. Hence, as early as 1923 in the
case of Army & Navy Club, Manila v. Wenceslao Trinidad, G.R. No.
19297 (44 Phil. 383), it has been stressed that the assessors, in
finding the value of the property, have to consider all the
circumstances and elements of value and must exercise a prudent
discretion in reaching conclusions.

Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule
of taxation must not only be uniform, but must also be equitable and
progressive.
Uniformity has been defined as that principle by which all taxable articles or
kinds of property of the same class shall be taxed at the same rate
(Churchill v. Concepcion, 34 Phil. 969 [1916]).

Notably in the 1935 Constitution, there was no mention of the equitable or

progressive aspects of taxation required in the 1973 Charter (Fernando
"The Constitution of the Philippines", p. 221, Second Edition). Thus, the
need to examine closely and determine the specific mandate of the
Constitution.

Taxation is said to be equitable when its burden falls on those better able to
pay. Taxation is progressive when its rate goes up depending on the
resources of the person affected (Ibid.).

The power to tax "is an attribute of sovereignty". In fact, it is the strongest

of all the powers of government. But for all its plenitude the power to tax is
not unconfined as there are restrictions. Adversely effecting as it does
property rights, both the due process and equal protection clauses of the
Constitution may properly be invoked to invalidate in appropriate cases a
revenue measure. If it were otherwise, there would be truth to the 1903
dictum of Chief Justice Marshall that "the power to tax involves the power
to destroy." The web or unreality spun from Marshall's famous dictum was
brushed away by one stroke of Mr. Justice Holmes pen, thus: "The power
to tax is not the power to destroy while this Court sits. So it is in the
Philippines " (Sison, Jr. v. Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v.
Commissioner of Internal Revenue, 139 SCRA 439 [1985]).

In the same vein, the due process clause may be invoked where a taxing
statute is so arbitrary that it finds no support in the Constitution. An obvious
example is where it can be shown to amount to confiscation of property.
That would be a clear abuse of power (Sison v. Ancheta, supra).

The taxing power has the authority to make a reasonable and natural
classification for purposes of taxation but the government's act must not be
prompted by a spirit of hostility, or at the very least discrimination that finds
no support in reason. It suffices then that the laws operate equally and
uniformly on all persons under similar circumstances or that all persons
must be treated in the same manner, the conditions not being different both
in the privileges conferred and the liabilities imposed (Ibid., p. 662).
Finally under the Real Property Tax Code (P.D. 464 as amended), it is
declared that the first Fundamental Principle to guide the appraisal and
assessment of real property for taxation purposes is that the property must
be "appraised at its current and fair market value."

By no strength of the imagination can the market value of properties

covered by P.D. No. 20 be equated with the market value of properties not
so covered. The former has naturally a much lesser market value in view of
the rental restrictions.

Ironically, in the case at bar, not even the factors determinant of the
assessed value of subject properties under the "comparable sales
approach" were presented by the public respondents, namely: (1) that the
sale must represent a bonafide arm's length transaction between a willing
seller and a willing buyer and (2) the property must be comparable property
(Rollo, p. 27). Nothing can justify or support their view as it is of judicial
notice that for properties covered by P.D. 20 especially during the time in
question, there were hardly any willing buyers. As a general rule, there
were no takers so that there can be no reasonable basis for the conclusion
that these properties were comparable with other residential properties not
burdened by P.D. 20. Neither can the given circumstances be nonchalantly
dismissed by public respondents as imposed under distressed conditions
clearly implying that the same were merely temporary in character. At this
point in time, the falsity of such premises cannot be more convincingly
demonstrated by the fact that the law has existed for around twenty (20)
years with no end to it in sight.

