MANILA MEMORIAL PARK, INC. AND LA FUNERARIA PAZ-SUCAT, INC.

, Petitioners,
vs.
SECRETARY OF THE DEPARTMENT OF SOCIAL WELFARE AND DEVELOPMENT and THE
SECRETARY OF THE DEPARTMENT OF FINANCE, Respondents.

DECISION

DEL CASTILLO, J.:

When a party challeges the constitutionality of a law, the burden of proof rests upon him.

Before us is a Petition for Prohibition2 under Rule 65 of the Rules of Court filed by petitioners Manila
Memorial Park, Inc. and La Funeraria Paz-Sucat, Inc., domestic corporations engaged in the
business of providing funeral and burial services, against public respondents Secretaries of the
Department of Social Welfare and Development (DSWD) and the Department of Finance (DOF).

Petitioners assail the constitutionality of Section 4 of Republic Act (RA) No. 7432,3 as amended by RA
9257,4 and the implementing rules and regulations issued by the DSWD and DOF insofar as these
allow business establishments to claim the 20% discount given to senior citizens as a tax deduction.

Factual Antecedents

On April 23, 1992, RA 7432 was passed into law, granting senior citizens the following privileges:

SECTION 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to the following:

a) the grant of twenty percent (20%) discount from all establishments relative to utilization of
transportation services, hotels and similar lodging establishment[s], restaurants and recreation
centers and purchase of medicine anywhere in the country: Provided, That private
establishments may claim the cost as tax credit;

b) a minimum of twenty percent (20%) discount on admission fees charged by theaters,

cinema houses and concert halls, circuses, carnivals and other similar places of culture,
leisure, and amusement;

c) exemption from the payment of individual income taxes: Provided, That their annual taxable
income does not exceed the property level as determined by the National Economic and
Development Authority (NEDA) for that year;

d) exemption from training fees for socioeconomic programs undertaken by the OSCA as part
of its work;

e) free medical and dental services in government establishment[s] anywhere in the country,
subject to guidelines to be issued by the Department of Health, the Government Service
Insurance System and the Social Security System;

f) to the extent practicable and feasible, the continuance of the same benefits and privileges
given by the Government Service Insurance System (GSIS), Social Security System (SSS)
and PAG-IBIG, as the case may be, as are enjoyed by those in actual service.
On August 23, 1993, Revenue Regulations (RR) No. 02-94 was issued to implement RA 7432.
Sections 2(i) and 4 of RR No. 02-94 provide:

Sec. 2. DEFINITIONS. – For purposes of these regulations: i. Tax Credit – refers to the amount
representing the 20% discount granted to a qualified senior citizen by all establishments relative to
their utilization of transportation services, hotels and similar lodging establishments, restaurants,
drugstores, recreation centers, theaters, cinema houses, concert halls, circuses, carnivals and other
similar places of culture, leisure and amusement, 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. x x x x Sec. 4. RECORDING/BOOKKEEPING
REQUIREMENTS FOR PRIVATE ESTABLISHMENTS. – Private establishments, i.e., transport
services, hotels and similar lodging establishments, restaurants, recreation centers, drugstores,
theaters, cinema houses, concert halls, circuses, carnivals and other similar places of culture[,]
leisure and amusement, giving 20% discounts to qualified senior citizens are required to keep
separate and accurate record[s] of sales made to senior citizens, which shall include the name,
identification number, gross sales/receipts, discounts, dates of transactions and invoice number for
every transaction. The amount of 20% discount shall be deducted from the gross income for income
tax purposes and from gross sales of the business enterprise concerned for purposes of the VAT and
other percentage taxes.

In Commissioner of Internal Revenue v. Central Luzon Drug Corporation,5 the Court declared
Sections 2(i) and 4 of RR No. 02-94 as erroneous because these contravene RA 7432,6 thus:

RA 7432 specifically allows private establishments to claim as tax credit the amount of discounts they
grant. In turn, the Implementing Rules and Regulations, issued pursuant thereto, provide 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. First, the definition given by petitioner is
erroneous. It refers to tax credit as the amount representing the 20 percent discount that "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." In ordinary business language,
the tax credit represents the amount of such discount. However, the manner by which the discount
shall be credited against taxes has not been clarified by the revenue regulations. By ordinary
acceptation, a discount is an "abatement or reduction made from the gross amount or value of
anything." To be more precise, it is in business parlance "a deduction or lowering of an amount of
money;" or "a reduction from the full amount or value of something, especially a price." In business
there are many kinds of discount, the most common of which is that affecting the income statement or
financial report upon which the income tax is based.

xxxx

Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20 percent discount
deductible from gross income for income tax purposes, or from gross sales for VAT or other
percentage tax purposes. 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.
Laws Not Amended by Regulations

Second, 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 scheme of judicial tax administration, the
need for certainty and predictability in the implementation of tax laws is crucial. Our tax authorities fill
in the details that "Congress may not have the opportunity or competence to provide." The
regulations these authorities issue are relied upon by taxpayers, who are certain that these will be
followed by the courts. Courts, however, will not uphold these authorities’ interpretations when clearly
absurd, erroneous or improper. 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. Their
interpretation has muddled x x x the intent of Congress in granting a mere discount privilege, not a
sales discount. The administrative agency issuing these regulations may not enlarge, alter or restrict
the provisions of the law it administers; it cannot engraft additional requirements not contemplated by
the legislature.

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.7

On February 26, 2004, RA 92578 amended certain provisions of RA 7432, to wit:

SECTION 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to the following:

(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;

xxxx

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.

To implement the tax provisions of RA 9257, the Secretary of Finance issued RR No. 4-2006, the
pertinent provision of which provides:

SEC. 8. AVAILMENT BY ESTABLISHMENTS OF SALES DISCOUNTS AS DEDUCTION FROM

GROSS INCOME. – Establishments enumerated in subparagraph (6) hereunder granting sales
discounts to senior citizens on the sale of goods and/or services specified thereunder are entitled to
deduct the said discount from gross income subject to the following conditions:

(1) Only that portion of the gross sales EXCLUSIVELY USED, CONSUMED OR ENJOYED BY
THE SENIOR CITIZEN shall be eligible for the deductible sales discount.
 (2) The gross selling price and the sales discount MUST BE SEPARATELY INDICATED IN
THE OFFICIAL RECEIPT OR SALES INVOICE issued by the establishment for the sale of
goods or services to the senior citizen.

(3) Only the actual amount of the discount granted or a sales discount not exceeding 20% of
the gross selling price can be deducted from the gross income, net of value added tax, if
applicable, for income tax purposes, and from gross sales or gross receipts of the business
enterprise concerned, for VAT or other percentage tax purposes.

(4) The discount can only be allowed as deduction from gross income for the same taxable
year that the discount is granted.

(5) The business establishment giving sales discounts to qualified senior citizens is required to
keep separate and accurate record[s] of sales, which shall include the name of the senior
citizen, TIN, OSCA ID, gross sales/receipts, sales discount granted, [date] of [transaction] and
invoice number for every sale transaction to senior citizen.

