CASE DIGEST: MMP v. DPWH Sec. (G.R. No. 175356)


FACTS: On April 23, 1992, RA 7432 or the Seniors Citizens Act was passed into law granting 20% discounts from all establishments relative to utilization of transportation services, hotels and similar lodging establishments, restaurants and recreation centers and purchase of medicine anywhere in the country, Provided, That private establishments may claim the cost as tax credit.On August 23, 1993, Revenue Regulations (RR) No. 02-94 was issued to implement RA 7432. Sections 2(i) of which provides for the definition of a Tax credit which refers to the amount representing the 20% discount granted to a qualified senior citizen by all establishments which discount shall be deducted by the said establishments from their gross income for income tax purposes and from their gross sales for value-added tax or other percentage tax purposes and Section 4 of RR No. 02-94 which provides for the recording/bookkeeping requirements for private establishments requiring them to keep separate and accurate records of sales made to senior citizens.

In CIR v. Central Luzon Drug Corp, 496 Phil 307 (2005), the Court declared Sections 2(i) and 4 of RR No. 02-94 as erroneous because these contravene RA 7432 that specifically allow private establishments to claim a tax credit the amount of discounts they grant. In turn the IRR issued pursuant thereto provide for the procedures for its availment. To deny such credit, despite the plain mandate of the law and the regulations carrying out that mandate, is indefensible.

In effect, the tax credit benefit under RA 7432 is related to a sales discount. This contrived definition is improper, considering that the latter has to be deducted from gross sales in order to compute the gross income in the income statement and cannot be deducted again, even for purposes of computing the income tax. When the law says that the cost of the discount may be claimed as a tax credit, it means that the amount when claimed shall be treated as a reduction from any tax liability, plain and simple. The option to avail of the tax credit benefit depends upon the existence of a tax liability, but to limit the benefit to a sales discount which is not even identical to the discount privilege that is granted by law does not define it at all and serves no useful purpose. The definition must, therefore, be stricken down.

The law cannot be amended by a mere regulation. In fact, a regulation that "operates to create a rule out of harmony with the statute is a mere nullity;" it cannot prevail. It is a cardinal rule that courts "will and should respect the contemporaneous construction placed upon a statute by the executive officers whose duty it is to enforce it x x x."

In the present case, the tax authorities have given the term tax credit in Sections 2.i and 4 of RR 2-94 a meaning utterly in contrast to what RA 7432 provides. The intent of Congress in granting a mere discount privilege, not a sales discount.

In case of conflict, the law must prevail. A "regulation adopted pursuant to law is law." Conversely, a regulation or any portion thereof not adopted pursuant to law is no law and has neither the force nor the effect of law.

On February 26, 2004, RA 9257 or the Expanded Senior Citizens Actamended certain provisions of RA 7432, granting 20% discount to qualified senior citizens and the establishments may claim the discounts granted 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.

The Secretary of Finance issued RR No. 4-2006 and the DSWD issued its own IRR for their implementation of the tax provision of RA 9257.

Petitioners Manila Memorial Park, Inc. and La Funeraria Paz-Sucat, Inc., domestic corporations engaged in the business of providing funeral and burial services, feeling aggrieved by the tax deduction scheme, petitioners prayed that Section 4 of RA 9257 and the IRR issued by DSWD and the DOF be declared unconstitutional insofar as these allow business establishments to claim the 20% discount given to senior citizens as a tax deduction; that the DSWD and the DOF be prohibited from enforcing the same; and that the tax credit treatment of the 20% discount under the former Section 4 (a) of RA 7432 be reinstated.


Whether the petition presents an actual case or controversy

Whether Section 4 of RA No. 9257 and its Implementing Rules and Regulations, insofar as they provide that the 20% discount to Senior Citizens may be claimed as tax deduction by the private establishments are invalid and unconstitutional.

HELD: The Petition lacks merit. We shall first resolve the procedural issue. When the constitutionality of a law is put in issue, judicial review may be availed of only if the following requisites concur: "(1) the existence of an actual and appropriate case; (2) the existence of personal and substantial interest on the part of the party raising the question of constitutionality; (3) recourse to judicial review is made at the earliest opportunity; and (4) the question of constitutionality is the lis mota of the case." General v. Urro, G.R. No. 191560, March 29, 2011

In this case, the tax deduction scheme challenged by petitioners has a direct adverse effect on them. Thus, there exists an actual case or controversy.

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. 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. 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 takers gain but the owners 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.

A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it would not meet the definition of just compensation. 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.

The priority given to senior citizens finds its basis in the Constitution as set forth in the law itself.

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.

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.

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. Carlos Superdrug Corp v. DSWD, 553 Phil. 120 (2007).

When we ruled that petitioners in Carlos Superdrug case failed to prove that the 20% discount is arbitrary, oppressive or confiscatory. We noted that no evidence, such as a financial report, to establish the impact of the 20% discount on the overall profitability of petitioners was presented in order to show that they would be operating at a loss due to the subject regulation or that the continued implementation of the law would be unconscionably detrimental to the business operations of petitioners.

In the case at bar, petitioners proceeded with a hypothetical computation of the alleged loss that they will suffer similar to what the petitioners in Carlos Superdrug Corporation did.

We, thus, found that the 20% discount as well as the tax deduction scheme is a valid exercise of the police power of the State. Hence, the Law is valid and constitutional.