Republic of the Philippines "Respondent is a domestic corporation primarily engaged in retailing

SUPREME COURT of medicines and other pharmaceutical products. In 1996, it operated

six (6) drugstores under the business name and style ‘Mercury Drug.’
THIRD DIVISION
"From January to December 1996, respondent granted twenty (20%)
G.R. No. 159647 April 15, 2005 percent sales discount to qualified senior citizens on their purchases
of medicines pursuant to Republic Act No. [R.A.] 7432 and its
COMMISSIONER OF INTERNAL REVENUE, Petitioners,  Implementing Rules and Regulations. For the said period, the amount
vs. allegedly representing the 20% sales discount granted by respondent
CENTRAL LUZON DRUG CORPORATION, Respondent. to qualified senior citizens totaled ₱904,769.00.

DECISION "On April 15, 1997, respondent filed its Annual Income Tax Return for
taxable year 1996 declaring therein that it incurred net losses from its
PANGANIBAN, J.: operations.

The 20 percent discount required by the law to be given to senior "On January 16, 1998, respondent filed with petitioner a claim for tax
citizens is a tax credit, not merely a tax deductionfrom the gross refund/credit in the amount of ₱904,769.00 allegedly arising from the
income or gross sale of the establishment concerned. A tax credit is 20% sales discount granted by respondent to qualified senior citizens
used by a private establishment only after the tax has been computed; in compliance with [R.A.] 7432. Unable to obtain affirmative response
a tax deduction, before the tax is computed. RA 7432 unconditionally from petitioner, respondent elevated its claim to the Court of Tax
grants a tax credit to all covered entities. Thus, the provisions of the Appeals [(CTA or Tax Court)] via a Petition for Review.
revenue regulation that withdraw or modify such grant are void. Basic
is the rule that administrative regulations cannot amend or revoke the "On February 12, 2001, the Tax Court rendered
law. a Decision5 dismissing respondent’s Petition for lack of merit. In said
decision, the [CTA] justified its ruling with the following ratiocination:
The Case
‘x x x, if no tax has been paid to the government, erroneously or
1 
Before us is a Petition for Review under Rule 45 of the Rules of illegally, or if no amount is due and collectible from the taxpayer, tax
Court, seeking to set aside the August 29, 2002 Decision2 and the refund or tax credit is unavailing. Moreover, whether the recovery of
August 11, 2003 Resolution3 of the Court of Appeals (CA) in CA-GR the tax is made by means of a claim for refund or tax credit, before
SP No. 67439. The assailed Decision reads as follows: recovery is allowed[,] it must be first established that there was an
actual collection and receipt by the government of the tax sought to be
"WHEREFORE, premises considered, the Resolution appealed from recovered. x x x.
is AFFIRMED in toto. No costs."4
‘x x x x x x x x x
The assailed Resolution denied petitioner’s Motion for
Reconsideration. ‘Prescinding from the above, it could logically be deduced that tax
credit is premised on the existence of tax liability on the part of
The Facts taxpayer. In other words, if there is no tax liability, tax credit is not
available.’
The CA narrated the antecedent facts as follows:
"Respondent lodged a Motion for Reconsideration. The [CTA], in its Petitioner raises the following issues for our consideration:
assailed resolution,6 granted respondent’s motion for reconsideration
and ordered herein petitioner to issue a Tax Credit Certificate in favor "Whether the Court of Appeals erred in holding that respondent may
of respondent citing the decision of the then Special Fourth Division of claim the 20% sales discount as a tax credit instead of as a deduction
[the CA] in CA G.R. SP No. 60057 entitled ‘Central [Luzon] Drug from gross income or gross sales.
Corporation vs. Commissioner of Internal Revenue’ promulgated on
May 31, 2001, to wit: "Whether the Court of Appeals erred in holding that respondent is
entitled to a refund."9
‘However, Sec. 229 clearly does not apply in the instant case because
the tax sought to be refunded or credited by petitioner was not These two issues may be summed up in only one: whether
erroneously paid or illegally collected. We take exception to the CTA’s respondent, despite incurring a net loss, may still claim the 20 percent
sweeping but unfounded statement that ‘both tax refund and tax credit sales discount as a tax credit.
are modes of recovering taxes which are either erroneously or illegally
paid to the government.’ Tax refunds or credits do not exclusively The Court’s Ruling
pertain to illegally collected or erroneously paid taxes as they may be
other circumstances where a refund is warranted. The tax refund The Petition is not meritorious.