(6) Only the following business establishments which granted sales discount to senior citizens
on their sale of goods and/or services may claim the said discount granted as deduction from
gross income, namely:

xxxx

(i) Funeral parlors and similar establishments – The beneficiary or any person who shall shoulder the
funeral and burial expenses of the deceased senior citizen shall claim the discount, such as casket,
embalmment, cremation cost and other related services for the senior citizen upon payment and
presentation of [his] death certificate.

The DSWD likewise issued its own Rules and Regulations Implementing RA 9257, to wit:

RULE VI DISCOUNTS AS TAX DEDUCTION OF ESTABLISHMENTS

Article 8. Tax Deduction of Establishments. – The establishment may claim the discounts granted
under Rule V, Section 4 – Discounts for Establishments, Section 9, Medical and Dental Services in
Private Facilities and Sections 10 and 11 – 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).

Feeling aggrieved by the tax deduction scheme, petitioners filed the present recourse, praying that
Section 4 of RA 7432, as amended by RA 9257, and the implementing rules and regulations issued
by the 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.
 Issues

Petitioners raise the following issues:

A.

WHETHER THE PETITION PRESENTS AN ACTUAL CASE OR CONTROVERSY.

B.

WHETHER SECTION 4 OF REPUBLIC ACT NO. 9257 AND X X X ITS IMPLEMENTING RULES
AND REGULATIONS, INSOFAR AS THEY PROVIDE THAT THE TWENTY PERCENT (20%)
DISCOUNT TO SENIOR CITIZENS MAY BE CLAIMED AS A TAX DEDUCTION BY THE PRIVATE
ESTABLISHMENTS, ARE INVALID AND UNCONSTITUTIONAL.9

Petitioners’ Arguments

Petitioners emphasize that they are not questioning the 20% discount granted to senior citizens but
are only assailing the constitutionality of the tax deduction scheme prescribed under RA 9257 and the
implementing rules and regulations issued by the DSWD and the DOF.10

Petitioners posit that the tax deduction scheme contravenes Article III, Section 9 of the Constitution,
which provides that: "[p]rivate property shall not be taken for public use without just compensation."11

In support of their position, petitioners cite Central Luzon Drug Corporation,12 where it was ruled that
the 20% discount privilege constitutes taking of private property for public use which requires the
payment of just compensation,13 and Carlos Superdrug Corporation v. Department of Social Welfare
and Development,14 where it was acknowledged that the tax deduction scheme does not meet the
definition of just compensation.15

Petitioners likewise seek a reversal of the ruling in Carlos Superdrug Corporation16 that the tax
deduction scheme adopted by the government is justified by police power.17

They assert that "[a]lthough both police power and the power of eminent domain have the general
welfare for their object, there are still traditional distinctions between the two"18 and that "eminent
domain cannot be made less supreme than police power."19

Petitioners further claim that the legislature, in amending RA 7432, relied on an erroneous
contemporaneous construction that prior payment of taxes is required for tax credit.20

Petitioners also contend that the tax deduction scheme violates Article XV, Section 421 and Article
XIII, Section 1122 of the Constitution because it shifts the State’s constitutional mandate or duty of
improving the welfare of the elderly to the private sector.23

Under the tax deduction scheme, the private sector shoulders 65% of the discount because only
35%24 of it is actually returned by the government.25

Consequently, the implementation of the tax deduction scheme prescribed under Section 4 of RA
9257 affects the businesses of petitioners.26
Thus, there exists an actual case or controversy of transcendental importance which deserves
judicious disposition on the merits by the highest court of the land.27

Respondents’ Arguments

Respondents, on the other hand, question the filing of the instant Petition directly with the Supreme
Court as this disregards the hierarchy of courts.28

They likewise assert that there is no justiciable controversy as petitioners failed to prove that the tax
deduction treatment is not a "fair and full equivalent of the loss sustained" by them.29

As to the constitutionality of RA 9257 and its implementing rules and regulations, respondents
contend that petitioners failed to overturn its presumption of constitutionality.30

More important, respondents maintain that the tax deduction scheme is a legitimate exercise of the
State’s police power.31

Our Ruling

The Petition lacks merit.

There exists an actual case or controversy.

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."32

In this case, petitioners are challenging the constitutionality of the tax deduction scheme provided in
RA 9257 and the implementing rules and regulations issued by the DSWD and the DOF.
Respondents, however, oppose the Petition on the ground that there is no actual case or controversy.
We do not agree with respondents. An actual case or controversy exists when there is "a conflict of
legal rights" or "an assertion of opposite legal claims susceptible of judicial resolution."33

The Petition must therefore show that "the governmental act being challenged has a direct adverse
effect on the individual challenging it."34

In this case, the tax deduction scheme challenged by petitioners has a direct adverse effect on them.
Thus, it cannot be denied that there exists an actual case or controversy.

The validity of the 20% senior citizen discount and tax deduction scheme under RA 9257, as
an exercise of police power of the State, has already been settled in Carlos Superdrug
Corporation.

Petitioners posit that the resolution of this case lies in the determination of whether the legally
mandated 20% senior citizen discount is an exercise of police power or eminent domain. If it is police
power, no just compensation is warranted. But if it is eminent domain, the tax deduction scheme is
unconstitutional because it is not a peso for peso reimbursement of the 20% discount given to senior
citizens. Thus, it constitutes taking of private property without payment of just compensation. At the
outset, we note that this question has been settled in Carlos Superdrug Corporation.35
In that case, we ruled:

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 law to reduce the income prior to the application of the tax rate to compute
the amount of tax which is due. 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 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. 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.1âwphi1 Thus, the Act provides: SEC. 2. Republic Act
No. 7432 is hereby amended to read as follows:

SECTION 1. Declaration of Policies and Objectives. — Pursuant to Article XV, Section 4 of the
Constitution, it is the duty of the family to take care of its elderly members while the State may design
programs of social security for them. In addition to this, Section 10 in the Declaration of Principles and
State Policies provides: "The State shall provide social justice in all phases of national development."
Further, Article XIII, Section 11, provides: "The State shall adopt an integrated and comprehensive
approach to health development which shall endeavor to make essential goods, health and other
social services available to all the people at affordable cost. There shall be priority for the needs of
the underprivileged sick, elderly, disabled, women and children." Consonant with these constitutional
principles the following are the declared policies of this Act:

xxx xxx xxx

(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.

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. 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." 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." 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. 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. 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. 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, P0.68 will be shouldered by them as only P0.32 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. Petitioners’ computation is flawed. For purposes of reimbursement, the law states that
the cost of the discount shall be deducted from gross income, 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 x x x reminder[s] that
the right to property can be relinquished upon the command of the State for the promotion of public
good. 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.36 (Bold
in the original; underline supplied)

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.

No compelling reason has been proffered to overturn, modify or abandon the ruling in Carlos
Superdrug Corporation.