Verily, taxes are the lifeblood of the government and so should be collected
without unnecessary hindrance. However, such collection should be made
in accordance with law as any arbitrariness will negate the very reason for
government itself It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real
purpose of taxations, which is the promotion of the common good, may be
achieved (Commissioner of Internal Revenue v. Algue Inc., et al., 158
SCRA 9 [1988]). Consequently, it stands to reason that petitioners who are
burdened by the government by its Rental Freezing Laws (then R.A. No.
6359 and P.D. 20) under the principle of social justice should not now be
penalized by the same government by the imposition of excessive taxes
petitioners can ill afford and eventually result in the forfeiture of their
properties.
By the public respondents' own computation the assessment by income
approach would amount to only P10.00 per sq. meter at the time in
question.

PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed

decisions of public respondents are REVERSED and SET ASIDE; and (e)
the respondent Board of Assessment Appeals of Manila and the City
Assessor of Manila are ordered to make a new assessment by the income
approach method to guarantee a fairer and more realistic basis of
computation (Rollo, p. 71).

SO ORDERED.

G.R. No. 166494              June 29, 2007

CARLOS SUPERDRUG CORP., doing business under the name and

style "Carlos Superdrug," ELSIE M. CANO, doing business under the
name and style "Advance Drug," Dr. SIMPLICIO L. YAP, JR., doing
business under the name and style "City Pharmacy," MELVIN S. DELA
SERNA, doing business under the name and style "Botica dela
Serna," and LEYTE SERV-WELL CORP., doing business under the
name and style "Leyte Serv-Well Drugstore," petitioners,
vs.
DEPARTMENT OF SOCIAL WELFARE and DEVELOPMENT (DSWD),
DEPARTMENT OF HEALTH (DOH), DEPARTMENT OF FINANCE (DOF),
DEPARTMENT OF JUSTICE (DOJ), and DEPARTMENT OF INTERIOR
and LOCAL GOVERNMENT (DILG), respondents.

DECISION

AZCUNA, J.:

This is a petition1 for Prohibition with Prayer for Preliminary Injunction

assailing the constitutionality of Section 4(a) of Republic Act (R.A.) No.
9257,2 otherwise known as the "Expanded Senior Citizens Act of 2003."

 Petitioners are domestic corporations and proprietors operating

drugstores in the Philippines.
 Public respondents, on the other hand, include the Department of
Social Welfare and Development (DSWD), the Department of Health
(DOH), the Department of Finance (DOF), the Department of Justice
 (DOJ), and the Department of Interior and Local Government (DILG)
which have been specifically tasked to monitor the drugstores’
compliance with the law; promulgate the implementing rules and
regulations for the effective implementation of the law; and prosecute
and revoke the licenses of erring drugstore establishments.

 On February 26, 2004, R.A. No. 9257, amending R.A. No. 7432, 3 was
signed into law by President Gloria Macapagal-Arroyo and it became
effective on March 21, 2004. Section 4(a) of the Act provided for
Privileges for the Senior Citizens. Where the senior citizens shall be
entitled to (a) the grant of twenty percent (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;

...

The establishment may claim the discounts granted under (a), (f), (g) and
(h) as tax deduction based on the net cost of the goods sold or services
rendered: Provided, That the cost of the discount shall be allowed as
deduction from gross income for the same taxable year that the discount is
granted. Provided, further, That the total amount of the claimed tax
deduction net of value added tax if applicable, shall be included in their
gross sales receipts for tax purposes and shall be subject to proper
documentation and to the provisions of the National Internal Revenue
Code, as amended.4

 On May 28, 2004, the DSWD approved and adopted the

Implementing Rules and Regulations of R.A. No. 9257, Rule VI,
Article 8 of which states:

Article 8. Tax Deduction of Establishments. – The establishment may claim

the discounts granted under Rule V, Section 4 – Discounts for
Establishments;5 Section 9, Medical and Dental Services in Private
Facilities[,]6 and Sections 107 and 118 – Air, Sea and Land Transportation
as tax deduction based on the net cost of the goods sold or services
rendered. Provided, That the cost of the discount shall be allowed as
deduction from gross income for the same taxable year that the discount is
granted; Provided, further, That the total amount of the claimed tax
deduction net of value added tax if applicable, shall be included in their
gross sales receipts for tax purposes and shall be subject to proper
documentation and to the provisions of the National Internal Revenue
Code, as amended; Provided, finally, that the implementation of the tax
deduction shall be subject to the Revenue Regulations to be issued by the
Bureau of Internal Revenue (BIR) and approved by the Department of
Finance (DOF).9