provided under Section 229 deals exclusively with illegally collected or
erroneously paid taxes but there are other possible situations, such as
Sole Issue:
the refund of excess estimated corporate quarterly income tax paid, or
that of excess input tax paid by a VAT-registered person, or that of
excise tax paid on goods locally produced or manufactured but Claim of 20 Percent Sales Discount
actually exported. The standards and mechanics for the grant of a
refund or credit under these situations are different from that under as  Tax Credit  Despite  Net Loss
Sec. 229. Sec. 4[.a)] of R.A. 7432, is yet another instance of a tax
credit and it does not in any way refer to illegally collected or Section 4a) of RA 743210 grants to senior citizens the privilege of
erroneously paid taxes, x x x.’"7 obtaining a 20 percent discount on their purchase of medicine from
any private establishment in the country.11 The latter may then claim
Ruling of the Court of Appeals the cost of the discount as a tax credit.12 But can such credit be
claimed, even though an establishment operates at a loss?
The CA affirmed in toto the Resolution of the Court of Tax Appeals
(CTA) ordering petitioner to issue a tax credit certificate in favor of We answer in the affirmative.
respondent in the reduced amount of ₱903,038.39. It reasoned that
Republic Act No. (RA) 7432 required neither a tax liability nor a Tax Credit versus
payment of taxes by private establishments prior to the availment of a
tax credit. Moreover, such credit is not tantamount to an unintended Tax Deduction
benefit from the law, but rather a just compensation for the taking of
private property for public use. Although the term is not specifically defined in our Tax Code,13 tax
credit generally refers to an amount that is "subtracted directly from
Hence this Petition.8 one’s total tax liability."14 It is an "allowance against the tax itself" 15 or
"a deduction from what is owed"16 by a taxpayer to the government.
The Issues Examples of tax credits are withheld taxes, payments of estimated
tax, and investment tax credits.17
Tax credit should be understood in relation to other tax concepts. One deducted from a future, not a present, tax liability, without which it
of these is tax deduction -- defined as a subtraction "from income for does not have any use. In the meantime, it need not move. But it
tax purposes,"18 or an amount that is "allowed by law to reduce income breathes.
prior to [the] application of the tax rate to compute the amount of tax
which is due."19 An example of a tax deduction is any of the allowable Prior Tax Payments Not
deductions enumerated in Section 3420 of the Tax Code.
Required for  Tax Credit
A tax credit differs from a tax deduction. On the one hand, a tax
credit reduces the tax due, including -- whenever applicable -- While a tax liability is essential to the availment or use of any tax
the income tax that is determined after applying the corresponding tax credit, prior tax payments are not. On the contrary, for the existence
rates to taxable income.21 A tax deduction, on the other, reduces the or grant solely of such credit, neither a tax liability nor a prior tax
income that is subject to tax22 in order to arrive at taxable income.23 To payment is needed. The Tax Code is in fact replete with provisions
think of the former as the latter is to avoid, if not entirely confuse, the granting or allowing tax credits, even though no taxes have been
issue. A tax credit is used only after the tax has been computed; a tax previously paid.
deduction, before.
For example, in computing the estate tax due, Section 86(E) allows
Tax Liability Required a tax credit -- subject to certain limitations -- for estate taxes paid to a
foreign country. Also found in Section 101(C) is a similar provision for
for  Tax Credit donor’s taxes -- again when paid to a foreign country -- in computing
for the donor’s tax due. The tax credits in both instances allude to the
Since a tax credit is used to reduce directly the tax that is due, there prior payment of taxes, even if not made to our government.
ought to be a tax liability before the tax creditcan be applied. Without
that liability, any tax credit application will be useless. There will be no Under Section 110, a VAT (Value-Added Tax)- registered person
reason for deducting the latter when there is, to begin with, no existing engaging in transactions -- whether or not subject to the VAT -- is also
obligation to the government. However, as will be presented shortly, allowed a tax credit that includes a ratable portion of any input tax not
the existence of a tax credit or its grant by law is not the same as directly attributable to either activity. This input tax may either be the
the availment or use of such credit. While the grant is mandatory, the VAT on the purchase or importation of goods or services that is
availment or use is not. merely due from -- not necessarily paid by -- such VAT-registered
person in the course of trade or business; or the transitional input tax
If a net loss is reported by, and no other taxes are currently due from, determined in accordance with Section 111(A). The latter type may in
a business establishment, there will obviously be no tax liability fact be an amount equivalent to only eight percent of the value of a
against which any tax credit can be applied.24 For the establishment to VAT-registered person’s beginning inventory of goods, materials and
choose the immediate availment of a tax credit will be premature and supplies, when such amount -- as computed -- is higher than the
impracticable. Nevertheless, the irrefutable fact remains that, under actual VAT paid on the said items. 25 Clearly from this provision,
RA 7432, Congress has granted without conditions a tax credit benefit the tax credit refers to an input tax that is either due only or given a
to all covered establishments. value by mere comparison with the VAT actually paid -- then later
prorated. No tax is actually paid prior to the availment of such credit.