Petitioners argue that we have previously ruled in Central Luzon Drug Corporation37 that the 20%
discount is an exercise of the power of eminent domain, thus, requiring the payment of just
compensation. They urge us to re-examine our ruling in Carlos Superdrug Corporation38 which
allegedly reversed the ruling in Central Luzon Drug Corporation.39

They also point out that Carlos Superdrug Corporation40 recognized that the tax deduction scheme
under the assailed law does not provide for sufficient just compensation. We agree with petitioners’
observation that there are statements in Central Luzon Drug Corporation41 describing the 20%
discount as an exercise of the power of eminent domain, viz.:

[T]he privilege enjoyed by senior citizens does not come directly from the State, but rather from the
private establishments concerned. Accordingly, the tax credit benefit granted to these establishments
can be deemed as their just compensation for private property taken by the State for public use. The
concept of public use is no longer confined to the traditional notion of use by the public, but held
synonymous with public interest, public benefit, public welfare, and public convenience. The discount
privilege to which our senior citizens are entitled is actually a benefit enjoyed by the general public to
which these citizens belong. The discounts given would have entered the coffers and formed part of
the gross sales of the private establishments concerned, were it not for RA 7432. The permanent
reduction in their total revenues is a forced subsidy corresponding to the taking of private property for
public use or benefit. As a result of the 20 percent discount imposed by RA 7432, respondent
becomes entitled to a just compensation. This term refers not only to the issuance of a tax credit
certificate indicating the correct amount of the discounts given, but also to the promptness in its
release. Equivalent to the payment of property taken by the State, such issuance — when not done
within a reasonable time from the grant of the discounts — cannot be considered as just
compensation. In effect, respondent is made to suffer the consequences of being immediately
deprived of its revenues while awaiting actual receipt, through the certificate, of the equivalent
amount it needs to cope with the reduction in its revenues. Besides, the taxation power can also be
used as an implement for the exercise of the power of eminent domain. Tax measures are but
"enforced contributions exacted on pain of penal sanctions" and "clearly imposed for a public
purpose." In recent years, the power to tax has indeed become a most effective tool to realize social
justice, public welfare, and the equitable distribution of wealth. While it is a declared commitment
under Section 1 of RA 7432, social justice "cannot be invoked to trample on the rights of property
owners who under our Constitution and laws are also entitled to protection. The social justice
consecrated in our [C]onstitution [is] not intended to take away rights from a person and give them to
another who is not entitled thereto." For this reason, a just compensation for income that is taken
away from respondent becomes necessary. It is in the tax credit that our legislators find support to
realize social justice, and no administrative body can alter that fact. To put it differently, a private
establishment that merely breaks even — without the discounts yet — will surely start to incur losses
because of such discounts. The same effect is expected if its mark-up is less than 20 percent, and if
all its sales come from retail purchases by senior citizens. Aside from the observation we have
already raised earlier, it will also be grossly unfair to an establishment if the discounts will be treated
merely as deductions from either its gross income or its gross sales.1âwphi1 Operating at a loss
through no fault of its own, it will realize that the tax credit limitation under RR 2-94 is inutile, if not
improper. Worse, profit-generating businesses will be put in a better position if they avail themselves
of tax credits denied those that are losing, because no taxes are due from the latter.42 (Italics in the
original; emphasis supplied)

The above was partly incorporated in our ruling in Carlos Superdrug Corporation43 when we stated
preliminarily that—

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 law to reduce the income prior to the application of the tax rate to compute
the amount of tax which is due. 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 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. 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.44

This, notwithstanding, we went on to rule in Carlos Superdrug Corporation45 that the 20% discount
and tax deduction scheme is a valid exercise of the police power of the State. The present case, thus,
affords an opportunity for us to clarify the above-quoted statements in Central Luzon Drug
Corporation46 and Carlos Superdrug Corporation.47
First, we note that the above-quoted disquisition on eminent domain in Central Luzon Drug
Corporation48 is obiter dicta and, thus, not binding precedent. As stated earlier, in Central Luzon Drug
Corporation,49 we ruled that the BIR acted ultra vires when it effectively treated the 20% discount as a
tax deduction, under Sections 2.i and 4 of RR No. 2-94, despite the clear wording of the previous law
that the same should be treated as a tax credit. We were, therefore, not confronted in that case with
the issue as to whether the 20% discount is an exercise of police power or eminent domain. Second,
although we adverted to Central Luzon Drug Corporation50 in our ruling in Carlos Superdrug
Corporation,51 this referred only to preliminary matters. A fair reading of Carlos Superdrug
Corporation52 would show that we categorically ruled therein that the 20% discount is a valid exercise
of police power. Thus, even if the current law, through its tax deduction scheme (which abandoned
the tax credit scheme under the previous law), does not provide for a peso for peso reimbursement of
the 20% discount given by private establishments, no constitutional infirmity obtains because, being a
valid exercise of police power, payment of just compensation is not warranted. We have carefully
reviewed the basis of our ruling in Carlos Superdrug Corporation53 and we find no cogent reason to
overturn, modify or abandon it. We also note that petitioners’ arguments are a mere reiteration of
those raised and resolved in Carlos Superdrug Corporation.54 Thus, we sustain Carlos Superdrug
Corporation.55

Nonetheless, we deem it proper, in what follows, to amplify our explanation in Carlos Superdrug
Corporation56 as to why the 20% discount is a valid exercise of police power and why it may not,
under the specific circumstances of this case, be considered as an exercise of the power of eminent
domain contrary to the obiter in Central Luzon Drug Corporation.57

Police power versus eminent domain.

Police power is the inherent power of the State to regulate or to restrain the use of liberty and
property for public welfare.58

The only limitation is that the restriction imposed should be reasonable, not oppressive.59

In other words, to be a valid exercise of police power, it must have a lawful subject or objective and a
lawful method of accomplishing the goal.60

Under the police power of the State, "property rights of individuals may be subjected to restraints and
burdens in order to fulfill the objectives of the government."61

The State "may interfere with personal liberty, property, lawful businesses and occupations to
promote the general welfare [as long as] the interference [is] reasonable and not arbitrary."62

Eminent domain, on the other hand, is the inherent power of the State to take or appropriate private
property for public use.63

The Constitution, however, requires that private property shall not be taken without due process of
law and the payment of just compensation.64

Traditional distinctions exist between police power and eminent domain. In the exercise of police
power, a property right is impaired by regulation,65 or the use of property is merely prohibited,
regulated or restricted66 to promote public welfare. In such cases, there is no compensable taking,
hence, payment of just compensation is not required. Examples of these regulations are property
condemned for being noxious or intended for noxious purposes (e.g., a building on the verge of
collapse to be demolished for public safety, or obscene materials to be destroyed in the interest of
public morals)67 as well as zoning ordinances prohibiting the use of property for purposes injurious to
the health, morals or safety of the community (e.g., dividing a city’s territory into residential and
industrial areas).68

It has, thus, been observed that, in the exercise of police power (as distinguished from eminent
domain), although the regulation affects the right of ownership, none of the bundle of rights which
constitute ownership is appropriated for use by or for the benefit of the public.69

On the other hand, in the exercise of the power of eminent domain, property interests are
appropriated and applied to some public purpose which necessitates the payment of just
compensation therefor. Normally, the title to and possession of the property are transferred to the
expropriating authority. Examples include the acquisition of lands for the construction of public
highways as well as agricultural lands acquired by the government under the agrarian reform law for
redistribution to qualified farmer beneficiaries. However, it is a settled rule that the acquisition of title
or total destruction of the property is not essential for "taking" under the power of eminent domain to
be present.70

Examples of these include establishment of easements such as where the land owner is perpetually
deprived of his proprietary rights because of the hazards posed by electric transmission lines
constructed above his property71 or the compelled interconnection of the telephone system between
the government and a private company.72

In these cases, although the private property owner is not divested of ownership or possession,
payment of just compensation is warranted because of the burden placed on the property for the use
or benefit of the public.

