SC upholds 20% discount for elderly

By Leila Salaverria
Last updated 01:56am (Mla time) 07/05/2007

MANILA, Philippines — Saying public good can prevail over the right to property, the Supreme Court has dismissed a petition questioning the constitutionality of a provision in the Expanded Senior Citizens Act of 2003 giving persons aged 60 and older a 20-percent discount in purchasing medicines and paying for certain services.


In turning down the petition of a number of drugstore owners to nullify the provision on grounds of financial losses, the high court said there was no proof that the provision had been arbitrarily issued and would oppress their business operations.


“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,” the high court said in a June 29 en banc decision.


The petition was filed by Carlos Superdrug Corp., Elsie Cano of Advance Drug, Dr. Simplicio Yap of City Pharmacy, Melvin dela Serna of Botica dela Serna and Leyte Serv-Well Corp., who said, among others, that the tax deductions they could claim for giving discounts to senior citizens did not fully reimburse them.




The drugstore owners said the provision in the Expanded Senior Citizens Act (or Republic Act No. 9257) was confiscatory in light of the constitutional provision stating that private property could not be taken for public use without just compensation.


They also said the provision deprived them of property without due process and violated the constitutional guarantee making essential goods and health services available to all people.


The drugstore owners said they were losing profit and capital because they imposed a markup of only 5 to 10 percent on branded medicines, and because the law did not provide a scheme where they could be justly compensated for the discounts.


The tax-deduction scheme, based on an opinion of the Department of Finance, does not afford drugstores full reimbursement because the discount is treated as a tax-deductible expense subtracted from the gross income.


Noted the high court: “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, it said, this reduced the net income of the drugstore owners.


But it pointed out that the law was intended to grant senior citizens benefits and privileges to improve their well-being and maximize their contribution to improving society.


Police power


The tribunal said it recognized that the pharmaceutical industry was a business. But it added that in exercising its police power, the State could step in and ask business operators to partly subsidize a government program to promote the welfare of senior citizens.


The Constitution itself also states that the government should improve the welfare of senior citizens, it said.


“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,” it said, adding:


“The law is a legitimate exercise of police power which, similar to the power of eminent domain, has general welfare for its object.


“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.”


Invalidating the law on the 20-percent discount just because drugstores lose earnings will also “dilute” the use of police power to promote the common good, the tribunal further said.




According to the high court, the drugstore owners also failed to come up with a financial report to show that the tax-deduction scheme had put them at a disadvantage.


It said that while the computation presented by the drugstore owners tried to show losses based on a per-transaction basis, this would not hold because it was an income statement that would accurately reflect the discount’s effect on their income.


“In addition, the computation was erroneously based on the assumption that their customers consisted wholly of senior citizens,” it added.


The tribunal also said the drugstore owners could not use as an argument against the law their inability to raise the prices of their medicines because of the tight competition in the industry.


“It is a business decision on the part of petitioners to peg the markup at 5 percent. Selling the medicines below acquisition cost, as alleged by petitioners, is merely a result of this decision,” it said.


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