 On July 10, 2004, in reference to the query of the Drug Stores

Association of the Philippines (DSAP) concerning the meaning of
a tax deduction under the Expanded Senior Citizens Act, the DOF,
through Director IV Ma. Lourdes B. Recente, clarified as follows:

1) The difference between the Tax Credit (under the Old Senior Citizens
Act) and Tax Deduction (under the Expanded Senior Citizens Act).

1.1. The provision of Section 4 of R.A. No. 7432 (the old Senior Citizens
Act) grants twenty percent (20%) discount from all establishments relative
to the utilization of transportation services, hotels and similar lodging
establishment, restaurants and recreation centers and purchase of
medicines anywhere in the country, the costs of which may be claimed by
the private establishments concerned as tax credit.

Effectively, a tax credit is a peso-for-peso deduction from a taxpayer’s tax

liability due to the government of the amount of discounts such
establishment has granted to a senior citizen. The establishment recovers
the full amount of discount given to a senior citizen and hence, the
government shoulders 100% of the discounts granted.

It must be noted, however, that conceptually, a tax credit scheme under the

Philippine tax system, necessitates that prior payments of taxes have been
made and the taxpayer is attempting to recover this tax payment from
his/her income tax due. The tax credit scheme under R.A. No. 7432 is,
therefore, inapplicable since no tax payments have previously occurred.

1.2. The provision under R.A. No. 9257, on the other hand, provides that
the establishment concerned may claim the discounts under Section 4(a),
(f), (g) and (h) as tax deduction from gross income, based on the net cost
of goods sold or services rendered.
Under this scheme, the establishment concerned is allowed to deduct from
gross income, in computing for its tax liability, the amount of discounts
granted to senior citizens. Effectively, the government loses in terms of
foregone revenues an amount equivalent to the marginal tax rate the said
establishment is liable to pay the government. This will be an amount
equivalent to 32% of the twenty percent (20%) discounts so granted. The
establishment shoulders the remaining portion of the granted discounts.

It may be necessary to note that while the burden on [the] government is

slightly diminished in terms of its percentage share on the discounts
granted to senior citizens, the number of potential establishments that may
claim tax deductions, have however, been broadened. Aside from the
establishments that may claim tax credits under the old law, more
establishments were added under the new law such as: establishments
providing medical and dental services, diagnostic and laboratory services,
including professional fees of attending doctors in all private hospitals and
medical facilities, operators of domestic air and sea transport services,
public railways and skyways and bus transport services.

A simple illustration might help amplify the points discussed above, as

follows:

Tax Deduction Tax Credit

Gross Sales x x x x x x x x x x x x

Less : Cost of goods sold x x x x x x x x x x

Net Sales x x x x x x x x x x x x

Less: Operating Expenses:

Tax Deduction on Discounts x x x x --

Other deductions: x x x x x x x x

Net Taxable Income x x x x x x x x x x

Tax Due x x x x x x

Less: Tax Credit -- ______x x

Net Tax Due -- x x

As shown above, under a tax deduction scheme, the tax deduction on

discounts was subtracted from Net Sales together with other deductions
which are considered as operating expenses before the Tax Due was
computed based on the Net Taxable Income. On the other hand, under
a tax credit scheme, the amount of discounts which is the tax credit item,
was deducted directly from the tax due amount. 10

Meanwhile, on October 1, 2004, Administrative Order (A.O.) No. 171 or

the Policies and Guidelines to Implement the Relevant Provisions of
Republic Act 9257, otherwise known as the "Expanded Senior Citizens Act
of 2003"11 was issued by the DOH, providing the grant of twenty percent
(20%) discount in the purchase of unbranded generic medicines from all
establishments dispensing medicines for the exclusive use of the senior
citizens.