The 20% senior citizen discount is an exercise of police power.

It may not always be easy to determine whether a challenged governmental act is an exercise of
police power or eminent domain. The very nature of police power as elastic and responsive to various
social conditions73 as well as the evolving meaning and scope of public use74 and just
compensation75 in eminent domain evinces that these are not static concepts. Because of the
exigencies of rapidly changing times, Congress may be compelled to adopt or experiment with
different measures to promote the general welfare which may not fall squarely within the traditionally
recognized categories of police power and eminent domain. The judicious approach, therefore, is to
look at the nature and effects of the challenged governmental act and decide, on the basis thereof,
whether the act is the exercise of police power or eminent domain. Thus, we now look at the nature
and effects of the 20% discount to determine if it constitutes an exercise of police power or eminent
domain. The 20% discount is intended to improve the welfare of senior citizens who, at their age, are
less likely to be gainfully employed, more prone to illnesses and other disabilities, and, thus, in need
of subsidy in purchasing basic commodities. It may not be amiss to mention also that the discount
serves to honor senior citizens who presumably spent the productive years of their lives on
contributing to the development and progress of the nation. This distinct cultural Filipino practice of
honoring the elderly is an integral part of this law. As to its nature and effects, the 20% discount is a
regulation affecting the ability of private establishments to price their products and services relative to
a special class of individuals, senior citizens, for which the Constitution affords preferential concern.76

In turn, this affects the amount of profits or income/gross sales that a private establishment can derive
from senior citizens. In other words, the subject regulation affects the pricing, and, hence, the
profitability of a private establishment. However, it does not purport to appropriate or burden specific
properties, used in the operation or conduct of the business of private establishments, for the use or
benefit of the public, or senior citizens for that matter, but merely regulates the pricing of goods and
services relative to, and the amount of profits or income/gross sales that such private establishments
may derive from, senior citizens. The subject regulation may be said to be similar to, but with
substantial distinctions from, price control or rate of return on investment control laws which are
traditionally regarded as police power measures.77

These laws generally regulate public utilities or industries/enterprises imbued with public interest in
order to protect consumers from exorbitant or unreasonable pricing as well as temper corporate
greed by controlling the rate of return on investment of these corporations considering that they have
a monopoly over the goods or services that they provide to the general public. The subject regulation
differs therefrom in that (1) the discount does not prevent the establishments from adjusting the level
of prices of their goods and services, and (2) the discount does not apply to all customers of a given
establishment but only to the class of senior citizens. Nonetheless, to the degree material to the
resolution of this case, the 20% discount may be properly viewed as belonging to the category of
price regulatory measures which affect the profitability of establishments subjected thereto. On its
face, therefore, the subject regulation is a police power measure. The obiter in Central Luzon Drug
Corporation,78 however, describes the 20% discount as an exercise of the power of eminent domain
and the tax credit, under the previous law, equivalent to the amount of discount given as the just
compensation therefor. The reason is that (1) the discount would have formed part of the gross sales
of the establishment were it not for the law prescribing the 20% discount, and (2) the permanent
reduction in total revenues is a forced subsidy corresponding to the taking of private property for
public use or benefit. The flaw in this reasoning is in its premise. It presupposes that the subject
regulation, which impacts the pricing and, hence, the profitability of a private establishment,
automatically amounts to a deprivation of property without due process of law. If this were so, then all
price and rate of return on investment control laws would have to be invalidated because they impact,
at some level, the regulated establishment’s profits or income/gross sales, yet there is no provision
for payment of just compensation. It would also mean that overnment cannot set price or rate of
return on investment limits, which reduce the profits or income/gross sales of private establishments,
if no just compensation is paid even if the measure is not confiscatory. The obiter is, thus, at odds
with the settled octrine that the State can employ police power measures to regulate the pricing of
goods and services, and, hence, the profitability of business establishments in order to pursue
legitimate State objectives for the common good, provided that the regulation does not go too far as
to amount to "taking."79

In City of Manila v. Laguio, Jr.,80 we recognized that— x x x a taking also could be found if
government regulation of the use of property went "too far." When regulation reaches a certain
magnitude, in most if not in all cases there must be an exercise of eminent domain and compensation
to support the act. While property may be regulated to a certain extent, if regulation goes too far it will
be recognized as a taking. No formula or rule can be devised to answer the questions of what is too
far and when regulation becomes a taking. In Mahon, Justice Holmes recognized that it was "a
question of degree and therefore cannot be disposed of by general propositions." On many other
occasions as well, the U.S. Supreme Court has said that the issue of when regulation constitutes a
taking is a matter of considering the facts in each case. The Court asks whether justice and fairness
require that the economic loss caused by public action must be compensated by the government and
thus borne by the public as a whole, or whether the loss should remain concentrated on those few
persons subject to the public action.81

The impact or effect of a regulation, such as the one under consideration, must, thus, be determined
on a case-to-case basis. Whether that line between permissible regulation under police power and
"taking" under eminent domain has been crossed must, under the specific circumstances of this case,
be subject to proof and the one assailing the constitutionality of the regulation carries the heavy
burden of proving that the measure is unreasonable, oppressive or confiscatory. The time-honored
rule is that the burden of proving the unconstitutionality of a law rests upon the one assailing it and
"the burden becomes heavier when police power is at issue."82
The 20% senior citizen discount has not been shown to be unreasonable, oppressive or confiscatory.

In Alalayan v. National Power Corporation,83 petitioners, who were franchise holders of electric plants,
challenged the validity of a law limiting their allowable net profits to no more than 12% per annum of
their investments plus two-month operating expenses. In rejecting their plea, we ruled that, in an
earlier case, it was found that 12% is a reasonable rate of return and that petitioners failed to prove
that the aforesaid rate is confiscatory in view of the presumption of constitutionality.84

We adopted a similar line of reasoning in Carlos Superdrug Corporation85 when we ruled that
petitioners therein 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 Corporation86 did. Petitioners went directly to this Court without first
establishing the factual bases of their claims. Hence, the present recourse must, likewise, fail.
Because all laws enjoy the presumption of constitutionality, courts will uphold a law’s validity if any set
of facts may be conceived to sustain it.87

On its face, we find that there are at least two conceivable bases to sustain the subject regulation’s
validity absent clear and convincing proof that it is unreasonable, oppressive or confiscatory.
Congress may have legitimately concluded that business establishments have the capacity to absorb
a decrease in profits or income/gross sales due to the 20% discount without substantially affecting the
reasonable rate of return on their investments considering (1) not all customers of a business
establishment are senior citizens and (2) the level of its profit margins on goods and services offered
to the general public. Concurrently, Congress may have, likewise, legitimately concluded that the
establishments, which will be required to extend the 20% discount, have the capacity to revise their
pricing strategy so that whatever reduction in profits or income/gross sales that they may sustain
because of sales to senior citizens, can be recouped through higher mark-ups or from other products
not subject of discounts. As a result, the discounts resulting from sales to senior citizens will not be
confiscatory or unduly oppressive. In sum, we sustain our ruling in Carlos Superdrug
Corporation88 that the 20% senior citizen discount and tax deduction scheme are valid exercises of
police power of the State absent a clear showing that it is arbitrary, oppressive or confiscatory.