Although this tax credit benefit is available, it need not be used by
losing ventures, since there is no tax liability that calls for its In Section 111(B), a one and a half percent input tax credit that is
application. Neither can it be reduced to nil by the quick yet callow merely presumptive is allowed. For the purchase of primary
stroke of an administrative pen, simply because no reduction of taxes agricultural products used as inputs -- either in the processing of
can instantly be effected. By its nature, the tax credit may still be sardines, mackerel and milk, or in the manufacture of refined sugar
and cooking oil -- and for the contract price of public work contracts In addition to the above-cited provisions in the Tax Code, there are
entered into with the government, again, no prior tax payments are also tax treaties and special laws that grant or allow tax credits, even
needed for the use of the tax credit. though no prior tax payments have been made.

More important, a VAT-registered person whose sales are zero-rated Under the treaties in which the tax credit method is used as a relief to
or effectively zero-rated may, under Section 112(A), apply for the avoid double taxation, income that is taxed in the state of source is
issuance of a tax credit certificate for the amount of creditable input also taxable in the state of residence, but the tax paid in the former is
taxes merely due -- again not necessarily paid to -- the government merely allowed as a credit against the tax levied in the
and attributable to such sales, to the extent that the input taxes have latter.29 Apparently, payment is made to the state of source, not
not been applied against output taxes.26 Where a taxpayer  the state of residence. No tax, therefore, has been previously paid to
is engaged in zero-rated or effectively zero-rated sales and also in the latter.
taxable or exempt sales, the amount of creditable input taxes due that
are not directly and entirely attributable to any one of these Under special laws that particularly affect businesses, there can also
transactions shall be proportionately allocated on the basis of the be tax credit incentives. To illustrate, the incentives provided for in
volume of sales. Indeed, in availing of such tax credit for VAT Article 48 of Presidential Decree No. (PD) 1789, as amended by
purposes, this provision -- as well as the one earlier mentioned -- Batas Pambansa Blg. (BP) 391, include tax credits equivalent to
shows that the prior payment of taxes is not a requisite. either five percent of the net value earned, or five or ten percent of the
net local content of exports.30 In order to avail of such credits under
It may be argued that Section 28(B)(5)(b) of the Tax Code is another the said law and still achieve its objectives, no prior tax payments are
illustration of a tax credit allowed, even though no prior tax payments necessary.
are not required. Specifically, in this provision, the imposition of a final
withholding tax rate on cash and/or property dividends received by a From all the foregoing instances, it is evident that prior tax payments
nonresident foreign corporation from a domestic corporation is are not indispensable to the availment of a tax credit. Thus, the CA
subjected to the condition that a foreign tax credit will be given by the correctly held that the availment under RA 7432 did not require prior
domiciliary country in an amount equivalent to taxes that are merely tax payments by private establishments concerned.31 However, we do
deemed paid.27 Although true, this provision actually refers to the tax not agree with its finding32 that the carry-over of tax credits under the
credit as a condition only for the imposition of a lower tax rate, not as said special law to succeeding taxable periods, and even their
a deduction from the corresponding tax liability. Besides, it is not our application against internal revenue taxes, did not necessitate the
government but the domiciliary country that credits against the income existence of a tax liability.
tax payable to the latter by the foreign corporation, the tax to be
foregone or spared.28 The examples above show that a tax liability is certainly important in
the availment or use, not the existence or grant, of a tax credit.
