G.R. No. 166494, June 29, 2007
CARLOS SUPERDRUG CORP., et al., petitioners, vs. DEPARTMENT OF SOCIAL WELFARE AND DEVELOPMENT, et al., respondents.

FACTS

Petitioners, domestic corporations and proprietors operating drugstores, filed a petition for prohibition assailing the constitutionality of Section 4(a) of Republic Act No. 9257, the Expanded Senior Citizens Act of 2003. The law mandates that senior citizens be granted a twenty percent (20%) discount on the purchase of medicines. While the old law (R.A. No. 7432) allowed establishments to treat the cost of the discount as a tax credit against their tax liability, the new law provides that the discount may be claimed as a tax deduction from gross income. The Department of Finance clarified that under this new scheme, the government shoulders only a portion of the discount (equivalent to the establishment’s tax rate on the deducted amount), while the establishment bears the remaining cost.
Petitioners argued that this change from a tax credit to a tax deduction constitutes an invalid taking of private property for public use without just compensation. They contended that by forcing them to shoulder a portion of the discount, the law appropriates a part of their revenues to subsidize a public welfare program, thereby imposing a burden solely on them to fund a benefit enjoyed by the general public.

ISSUE

Whether or not Section 4(a) of R.A. No. 9257, which grants senior citizens a 20% discount on medicines and allows establishments to claim the discount as a tax deduction, constitutes an invalid taking of private property without just compensation.

RULING

The Supreme Court dismissed the petition and upheld the constitutionality of the law. The Court ruled that the provision does not involve a taking under the power of eminent domain but is a valid exercise of the State’s police power. The distinction is crucial: eminent domain compensates for property taken for public use, while police power regulates property to secure the general welfare, with any resultant loss being incidental and dammum absque injuria (damage without injury).
The change from a tax credit to a tax deduction is a rational means for the State to achieve its objective under its parens patriae authority to promote the health and welfare of a vulnerable sector. The law is a legitimate regulation of business, and the discount is a form of statutory concession, not a confiscation of property. The burden on establishments is justified as a shared contribution to a social responsibility program. The Court emphasized that the legislature has wide discretion in designing economic regulations for the public good, and the chosen mechanism of a tax deduction, which still provides some relief to establishments, is a reasonable exercise of that power. The petition failed to prove a clear constitutional infirmity.