Conclusion

In closing, we note that petitioners hypothesize, consistent with our previous ratiocinations, that the
discount will force establishments to raise their prices in order to compensate for its impact on overall
profits or income/gross sales. The general public, or those not belonging to the senior citizen class,
are, thus, made to effectively shoulder the subsidy for senior citizens. This, in petitioners’ view, is
unfair.

As already mentioned, Congress may be reasonably assumed to have foreseen this eventuality. But,
more importantly, this goes into the wisdom, efficacy and expediency of the subject law which is not
proper for judicial review. In a way, this law pursues its social equity objective in a non-traditional
manner unlike past and existing direct subsidy programs of the government for the poor and
marginalized sectors of our society. Verily, Congress must be given sufficient leeway in formulating
welfare legislations given the enormous challenges that the government faces relative to, among
others, resource adequacy and administrative capability in implementing social reform measures
which aim to protect and uphold the interests of those most vulnerable in our society. In the process,
the individual, who enjoys the rights, benefits and privileges of living in a democratic polity, must bear
his share in supporting measures intended for the common good. This is only fair. In fine, without the
requisite showing of a clear and unequivocal breach of the Constitution, the validity of the assailed
law must be sustained.

Refutation of the Dissent

The main points of Justice Carpio’s Dissent may be summarized as follows: (1) the discussion on
eminent domain in Central Luzon Drug Corporation89 is not obiter dicta ; (2) allowable taking, in police
power, is limited to property that is destroyed or placed outside the commerce of man for public
welfare; (3) the amount of mandatory discount is private property within the ambit of Article III,
Section 990 of the Constitution; and (4) the permanent reduction in a private establishment’s total
revenue, arising from the mandatory discount, is a taking of private property for public use or benefit,
hence, an exercise of the power of eminent domain requiring the payment of just compensation. I We
maintain that the discussion on eminent domain in Central Luzon Drug Corporation91 is obiter dicta.
As previously discussed, in Central Luzon Drug Corporation,92 the BIR, pursuant to Sections 2.i and 4
of RR No. 2-94, treated the senior citizen discount in the previous law, RA 7432, as a tax deduction
instead of a tax credit despite the clear provision in that law which stated –

SECTION 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to the following:

a) The grant of twenty percent (20%) discount from all establishments relative to
utilization of transportation services, hotels and similar lodging establishment,
restaurants and recreation centers and purchase of medicines anywhere in the country:
Provided, That private establishments may claim the cost as tax credit; (Emphasis
supplied)

Thus, the Court ruled that the subject revenue regulation violated the law, viz:

The 20 percent discount required by the law to be given to senior citizens is a tax credit, not merely a
tax deduction from the gross income or gross sale of the establishment concerned. A tax credit is
used by a private establishment only after the tax has been computed; a tax deduction, before the tax
is computed. RA 7432 unconditionally grants a tax credit to all covered entities. Thus, the provisions
of the revenue regulation that withdraw or modify such grant are void. Basic is the rule that
administrative regulations cannot amend or revoke the law.93

As can be readily seen, the discussion on eminent domain was not necessary in order to arrive at this
conclusion. All that was needed was to point out that the revenue regulation contravened the law
which it sought to implement. And, precisely, this was done in Central Luzon Drug Corporation94 by
comparing the wording of the previous law vis-à-vis the revenue regulation; employing the rules of
statutory construction; and applying the settled principle that a regulation cannot amend the law it
seeks to implement. A close reading of Central Luzon Drug Corporation95 would show that the Court
went on to state that the tax credit "can be deemed" as just compensation only to explain why the
previous law provides for a tax credit instead of a tax deduction. The Court surmised that the tax
credit was a form of just compensation given to the establishments covered by the 20% discount.
However, the reason why the previous law provided for a tax credit and not a tax deduction was not
necessary to resolve the issue as to whether the revenue regulation contravenes the law. Hence, the
discussion on eminent domain is obiter dicta.

A court, in resolving cases before it, may look into the possible purposes or reasons that impelled the
enactment of a particular statute or legal provision. However, statements made relative thereto are
not always necessary in resolving the actual controversies presented before it. This was the case in
Central Luzon Drug Corporation96 resulting in that unfortunate statement that the tax credit "can be
deemed" as just compensation. This, in turn, led to the erroneous conclusion, by deductive reasoning,
that the 20% discount is an exercise of the power of eminent domain. The Dissent essentially adopts
this theory and reasoning which, as will be shown below, is contrary to settled principles in police
power and eminent domain analysis. II The Dissent discusses at length the doctrine on "taking" in
police power which occurs when private property is destroyed or placed outside the commerce of
man. Indeed, there is a whole class of police power measures which justify the destruction of private
property in order to preserve public health, morals, safety or welfare. As earlier mentioned, these
would include a building on the verge of collapse or confiscated obscene materials as well as those
mentioned by the Dissent with regard to property used in violating a criminal statute or one which
constitutes a nuisance. In such cases, no compensation is required. However, it is equally true that
there is another class of police power measures which do not involve the destruction of private
property but merely regulate its use. The minimum wage law, zoning ordinances, price control laws,
laws regulating the operation of motels and hotels, laws limiting the working hours to eight, and the
like would fall under this category. The examples cited by the Dissent, likewise, fall under this
category: Article 157 of the Labor Code, Sections 19 and 18 of the Social Security Law, and Section 7
of the Pag-IBIG Fund Law. These laws merely regulate or, to use the term of the Dissent, burden the
conduct of the affairs of business establishments. In such cases, payment of just compensation is not
required because they fall within the sphere of permissible police power measures. The senior citizen
discount law falls under this latter category. III The Dissent proceeds from the theory that the
permanent reduction of profits or income/gross sales, due to the 20% discount, is a "taking" of private
property for public purpose without payment of just compensation. At the outset, it must be
emphasized that petitioners never presented any evidence to establish that they were forced to suffer
enormous losses or operate at a loss due to the effects of the assailed law. They came directly to this
Court and provided a hypothetical computation of the loss they would allegedly suffer due to the
operation of the assailed law. The central premise of the Dissent’s argument that the 20% discount
results in a permanent reduction in profits or income/gross sales, or forces a business establishment
to operate at a loss is, thus, wholly unsupported by competent evidence. To be sure, the Court can
invalidate a law which, on its face, is arbitrary, oppressive or confiscatory.97

But this is not the case here.