On November 12, 2004, the DOH issued Administrative Order No

17712 amending A.O. No. 171. Under A.O. No. 177, the twenty percent
discount shall not be limited to the purchase of unbranded generic
medicines only, but shall extend to both prescription and non-prescription
medicines whether branded or generic. Thus, it stated that "[t]he grant of
twenty percent (20%) discount shall be provided in the purchase of
medicines from all establishments dispensing medicines for the exclusive
use of the senior citizens."

Petitioners assail the constitutionality of Section 4(a) of the Expanded

Senior Citizens Act based on the following grounds: 13

1) The law is confiscatory because it infringes Art. III, Sec. 9 of the

Constitution which provides that private property shall not be taken for
public use without just compensation;

2) It violates the equal protection clause (Art. III, Sec. 1) enshrined in our
Constitution which states that "no person shall be deprived of life, liberty or
property without due process of law, nor shall any person be denied of the
equal protection of the laws;" 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." 14
Petitioners assert that 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.

Examining petitioners’ arguments, it is apparent that what petitioners are

ultimately questioning is the validity of the tax deduction scheme as a
reimbursement mechanism for the twenty percent (20%) discount that they
extend to senior citizens.

Based on the afore-stated DOF Opinion, the tax deduction scheme does
not fully reimburse petitioners for the discount privilege accorded to senior
citizens. This is because the discount is treated as a deduction, a tax-
deductible expense that is subtracted from the gross income and results in
a lower taxable income. Stated otherwise, it is an amount that is allowed by
law15 to reduce the income prior to the application of the tax rate to
compute the amount of tax which is due.16 Being a tax deduction, the
discount does not reduce taxes owed on a peso for peso basis but merely
offers a fractional reduction in taxes owed.

Theoretically, the treatment of the discount as a deduction reduces the net

income of the private establishments concerned. The discounts given
would have entered the coffers and formed part of the gross sales of the
private establishments, were it not for R.A. No. 9257.

The permanent reduction in their total revenues is a forced subsidy

corresponding to the taking of private property for public use or
benefit.17 This constitutes compensable taking for which petitioners would
ordinarily become entitled to a just compensation.

Just compensation is defined as the full and fair equivalent of the property
taken from its owner by the expropriator. The measure is not the taker’s
gain but the owner’s loss. The word just is used to intensify the meaning of
the word compensation, and to convey the idea that the equivalent to be
rendered for the property to be taken shall be real, substantial, full and
ample.18
A tax deduction does not offer full reimbursement of the senior citizen
discount. As such, it would not meet the definition of just compensation. 19

Having said that, this raises the question of whether the State, in promoting
the health and welfare of a special group of citizens, can impose upon
private establishments the burden of partly subsidizing a government
program.

The Court believes so.

 The Senior Citizens Act was enacted primarily to maximize the

contribution of senior citizens to nation-building, and to grant benefits
and privileges to them for their improvement and well-being as the
State considers them an integral part of our society. 20 The priority
given to senior citizens finds its basis in the Constitution as set forth
in the law itself. pursuant to Article XV, Section 4 of the Constitution, i
 Consonant with these constitutional principles the following are the
declared policies of this Act:

...

(f) To recognize the important role of the private sector in the

improvement of the welfare of senior citizens and to actively seek
their partnership.21

 To implement the above policy, the law grants a twenty percent

discount to senior citizens for medical and dental services, and
diagnostic and laboratory fees; admission fees charged by theaters,
concert halls, circuses, carnivals, and other similar places of culture,
leisure and amusement; fares for domestic land, air and sea travel;
utilization of services in hotels and similar lodging establishments,
restaurants and recreation centers; and purchases of medicines for
the exclusive use or enjoyment of senior citizens. As a form of
reimbursement, the law provides that business establishments
extending the twenty percent discount to senior citizens may claim
the discount as a tax deduction.