In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), Regarding this matter, a private establishment reporting a net loss in
categorically allows as credits, against the income tax imposable its financial statements is no different from another that presents a net
under Title II, the amount of income taxes merely incurred -- not income. Both are entitled to the tax credit provided for under RA 7432,
necessarily paid -- by a domestic corporation during a taxable year in since the law itself accords that unconditional benefit. However, for
any foreign country. Moreover, Section 34(C)(5) provides that for such the losing establishment to immediately apply such credit, where no
taxes incurred but not paid, a tax credit may be allowed, subject to the tax is due, will be an improvident usance.
condition precedent that the taxpayer shall simply give a bond with
sureties satisfactory to and approved by petitioner, in such sum as Sections 2.i and 4 of Revenue
may be required; and further conditioned upon payment by the
taxpayer of any tax found due, upon petitioner’s redetermination of it. Regulations No. 2-94 Erroneous
RA 7432 specifically allows private establishments to claim as tax A "percentage reduction from the list price x x x allowed by
credit the amount of discounts they grant.33 In turn, the Implementing manufacturers to wholesalers and by wholesalers to retailers" 45 is
Rules and Regulations, issued pursuant thereto, provide the known as a trade discount. No entry for it need be made in the
procedures for its availment.34To deny such credit, despite the plain manual or computerized books of accounts, since the purchase or
mandate of the law and the regulations carrying out that mandate, is sale is already valued at the net price actually charged the
indefensible. buyer.46 The purpose for the discount is to encourage trading or
increase sales, and the prices at which the purchased goods may be
First, the definition given by petitioner is erroneous. It refers to tax resold are also suggested.47 Even a chain discount -- a series of
credit as the amount representing the 20 percent discount that "shall discounts from one list price -- is recorded at net.48
be deducted by the said establishments from their gross income for
income tax purposes and from their gross sales for value-added tax or Finally, akin to a trade discount is a functional discount. It is "a
other percentage tax purposes."35 In ordinary business language, supplier’s price discount given to a purchaser based on the [latter’s]
the tax credit represents the amount of such discount. However, the role in the [former’s] distribution system." 49 This role usually involves
manner by which the discount shall be credited against taxes has not warehousing or advertising.
been clarified by the revenue regulations.
Based on this discussion, we find that the nature of a sales discount is
By ordinary acceptation, a discount is an "abatement or reduction peculiar. Applying generally accepted accounting principles (GAAP) in
made from the gross amount or value of anything." 36 To be more the country, this type of discount is reflected in the income
precise, it is in business parlance "a deduction or lowering of an statement50 as a line item deducted -- along with returns, allowances,
amount of money;"37 or "a reduction from the full amount or value of rebates and other similar expenses -- from gross sales to arrive at net
something, especially a price."38 In business there are many kinds of sales.51 This type of presentation is resorted to, because the accounts
discount, the most common of which is that affecting the income receivable and sales figures that arise from sales discounts, -- as well
statement39 or financial report upon which the income tax is based. as from quantity, volume or bulk discounts -- are recorded in the
manual and computerized books of accounts and reflected in the
Business Discounts financial statements at the gross amounts of the invoices. 52This
manner of recording credit sales -- known as the gross method -- is
Deducted from  Gross Sales most widely used, because it is simple, more convenient to apply than
the net method, and produces no material errors over time.53
A cash discount, for example, is one granted by business
establishments to credit customers for their prompt payment.40 It is a However, under the net method used in
"reduction in price offered to the purchaser if payment is made within recording trade, chain or functional discounts, only the net amounts of
a shorter period of time than the maximum time specified." 41 Also the invoices -- after the discounts have been deducted -- are recorded
referred to as a sales discount on the part of the seller and in the books of accounts54 and reflected in the financial statements. A
a purchase discounton the part of the buyer, it may be expressed in separate line item cannot be shown,55 because the transactions
such  themselves involving both accounts receivable and sales have
terms as "5/10, n/30."42 already been entered into, net of the said discounts.

A quantity discount, however, is a "reduction in price allowed for The term sales discounts is not expressly defined in the Tax Code,
purchases made in large quantities, justified by savings in packaging, but one provision adverts to amounts whose sum -- along with sales
shipping, and handling."43 It is also called a volume or bulk discount.44 returns, allowances and cost of goods sold56 -- is deducted from gross
sales to come up with the gross income, profit or margin57 derived
from business.58 In another provision therein, sales discounts that are
granted and indicated in the invoices at the time of sale -- and that do To stress, the effect of a sales discount on the income
not depend upon the happening of any future event -- may be statement and income tax return of an establishment covered by RA
excluded from the gross sales within the same quarter they were 7432 is different from that resulting from the availment or use of its tax
given.59 While determinative only of the VAT, the latter provision also credit benefit. While the former is a deduction before, the latter is a
appears as a suitable reference point for income tax purposes already deduction after, the income tax is computed. As mentioned earlier, a
embraced in the former. After all, these two provisions affirm discount is not necessarily a sales discount, and a tax credit for a
that sales discounts are amounts that are always deductible simple discount privilege should not be automatically treated like
from gross sales. a sales discount. Ubi lex non distinguit, nec nos distinguere debemus.