In the case at bar, evidence is indispensable before a determination of a constitutional violation can
be made because of the following reasons. First, the assailed law, by imposing the senior citizen
discount, does not take any of the properties used by a business establishment like, say, the land on
which a manufacturing plant is constructed or the equipment being used to produce goods or
services. Second, rather than taking specific properties of a business establishment, the senior citizen
discount law merely regulates the prices of the goods or services being sold to senior citizens by
mandating a 20% discount. Thus, if a product is sold at ₱10.00 to the general public, then it shall be
sold at ₱8.00 ( i.e., ₱10.00 less 20%) to senior citizens. Note that the law does not impose at what
specific price the product shall be sold, only that a 20% discount shall be given to senior citizens
based on the price set by the business establishment. A business establishment is, thus, free to
adjust the prices of the goods or services it provides to the general public. Accordingly, it can
increase the price of the above product to ₱20.00 but is required to sell it at ₱16.00 (i.e. , ₱20.00 less
20%) to senior citizens. Third, because the law impacts the prices of the goods or services of a
particular establishment relative to its sales to senior citizens, its profits or income/gross sales are
affected. The extent of the impact would, however, depend on the profit margin of the business
establishment on a particular good or service. If a product costs ₱5.00 to produce and is sold at
₱10.00, then the profit98 is ₱5.0099 or a profit margin100 of 50%.101

Under the assailed law, the aforesaid product would have to be sold at ₱8.00 to senior citizens yet
the business would still earn ₱3.00102 or a 30%103 profit margin. On the other hand, if the product
costs ₱9.00 to produce and is required to be sold at ₱8.00 to senior citizens, then the business would
experience a loss of ₱1.00.104

But note that since not all customers of a business establishment are senior citizens, the business
establishment may continue to earn ₱1.00 from non-senior citizens which, in turn, can offset any loss
arising from sales to senior citizens.

Fourth, when the law imposes the 20% discount in favor of senior citizens, it does not prevent the
business establishment from revising its pricing strategy.

By revising its pricing strategy, a business establishment can recoup any reduction of profits or
income/gross sales which would otherwise arise from the giving of the 20% discount. To illustrate,
suppose A has two customers: X, a senior citizen, and Y, a non-senior citizen. Prior to the law, A sells
his products at ₱10.00 a piece to X and Y resulting in income/gross sales of ₱20.00 (₱10.00 +
₱10.00). With the passage of the law, A must now sell his product to X at ₱8.00 (i.e., ₱10.00 less
20%) so that his income/gross sales would be ₱18.00 (₱8.00 + ₱10.00) or lower by ₱2.00. To
prevent this from happening, A decides to increase the price of his products to ₱11.11 per piece.
Thus, he sells his product to X at ₱8.89 (i.e. , ₱11.11 less 20%) and to Y at ₱11.11. As a result, his
income/gross sales would still be ₱20.00105 (₱8.89 + ₱11.11). The capacity, then, of business
establishments to revise their pricing strategy makes it possible for them not to suffer any reduction in
profits or income/gross sales, or, in the alternative, mitigate the reduction of their profits or
income/gross sales even after the passage of the law. In other words, business establishments have
the capacity to adjust their prices so that they may remain profitable even under the operation of the
assailed law.

The Dissent, however, states that – The explanation by the majority that private establishments can
always increase their prices to recover the mandatory discount will only encourage private
establishments to adjust their prices upwards to the prejudice of customers who do not enjoy the 20%
discount. It was likewise suggested that if a company increases its prices, despite the application of
the 20% discount, the establishment becomes more profitable than it was before the implementation
of R.A. 7432. Such an economic justification is self-defeating, for more consumers will suffer from the
price increase than will benefit from the 20% discount. Even then, such ability to increase prices
cannot legally validate a violation of the eminent domain clause.106

But, if it is possible that the business establishment, by adjusting its prices, will suffer no reduction in
its profits or income/gross sales (or suffer some reduction but continue to operate profitably) despite
giving the discount, what would be the basis to strike down the law? If it is possible that the business
establishment, by adjusting its prices, will not be unduly burdened, how can there be a finding that the
assailed law is an unconstitutional exercise of police power or eminent domain? That there may be a
burden placed on business establishments or the consuming public as a result of the operation of the
assailed law is not, by itself, a ground to declare it unconstitutional for this goes into the wisdom and
expediency of the law.

The cost of most, if not all, regulatory measures of the government on business establishments is
ultimately passed on to the consumers but that, by itself, does not justify the wholesale nullification of
these measures. It is a basic postulate of our democratic system of government that the Constitution
is a social contract whereby the people have surrendered their sovereign powers to the State for the
common good.107

All persons may be burdened by regulatory measures intended for the common good or to serve
some important governmental interest, such as protecting or improving the welfare of a special class
of people for which the Constitution affords preferential concern. Indubitably, the one assailing the law
has the heavy burden of proving that the regulation is unreasonable, oppressive or confiscatory, or
has gone "too far" as to amount to a "taking." Yet, here, the Dissent would have this Court nullify the
law without any proof of such nature.

Further, this Court is not the proper forum to debate the economic theories or realities that impelled
Congress to shift from the tax credit to the tax deduction scheme. It is not within our power or
competence to judge which scheme is more or less burdensome to business establishments or the
consuming public and, thereafter, to choose which scheme the State should use or pursue. The shift
from the tax credit to tax deduction scheme is a policy determination by Congress and the Court will
respect it for as long as there is no showing, as here, that the subject regulation has transgressed
constitutional limitations. Unavoidably, the lack of evidence constrains the Dissent to rely on
speculative and hypothetical argumentation when it states that the 20% discount is a significant
amount and not a minimal loss (which erroneously assumes that the discount automatically results in
a loss when it is possible that the profit margin is greater than 20% and/or the pricing strategy can be
revised to prevent or mitigate any reduction in profits or income/gross sales as illustrated
above),108 and not all private establishments make a 20% profit margin (which conversely implies that
there are those who make more and, thus, would not be greatly affected by this regulation).109

In fine, because of the possible scenarios discussed above, we cannot assume that the 20% discount
results in a permanent reduction in profits or income/gross sales, much less that business
establishments are forced to operate at a loss under the assailed law. And, even if we gratuitously
assume that the 20% discount results in some degree of reduction in profits or income/gross sales,
we cannot assume that such reduction is arbitrary, oppressive or confiscatory. To repeat, there is no
actual proof to back up this claim, and it could be that the loss suffered by a business establishment
was occasioned through its fault or negligence in not adapting to the effects of the assailed law. The
law uniformly applies to all business establishments covered thereunder. There is, therefore, no
unjust discrimination as the aforesaid business establishments are faced with the same constraints.
The necessity of proof is all the more pertinent in this case because, as similarly observed by Justice
Velasco in his Concurring Opinion, the law has been in operation for over nine years now. However,
the grim picture painted by petitioners on the unconscionable losses to be indiscriminately suffered by
business establishments, which should have led to the closure of numerous business establishments,
has not come to pass. Verily, we cannot invalidate the assailed law based on assumptions and
conjectures. Without adequate proof, the presumption of constitutionality must prevail. IV At this
juncture, we note that the Dissent modified its original arguments by including a new paragraph, to
wit:

