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Cir V. Central Luzon Drug Corporation, GR No. 148512, 2006-06-26

The Supreme Court ruled that the 20% sales discount granted by a drug corporation to senior citizens pursuant to Republic Act No. 7432 should be treated as a tax credit, not a deduction from income. The Court held that the plain language of the law refers to the discount as a "tax credit" and not a "deduction." Additionally, the definition of "tax credit" in Revenue Regulations No. 2-94 erroneously refers to it as a deduction from gross sales. Finally, the tax credit contemplated under RA 7432 is a form of just compensation for private establishments and not a remedy for erroneously collected taxes as described in Section 229 of the Tax Code.

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178 views2 pages

Cir V. Central Luzon Drug Corporation, GR No. 148512, 2006-06-26

The Supreme Court ruled that the 20% sales discount granted by a drug corporation to senior citizens pursuant to Republic Act No. 7432 should be treated as a tax credit, not a deduction from income. The Court held that the plain language of the law refers to the discount as a "tax credit" and not a "deduction." Additionally, the definition of "tax credit" in Revenue Regulations No. 2-94 erroneously refers to it as a deduction from gross sales. Finally, the tax credit contemplated under RA 7432 is a form of just compensation for private establishments and not a remedy for erroneously collected taxes as described in Section 229 of the Tax Code.

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Crisbon Apalis
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CIR v. CENTRAL LUZON DRUG CORPORATION, GR NO.

148512, 2006-06-26
FACTS:
Respondent is a domestic corporation primarily engaged in retailing of medicines and other
pharmaceutical products. Respondent granted twenty (20%) percent sales discount to qualified
senior citizens on their purchases of medicines pursuant to Republic Act No. [R.A.] 7432 and its
Implementing Rules and Regulations.
On April 15, 1997, respondent filed its Annual Income Tax Return for taxable year 1996
declaring therein that it incurred net losses from its operations. n January 16, 1998, respondent
filed with petitioner a claim for tax refund/credit in the amount of ₱904,769.00 allegedly arising
from the 20% sales discount granted by respondent to qualified senior citizens in compliance
with [R.A.] 7432. Unable to obtain affirmative response from petitioner, respondent elevated its
claim to the Court of Tax Appeals [(CTA or Tax Court)] via a Petition for Review.
ISSUE:
whether the 20% sales discount granted by respondent to qualified senior citizens pursuant to
Sec. 4(a) of R.A. No. 7432 may be claimed as a tax credit or as a deduction from gross sales in
accordance with Sec. 2(1) of Revenue Regulations No. 2-94.
HELD:

The CA and the CTA correctly ruled that based on the plain wording of the law discounts given
under R.A. No. 7432 should be treated as tax credits, not deductions from income.

The above provision explicitly employed the word "tax credit."  Nothing in the provision
suggests for it to mean a "deduction" from gross sales. To construe it otherwise would be a
departure from the clear mandate of the law.

Thus, the 20% discount required by the Act to be given to senior citizens is a tax credit, not a
deduction from the gross sales of the establishment concerned.

As a corollary to this, the definition of "tax credit" found in Section 2(1) of Revenue Regulations
No. 2-94 is erroneous as it refers to tax credit as the amount representing the 20% discount  that
"shall be deducted by the said establishment from their gross sales for value added tax and other
percentage tax purposes." This definition is contrary to what our lawmakers had envisioned with
regard to the treatment of the discount granted to senior citizens.

Finally, for purposes of clarity, Sec. 229[11] of the Tax Code does not apply to cases that fall
under Sec. 4 of R.A. No. 7432 because the former provision governs exclusively all kinds of
refund or credit of internal revenue taxes that were erroneously or illegally imposed and
collected pursuant to the Tax Code while the latter extends the tax credit benefit to the private
establishments concerned even before tax payments have been made.

The tax credit that is contemplated under the Act is a form of just compensation, not a remedy
for taxes that were erroneously or illegally assessed and collected. In the same vein, prior
payment of any tax liability is not a precondition before a taxable entity can benefit from the tax
credit. The credit may be availed of upon payment of the tax due, if any. Where there is no tax
liability or where a private establishment reports a net loss for the period, the tax credit can be
availed of and carried over to the next taxable year.

It must also be stressed that unlike in Sec. 229 of the Tax Code wherein the remedy of refund is
available to the taxpayer, Sec. 4 of the law speaks only of a tax credit, not a refund.

As earlier mentioned, the tax credit benefit granted to the establishments can be deemed as their
just compensation for private property taken by the State for public use. The privilege enjoyed by
the senior citizens does not come directly from the State, but rather from the private
establishments concerned.

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