Where the law does not distinguish, we ought not to distinguish.
Reason for the Senior Citizen Discount:
Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax
The Law, Not Prompt Payment credit as the 20 percent discount deductible from gross
income for income tax purposes, or from gross sales for VAT or other
A distinguishing feature of the implementing rules of RA 7432 is the percentage tax purposes. In effect, the tax credit benefit under RA
private establishment’s outright deduction of the discount from the 7432 is related to a sales discount. This contrived definition is
invoice price of the medicine sold to the senior citizen. 60 It is, improper, considering that the latter has to be deducted from gross
therefore, expected that for each retail sale made under this law, the sales in order to compute the gross income in the income
discount period lasts no more than a day, because such discount is statementand cannot be deducted again, even for purposes of
given -- and the net amount thereof collected -- immediately upon computing the income tax.
perfection of the sale.61 Although prompt payment is made for an
arm’s-length transaction by the senior citizen, the real and compelling When the law says that the cost of the discount may be claimed as
reason for the private establishment giving the discount is that the law a tax credit, it means that the amount -- when claimed -- shall be
itself makes it mandatory. treated as a reduction from any tax liability, plain and simple. The
option to avail of the tax creditbenefit depends upon the existence of a
What RA 7432 grants the senior citizen is a mere discount privilege, tax liability, but to limit the benefit to a sales discount -- which is not
not a sales discount or any of the above discounts in particular. even identical to the discount privilege that is granted by law -- does
Prompt payment is not the reason for (although a necessary not define it at all and serves no useful purpose. The definition must,
consequence of) such grant. To be sure, the privilege enjoyed by the therefore, be stricken down.
senior citizen must be equivalent to the tax credit benefit enjoyed by
the private establishment granting the discount. Yet, under the Laws Not Amended
revenue regulations promulgated by our tax authorities, this benefit
has been erroneously likened and confined to a sales discount. by Regulations

To a senior citizen, the monetary effect of the privilege may be the Second, the law cannot be amended by a mere regulation. In fact, a
same as that resulting from a sales discount. However, to a private regulation that "operates to create a rule out of harmony with 
establishment, the effect is different from a simple reduction in price the statute is a mere nullity";62 it cannot prevail.
that results from such discount. In other words, the tax credit benefit is
not the same as a sales discount. To repeat from our earlier It is a cardinal rule that courts "will and should respect the
discourse, this benefit cannot and should not be treated as a tax contemporaneous construction placed upon a statute by the executive
deduction. officers whose duty it is to enforce it x x x." 63 In the scheme of judicial
tax administration, the need for certainty and predictability in the
implementation of tax laws is crucial. 64 Our tax authorities fill in the
details that "Congress may not have the opportunity or competence to Granting that there is a tax liability and respondent claims such cost
provide."65 The regulations these authorities issue are relied upon by as a tax credit, then the tax credit can easily be applied. If there is
taxpayers, who are certain that these will be followed by the none, the credit cannot be used and will just have to be carried over
courts.66 Courts, however, will not uphold these authorities’ and revalidated75 accordingly. If, however, the business continues to
interpretations when clearly absurd, erroneous or improper. operate at a loss and no other taxes are due, thus compelling it to
close shop, the credit can never be applied and will be lost altogether.
