Mike Frialde
Philippine Star

The Supreme Court (SC) yesterday upheld the constitutionality of a provision of Republic Act 9257 or the Expanded Senior Citizens Act of 2003 giving senior citizens a 20 percent discount in the purchase of medicine.

In a 15-page decision penned by Associate Justice Adolfo Azcuna, the Court junked the petition filed by drugstores Carlos Superdrug Corp., Advance Drug, Botica de la Serna and Leyte Serv-Well Corp. seeking to declare Section 4 (a) of RA 9257 unconstitutional for constituting deprivation of property.

 The provision states that “senior citizens are entitled to 20 percent discount from all establishments relative to the utilization of transportation services, hotels and similar lodging establishments, restaurants and recreation centers and purchase of medicine anywhere in the country, the cost of which may be claimed by the private establishments concerned as tax credit.”

The drugstores argued that the provision violates Article III Section 1 of the Constitution which states that “no person shall be deprived of life, liberty, or property without due process of law, nor shall be denied of the equal protection of the laws.”

In addition, the drugstores further argued that the 20 percent discount on medicine 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.”

They contended that compelling drugstore owners and establishments to grant the discount will result in a loss of profit and capital since they impose a mark-up of only five to 10 percent on branded medicine.

The petitioners also noted that the law also failed to provide a scheme whereby drugstores would be justly compensated for the discount.

The petitioners further insisted that for every P1 in senior citizen discount that they give, 68 centavos would be shouldered by them and 32 centavos will be refunded by the government by way of tax deduction.

However, the Court said that what the petitioners are actually questioning is the validity of the tax deduction scheme as a reimbursement mechanism for the 20 percent discount that they will extend to senior citizens.

The SC said the petitioners were referring to the opinion issued by the Department of Finance on July 10, 2004 on the query of the Drug Stores Association of the Philippines (DSAP) concerning the meaning of tax deduction under the Expanded Senior Citizens Act.

Based on the opinion, the tax deduction scheme does not fully reimburse petitioners for the discount privilege accorded to senior citizens since the discount is treated as a deduction.

Under the scheme, the establishment concerned may claim the discounts as tax deduction from gross income, based on the net cost of goods or services rendered.

 In terms of foregone revenues, the government, according to the DOF, loses an amount equivalent to the marginal tax rate the establishment is liable to pay the government.

The amount, the DOF said, is equivalent to 32 percent of the 20 percent discount granted to the establishment while the latter shoulders the remaining portion of the granted discount.

 The Court admitted that the imposition of the 20 percent discount reduces the net income of the private companies concerned. But it also stressed that the State can impose on private establishments the burden of partly subsidizing a government program in order to promote the health and welfare of a special group of citizens.

The Court stressed that Republic Act 9257 is a legitimate exercise of a police power aimed at protecting the welfare of the country’s senior citizens.

“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,” the court said.

“Moreover, in the absence of evidence demonstrating alleged confiscatory (nature) 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,” the SC declared.

The computation of the petitioners, according to the decision, was also erroneous as it was based on the assumption that their customers consisted wholly of senior citizens.The SC further explained that the 32 percent tax rate is to be imposed on income, not on the amount of the discount.

“It is unfair for petitioners to criticize the law because they cannot raise the prices of their medicine 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 percent… Inasmuch as pricing 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 said.