The law is a legitimate exercise of police power which, similar to the power
of eminent domain, has general welfare for its object. Police power is not
capable of an exact definition, but has been purposely veiled in general
terms to underscore its comprehensiveness to meet all exigencies and
provide enough room for an efficient and flexible response to conditions
and circumstances, thus assuring the greatest benefits. 22 Accordingly, it
has been described as "the most essential, insistent and the least limitable
of powers, extending as it does to all the great public needs." 23 It is "[t]he
power vested in the legislature by the constitution to make, ordain, and
establish all manner of wholesome and reasonable laws, statutes, and
ordinances, either with penalties or without, not repugnant to the
constitution, as they shall judge to be for the good and welfare of the
commonwealth, and of the subjects of the same." 24

For this reason, 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.25

Police power as an attribute to promote the common good would be diluted

considerably if on the mere plea of petitioners that they will suffer loss of
earnings and capital, the questioned provision is invalidated. Moreover, 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. 26

Given these, it is incorrect for petitioners to insist that the grant of the
senior citizen discount is unduly oppressive to their business, because
petitioners have not taken time to calculate correctly and come up with a
financial report, so that they have not been able to show properly whether
or not the tax deduction scheme really works greatly to their
disadvantage.27

In treating the discount as a tax deduction, petitioners insist that they will
incur losses because, referring to the DOF Opinion, for every ₱1.00 senior
citizen discount that petitioners would give, ₱0.68 will be shouldered by
them as only ₱0.32 will be refunded by the government by way of a tax
deduction.

To illustrate this point, petitioner Carlos Super Drug cited the anti-
hypertensive maintenance drug Norvasc as an example. According to the
latter, it acquires Norvasc from the distributors at ₱37.57 per tablet, and
retails it at ₱39.60 (or at a margin of 5%). If it grants a 20% discount to
senior citizens or an amount equivalent to ₱7.92, then it would have to
sell Norvasc at ₱31.68 which translates to a loss from capital of ₱5.89 per
tablet. Even if the government will allow a tax deduction, only ₱2.53 per
tablet will be refunded and not the full amount of the discount which is
₱7.92. In short, only 32% of the 20% discount will be reimbursed to the
drugstores.28

Petitioners’ computation is flawed. For purposes of reimbursement, the law

states that the cost of the discount shall be deducted from gross
income,29 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.

Furthermore, it is unfair for petitioners to criticize the law because they

cannot raise the prices of their medicines given the cutthroat nature of the
players in the industry. It is a business decision on the part of petitioners to
peg the mark-up at 5%. Selling the medicines below acquisition cost, as
alleged by petitioners, is merely a result of this decision. Inasmuch as
pricing is a property right, petitioners cannot reproach the law for being
oppressive, simply because they cannot afford to raise their prices for fear
of losing their customers to competition.

The Court is not oblivious of the retail side of the pharmaceutical industry
and the competitive pricing component of the business. While the
Constitution protects property rights, petitioners must accept the realities of
business and the State, in the exercise of police power, can intervene in
the operations of a business which may result in an impairment of property
rights in the process.

Moreover, the right to property has a social dimension. While Article XIII of
the Constitution provides the precept for the protection of property, various
laws and jurisprudence, particularly on agrarian reform and the regulation
of contracts and public utilities, continuously serve as a reminder that the
right to property can be relinquished upon the command of the State for the
promotion of public good.30

Undeniably, the success of the senior citizens program rests largely on the
support imparted by petitioners and the other private establishments
concerned. This being the case, the means employed in invoking the active
participation of the private sector, in order to achieve the purpose or
objective of the law, is reasonably and directly related. Without sufficient
proof that Section 4(a) of R.A. No. 9257 is arbitrary, and that the continued
implementation of the same would be unconscionably detrimental to
petitioners, the Court will refrain from quashing a legislative act. 31

WHEREFORE, the petition is DISMISSED for lack of merit.

No costs.

SO ORDERED.