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 In other words, it is the existence or the lack of a tax liability that
what RA 7432 provides. Their interpretation has muddled up the intent determines whether the cost of the discounts can be used as a tax
of Congress in granting a mere discount privilege, not a sales credit. RA 7432 does not give respondent the unfettered right to avail
discount. The administrative agency issuing these regulations may not itself of the credit whenever it pleases. Neither does it allow our tax
enlarge, alter or restrict the provisions of the law it administers; it administrators to expand or contract the legislative mandate. "The
cannot engraft additional requirements not contemplated by the ‘plain meaning rule’ or verba legis in statutory construction is thus
legislature.67 applicable x x x. Where the words of a statute are clear, plain and free
from ambiguity, it must be given its literal meaning and applied without
In case of conflict, the law must prevail. 68 A "regulation adopted attempted interpretation."76
pursuant to law is law."69 Conversely, a regulation or any portion
thereof not adopted pursuant to law is no law and has neither the Tax Credit Benefit
force nor the effect of law.70
Deemed  Just Compensation
Availment of Tax
Fourth, Sections 2.i and 4 of RR 2-94 deny the exercise by the State
Credit Voluntary of its power of eminent domain. Be it stressed that the privilege
enjoyed by senior citizens does not come directly from the State, but
rather from the private establishments concerned. Accordingly,
Third, the word may in the text of the statute71 implies that the  the tax credit benefit granted to these establishments can be deemed
availability of the tax credit benefit is neither unrestricted nor as their just compensation for private property taken by the State for
mandatory.72 There is no absolute right conferred upon respondent, or public use.77
any similar taxpayer, to avail itself of the tax credit remedy whenever it
chooses; "neither does it impose a duty on the part of the government The concept of public use is no longer confined to the traditional
to sit back and allow an important facet of tax collection to be at the notion of use by the public, but held synonymous with public
sole control and discretion of the taxpayer."73 For the tax authorities to interest, public benefit, public welfare, and public convenience.78 The
compel respondent to deduct the 20 percent discount from either discount privilege to which our senior citizens are entitled is actually a
its gross income or its gross sales74 is, therefore, not only to make an benefit enjoyed by the general public to which these citizens belong.
imposition without basis in law, but also to blatantly contravene the The discounts given would have entered the coffers and formed part
law itself. of the gross sales of the private establishments concerned, were it not
for RA 7432. The permanent reduction in their total revenues is a
What Section 4.a of RA 7432 means is that the tax credit benefit is forced subsidy corresponding to the taking of private property
merely permissive, not imperative. Respondent is given two options -- for public use or benefit.
either to claim or not to claim the cost of the discounts as a tax credit.
In fact, it may even ignore the credit and simply consider the gesture As a result of the 20 percent discount imposed by RA 7432,
as an act of beneficence, an expression of its social conscience. respondent becomes entitled to a just compensation. This term refers
not only to the issuance of a tax credit certificate indicating the correct Intended by the Legislature
amount of the discounts given, but also to the promptness in its
release. Equivalent to the payment of property taken by the State, Fifth, RA 7432 itself seeks to adopt measures whereby senior citizens
such issuance -- when not done within a reasonable time from the are assisted by the community as a whole and to establish a program
grant of the discounts -- cannot be considered as just compensation. beneficial to them.86 These objectives are consonant with the
In effect, respondent is made to suffer the consequences of being constitutional policy of making "health x x x services available to all
immediately deprived of its revenues while awaiting actual receipt, the people at affordable cost"87 and of giving "priority for the needs of
through the certificate, of the equivalent amount it needs to cope with the x x x elderly."88 Sections 2.i and 4 of RR 2-94, however, contradict
the reduction in its revenues.79 these constitutional policies and statutory objectives.

Besides, the taxation power can also be used as an implement for the Furthermore, Congress has allowed all private establishments a
exercise of the power of eminent domain. 80Tax measures are but simple tax credit, not a deduction. In fact, no cash outlay is required
"enforced contributions exacted on pain of penal sanctions"81 and from the government for the availment or use of such credit. The
"clearly imposed for a public purpose."82 In recent years, the power to deliberations on February 5, 1992 of the Bicameral Conference
tax has indeed become a most effective tool to realize social Committee Meeting on Social Justice, which finalized RA 7432,
justice, public welfare, and the equitable distribution of wealth.83 disclose the true intent of our legislators to treat the sales
discounts as a tax credit, rather than as a deduction from gross
While it is a declared commitment under Section 1 of RA 7432, social income. We quote from those deliberations as follows:
justice "cannot be invoked to trample on the rights of property owners
who under our Constitution and laws are also entitled to protection. "THE CHAIRMAN (Rep. Unico). By the way, before that ano, about
The social justice consecrated in our [C]onstitution [is] not intended to deductions from taxable income. I think we incorporated there a
take away rights from a person and give them to another who is not provision na - on the responsibility of the private hospitals and
entitled thereto."84 For this reason, a just compensation for income that drugstores, hindi ba?
is taken away from respondent becomes necessary. It is in the tax
credit that our legislators find support to realize social justice, and no SEN. ANGARA. Oo.
administrative body can alter that fact.