Section 9, Article III of the 1987 Constitution speaks of private property without any distinction. It does
not state that there should be profit before the taking of property is subject to just compensation. The
private property referred to for purposes of taking could be inherited, donated, purchased, mortgaged,
or as in this case, part of the gross sales of private establishments. They are all private property and
any taking should be attended by corresponding payment of just compensation. The 20% discount
granted to senior citizens belong to private establishments, whether these establishments make a
profit or suffer a loss. In fact, the 20% discount applies to non-profit establishments like country,
social, or golf clubs which are open to the public and not only for exclusive membership. The issue of
profit or loss to the establishments is immaterial.110

Two things may be said of this argument. First, it contradicts the rest of the arguments of the Dissent.
After it states that the issue of profit or loss is immaterial, the Dissent proceeds to argue that the 20%
discount is not a minimal loss111 and that the 20% discount forces business establishments to operate
at a loss.112
Even the obiter in Central Luzon Drug Corporation,113 which the Dissent essentially adopts and relies
on, is premised on the permanent reduction of total revenues and the loss that business
establishments will be forced to suffer in arguing that the 20% discount constitutes a "taking" under
the power of eminent domain. Thus, when the Dissent now argues that the issue of profit or loss is
immaterial, it contradicts itself because it later argues, in order to justify that there is a "taking" under
the power of eminent domain in this case, that the 20% discount forces business establishments to
suffer a significant loss or to operate at a loss. Second, this argument suffers from the same flaw as
the Dissent's original arguments. It is an erroneous characterization of the 20% discount. According to
the Dissent, the 20% discount is part of the gross sales and, hence, private property belonging to
business establishments. However, as previously discussed, the 20% discount is not private property
actually owned and/or used by the business establishment. It should be distinguished from properties
like lands or buildings actually used in the operation of a business establishment which, if
appropriated for public use, would amount to a "taking" under the power of eminent domain. Instead,
the 20% discount is a regulatory measure which impacts the pricing and, hence, the profitability of
business establishments. At the time the discount is imposed, no particular property of the business
establishment can be said to be "taken." That is, the State does not acquire or take anything from the
business establishment in the way that it takes a piece of private land to build a public road. While the
20% discount may form part of the potential profits or income/gross sales114 of the business
establishment, as similarly characterized by Justice Bersamin in his Concurring Opinion, potential
profits or income/gross sales are not private property, specifically cash or money, already belonging
to the business establishment. They are a mere expectancy because they are potential fruits of the
successful conduct of the business. Prior to the sale of goods or services, a business establishment
may be subject to State regulations, such as the 20% senior citizen discount, which may impact the
level or amount of profits or income/gross sales that can be generated by such establishment. For
this reason, the validity of the discount is to be determined based on its overall effects on the
operations of the business establishment.

Again, as previously discussed, the 20% discount does not automatically result in a 20% reduction in
profits, or, to align it with the term used by the Dissent, the 20% discount does not mean that a 20%
reduction in gross sales necessarily results. Because (1) the profit margin of a product is not
necessarily less than 20%, (2) not all customers of a business establishment are senior citizens, and
(3) the establishment may revise its pricing strategy, such reduction in profits or income/gross sales
may be prevented or, in the alternative, mitigated so that the business establishment continues to
operate profitably. Thus, even if we gratuitously assume that some degree of reduction in profits or
income/gross sales occurs because of the 20% discount, it does not follow that the regulation is
unreasonable, oppressive or confiscatory because the business establishment may make the
necessary adjustments to continue to operate profitably. No evidence was presented by petitioners to
show otherwise. In fact, no evidence was presented by petitioners at all. Justice Leonen, in his
Concurring and Dissenting Opinion, characterizes "profits" (or income/gross sales) as an inchoate
right. Another way to view it, as stated by Justice Velasco in his Concurring Opinion, is that the
business establishment merely has a right to profits. The Constitution adverts to it as the right of an
enterprise to a reasonable return on investment.115

Undeniably, this right, like any other right, may be regulated under the police power of the State to
achieve important governmental objectives like protecting the interests and improving the welfare of
senior citizens. It should be noted though that potential profits or income/gross sales are relevant in
police power and eminent domain analyses because they may, in appropriate cases, serve as an
indicia when a regulation has gone "too far" as to amount to a "taking" under the power of eminent
domain. When the deprivation or reduction of profits or income/gross sales is shown to be
unreasonable, oppressive or confiscatory, then the challenged governmental regulation may be
nullified for being a "taking" under the power of eminent domain. In such a case, it is not profits or
income/gross sales which are actually taken and appropriated for public use. Rather, when the
regulation causes an establishment to incur losses in an unreasonable, oppressive or confiscatory
manner, what is actually taken is capital and the right of the business establishment to a reasonable
return on investment. If the business losses are not halted because of the continued operation of the
regulation, this eventually leads to the destruction of the business and the total loss of the capital
invested therein. But, again, petitioners in this case failed to prove that the subject regulation is
unreasonable, oppressive or confiscatory.

V.

The Dissent further argues that we erroneously used price and rate of return on investment control
laws to justify the senior citizen discount law. According to the Dissent, only profits from industries
imbued with public interest may be regulated because this is a condition of their franchises. Profits of
establishments without franchises cannot be regulated permanently because there is no law
regulating their profits. The Dissent concludes that the permanent reduction of total revenues or gross
sales of business establishments without franchises is a taking of private property under the power of
eminent domain. In making this argument, it is unfortunate that the Dissent quotes only a portion of
the ponencia – The subject regulation may be said to be similar to, but with substantial distinctions
from, price control or rate of return on investment control laws which are traditionally regarded as
police power measures. These laws generally regulate public utilities or industries/enterprises imbued
with public interest in order to protect consumers from exorbitant or unreasonable pricing as well as
temper corporate greed by controlling the rate of return on investment of these corporations
considering that they have a monopoly over the goods or services that they provide to the general
public. The subject regulation differs therefrom in that (1) the discount does not prevent the
establishments from adjusting the level of prices of their goods and services, and (2) the discount
does not apply to all customers of a given establishment but only to the class of senior citizens. x x
x116

The above paragraph, in full, states –

The subject regulation may be said to be similar to, but with substantial distinctions from, price control
or rate of return on investment control laws which are traditionally regarded as police power
measures. These laws generally regulate public utilities or industries/enterprises imbued with public
interest in order to protect consumers from exorbitant or unreasonable pricing as well as temper
corporate greed by controlling the rate of return on investment of these corporations considering that
they have a monopoly over the goods or services that they provide to the general public. The subject
regulation differs therefrom in that (1) the discount does not prevent the establishments from
adjusting the level of prices of their goods and services, and (2) the discount does not apply to all
customers of a given establishment but only to the class of senior citizens.