THE CHAIRMAN. (Rep. Unico), So, I think we have to put in also a
To put it differently, a private establishment that merely breaks provision here about the deductions from taxable income of that
even85 -- without the discounts yet -- will surely start to incur losses private hospitals, di ba ganon 'yan?
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 MS. ADVENTO. Kaya lang po sir, and mga discounts po nila affecting
by senior citizens. Aside from the observation we have already raised government and public institutions, so, puwede na po nating hindi
earlier, it will also be grossly unfair to an establishment if the isama yung mga less deductions ng taxable income.
discounts will be treated merely as deductions from either its gross
income or its gross sales. Operating at a loss through no fault of its THE CHAIRMAN. (Rep. Unico). Puwede na. Yung about the private
own, it will realize that the tax credit limitation under RR 2-94 is inutile, hospitals. Yung isiningit natin?
if not improper. Worse, profit-generating businesses will be put in a
better position if they avail themselves of tax credits denied those that
MS. ADVENTO. Singit na po ba yung 15% on credit. (inaudible/did
are losing, because no taxes are due from the latter.
not use the microphone).
Grant of  Tax Credit
SEN. ANGARA. Hindi pa, hindi pa.
THE CHAIRMAN. (Rep. Unico) Ah, 'di pa ba naisama natin? THE CHAIRMAN. (Rep. Unico). Tax credit.

SEN. ANGARA. Oo. You want to insert that? SEN. ANGARA. As a tax credit [rather] than a kuwan - deduction,
Okay.
THE CHAIRMAN (Rep. Unico). Yung ang proposal ni Senator
Shahani, e. REP. AQUINO Okay.

SEN. ANGARA. In the case of private hospitals they got the grant of SEN. ANGARA. Sige Okay. Di subject to style na lang sa Letter A".89
15% discount, provided that, the private hospitals can claim the
expense as a tax credit. Special Law

REP. AQUINO. Yah could be allowed as deductions in the Over General Law
perpetrations of (inaudible) income.
Sixth and last, RA 7432 is a special law that should prevail over the
SEN. ANGARA. I-tax credit na lang natin para walang cash-out ano? Tax Code -- a general law. "x x x [T]he rule is that on a specific matter
the special law shall prevail over the general law, which shall 
REP. AQUINO. Oo, tax credit. Tama, Okay. Hospitals ba o lahat ng be resorted to only to supply deficiencies in the former." 90 In addition,
establishments na covered. "[w]here there are two statutes, the earlier special and the later
general -- the terms of the general broad enough to include the matter
THE CHAIRMAN. (Rep. Unico). Sa kuwan lang yon, as private provided for in the special -- the fact that one is special and the other
hospitals lang. is general creates a presumption that the special is to be considered
as remaining an exception to the general,91 one as a general law of
REP. AQUINO. Ano ba yung establishments na covered? the land, the other as the law of a particular case." 92 "It is a canon of
statutory construction that a later statute, general in its terms and not
SEN. ANGARA. Restaurant lodging houses, recreation centers. expressly repealing a prior special statute, will ordinarily not affect the
special provisions of such earlier statute."93
REP. AQUINO. All establishments covered siguro?
RA 7432 is an earlier law not expressly repealed by, and therefore
SEN. ANGARA. From all establishments. Alisin na natin 'Yung kuwan remains an exception to, the Tax Code -- a later law. When the former
kung ganon. Can we go back to Section 4 ha? states that a tax credit may be claimed, then the requirement of prior
tax payments under certain provisions of the latter, as discussed
above, cannot be made to apply. Neither can the instances of or
REP. AQUINO. Oho.
references to a tax deduction under the Tax Code94 be made to
restrict RA 7432. No provision of any revenue regulation can supplant
SEN. ANGARA. Letter A. To capture that thought, we'll say the grant or modify the acts of Congress.
of 20% discount from all establishments et cetera, et cetera, provided
that said establishments - provided that private establishments may
WHEREFORE, the Petition is hereby DENIED. The assailed Decision
claim the cost as a tax credit. Ganon ba 'yon?
and Resolution of the Court of Appeals AFFIRMED. No
pronouncement as to costs.
REP. AQUINO. Yah.
SO ORDERED.
SEN. ANGARA. Dahil kung government, they don't need to claim it.