Nonetheless, to the degree material to the resolution of this case, the 20% discount may be properly
viewed as belonging to the category of price regulatory measures which affects the profitability of
establishments subjected thereto. (Emphasis supplied)

The point of this paragraph is to simply show that the State has, in the past, regulated prices and
profits of business establishments. In other words, this type of regulatory measures is traditionally
recognized as police power measures so that the senior citizen discount may be considered as a
police power measure as well. What is more, the substantial distinctions between price and rate of
return on investment control laws vis-à-vis the senior citizen discount law provide greater reason to
uphold the validity of the senior citizen discount law. As previously discussed, the ability to adjust
prices allows the establishment subject to the senior citizen discount to prevent or mitigate any
reduction of profits or income/gross sales arising from the giving of the discount. In contrast,
establishments subject to price and rate of return on investment control laws cannot adjust prices
accordingly. Certainly, there is no intention to say that price and rate of return on investment control
laws are the justification for the senior citizen discount law. Not at all. The justification for the senior
citizen discount law is the plenary powers of Congress. The legislative power to regulate business
establishments is broad and covers a wide array of areas and subjects. It is well within Congress’
legislative powers to regulate the profits or income/gross sales of industries and enterprises, even
those without franchises. For what are franchises but mere legislative enactments? There is nothing
in the Constitution that prohibits Congress from regulating the profits or income/gross sales of
industries and enterprises without franchises. On the contrary, the social justice provisions of the
Constitution enjoin the State to regulate the "acquisition, ownership, use, and disposition" of property
and its increments.117

This may cover the regulation of profits or income/gross sales of all businesses, without qualification,
to attain the objective of diffusing wealth in order to protect and enhance the right of all the people to
human dignity.118

Thus, under the social justice policy of the Constitution, business establishments may be compelled
to contribute to uplifting the plight of vulnerable or marginalized groups in our society provided that
the regulation is not arbitrary, oppressive or confiscatory, or is not in breach of some specific
constitutional limitation. When the Dissent, therefore, states that the "profits of private establishments
which are non-franchisees cannot be regulated permanently, and there is no such law regulating their
profits permanently,"119 it is assuming what it ought to prove. First, there are laws which, in effect,
permanently regulate profits or income/gross sales of establishments without franchises, and RA
9257 is one such law. And, second, Congress can regulate such profits or income/gross sales
because, as previously noted, there is nothing in the Constitution to prevent it from doing so. Here,
again, it must be emphasized that petitioners failed to present any proof to show that the effects of
the assailed law on their operations has been unreasonable, oppressive or confiscatory. The
permanent regulation of profits or income/gross sales of business establishments, even those without
franchises, is not as uncommon as the Dissent depicts it to be. For instance, the minimum wage law
allows the State to set the minimum wage of employees in a given region or geographical area.
Because of the added labor costs arising from the minimum wage, a permanent reduction of profits or
income/gross sales would result, assuming that the employer does not increase the prices of his
goods or services. To illustrate, suppose it costs a company ₱5.00 to produce a product and it sells
the same at ₱10.00 with a 50% profit margin. Later, the State increases the minimum wage. As a
result, the company incurs greater labor costs so that it now costs ₱7.00 to produce the same
product. The profit per product of the company would be reduced to ₱3.00 with a profit margin of
30%. The net effect would be the same as in the earlier example of granting a 20% senior citizen
discount. As can be seen, the minimum wage law could, likewise, lead to a permanent reduction of
profits. Does this mean that the minimum wage law should, likewise, be declared unconstitutional on
the mere plea that it results in a permanent reduction of profits? Taking it a step further, suppose the
company decides to increase the price of its product in order to offset the effects of the increase in
labor cost; does this mean that the minimum wage law, following the reasoning of the Dissent, is
unconstitutional because the consuming public is effectively made to subsidize the wage of a group of
laborers, i.e., minimum wage earners? The same reasoning can be adopted relative to the examples
cited by the Dissent which, according to it, are valid police power regulations. Article 157 of the Labor
Code, Sections 19 and 18 of the Social Security Law, and Section 7 of the Pag-IBIG Fund Law would
effectively increase the labor cost of a business establishment.1âwphi1 This would, in turn, be
integrated as part of the cost of its goods or services. Again, if the establishment does not increase its
prices, the net effect would be a permanent reduction in its profits or income/gross sales. Following
the reasoning of the Dissent that "any form of permanent taking of private property (including profits
or income/gross sales)120 is an exercise of eminent domain that requires the State to pay just
compensation,"121 then these statutory provisions would, likewise, have to be declared
unconstitutional. It does not matter that these benefits are deemed part of the employees’ legislated
wages because the net effect is the same, that is, it leads to higher labor costs and a permanent
reduction in the profits or income/gross sales of the business establishments.122

The point then is this – most, if not all, regulatory measures imposed by the State on business
establishments impact, at some level, the latter’s prices and/or profits or income/gross sales.123

If the Court were to sustain the Dissent’s theory, then a wholesale nullification of such measures
would inevitably result. The police power of the State and the social justice provisions of the
Constitution would, thus, be rendered nugatory. There is nothing sacrosanct about profits or
income/gross sales. This, we made clear in Carlos Superdrug Corporation:124

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.

xxxx

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 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 percept for the protection of property, various laws and jurisprudence, particularly on agrarian
reform and the regulation of contracts and public utilities, continously serve as a reminder for the
promotion of public good.

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 form quashing a legislative act.125

In conclusion, we maintain that the correct rule in determining whether the subject regulatory
measure has amounted to a "taking" under the power of eminent domain is the one laid down
in Alalayan v. National Power Corporation126 and followed in Carlos Superdurg
Corporation127 consistent with long standing principles in police power and eminent domain analysis.
Thus, the deprivation or reduction of profits or income. Gross sales must be clearly shown to be
unreasonable, oppressive or confiscatory. Under the specific circumstances of this case, such
determination can only be made upon the presentation of competent proof which petitioners failed to
do. A law, which has been in operation for many years and promotes the welfare of a group accorded
special concern by the Constitution, cannot and should not be summarily invalidated on a mere
allegation that it reduces the profits or income/gross sales of business establishments.

WHEREFORE, the Petition is hereby DISMISSED for lack of merit.

SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice

WE CONCUR:

MARIA LOURDES P.A. SERENO

Chief Justice

See Dissenting Opinion Please See Concurring Opinion

ANTONIO T. CARPIO PRESBITERO J. VELASCO, JR.
Associate Justice Associate Justice

I certify that J. De Castro Left her vote

No Part
concurring my ponencia of J. Del Castillo
ARTURO D. BRION
TERESITA J. LEONARDO-DE CASTRO
Associate Justice
Associate Justice

I certify that J. Peralta left his vote

With Concurring Opinion
concurring my ponencia of J. Del Castillo
LUCAS P. BERSAMIN
DIOSDADO M. PERALTA
Associate Justice
Associate Justice

ROBERTO A. ABAD MARTIN S. VILLARAMA

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ JOSE CATRAL MENDOZA

Associate Justice Associate Justice

BIENVENIDO L. REYES ESTELA M. PERLAS-BERNABE

Associate Justice Associate Justice

See separate concurring opinion

MARVIC MARIO VICTOR F. LEONEN
Associate Justice

CERTIFICATION

I certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court.

MARIA LOURDES P.A. SERENO

Chief Justice