In the exercise of police power, "property rights of private individuals are subjected to restraints and

burdens in order to secure the general comfort, health, and prosperity of the State." Even then, the
38

State's claim of police power cannot be arbitrary or unreasonable. After all, the overriding purpose of
the exercise of the power is to promote general welfare, public health and safety, among others. It is
a measure, which by sheer necessity, the State exercises, even to the point of interfering with
personal liberties or property rights in order to advance common good. To warrant such interference,
two requisites must concur: (a) the interests of the public generally, as distinguished from those of a
particular class, require the interference of the! State; and (b) the means employed are reasonably
necessary to the: attainment of the object sought to be accomplished and not unduly oppressive
upon individuals. In other words, the proper exercise of the police power requires the concurrence of
a lawful subject and a lawful method. 39

The subjects of R.A. Nos. 9257 and 9442, i.e., senior citizens and PWDs, are individuals whose
well-being is a recognized public duty. As a public duty, the responsibility for their care devolves
upon the concerted efforts of the State, the family and the community. In Article XIII, Section 1 of the
Constitution, the State is mandated to give highest priority to the enactment of measures that protect
and enhance the right of all the people to human dignity, reduce social, economic, and political
inequalities, and remove cultural inequities by equitably diffusing wealth and political power1 for the
common good. The more apparent manifestation of these social inequities is the unequal distribution
or access to healthcare services. To: abet in alleviating this concern, the State is committed to 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, with
priority for the needs of the underprivileged sick, elderly, disabled, women, and children. 40

In the same manner, the family and the community have equally significant duties to perform in
reducing social inequality. The family as the basic social institution has the foremost duty to care for
its elderly members. On the other hand, the community, which include the private sector, is
41

recognized as an active partner of the State in pursuing greater causes. The private sector, being
recipients of the privilege to engage business in our land, utilize our goods as well as the services of
our people for proprietary purposes, it is only fitting to expect their support in measures that
contribute to common good. Moreover, their right to own, establish and operate economic
enterprises is always subject to the duty of the State to promote distributive justice and to intervene
when the common good so demands. 42

The Court also entertains no doubt on the legality of the method taken by the legislature to
implement the declared policies of the subject laws, that is, to impose discounts on the medical
services and purchases of senior citizens and PWDs and to treat the said discounts as tax deduction
rather than tax credit. The measure is fair and reasonable and no credible proof was presented to
prove the claim that it was confiscatory. To be considered confiscatory, there must be taking of
property without just compensation.

Illuminating on this point is the discussion of the Court on the concept of taking in City of Manila v.
Hon. Laguio, Jr., viz.:
43

There are two different types of taking that can be identified. A "possessory" taking occurs when the
government confiscates or physically occupies property. A "regulatory" taking occurs when the
government's regulation leaves no reasonable economically viable use of the property.

xxxx

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. x x x.

What is crucial in judicial consideration of regulatory takings is that government regulation is a taking
if it leaves no reasonable economically viable use of property in a manner that interferes with
reasonable expectations for use. A regulation that permanently denies all economically beneficial or
productive use of land is, from the owner's point of view, equivalent to a "taking" unless principles of
nuisance or property law that existed when the owner acquired the land make the use prohibitable.
When the owner of real property has been called upon to sacrifice all economically beneficial uses in
the name of the common good, that is, to leave his property economically idle, he has suffered a
taking.

xxxx

A restriction on use of property may also constitute a "taking" if not reasonably necessary to the
effectuation of a substantial public purpose or if it has an unduly harsh impact on the distinct
investment-backed expectations of the owner. (Citations omitted)
44

The petitioner herein attempts to prove its claim that the pertinent provisions of R.A. Nos. 9257 and
9442 amount to taking by presenting financial statements purportedly showing financial losses
incurred by them due to the adoption of the tax deduction scheme.

For the petitioner's clarification, the presentation of the financial statement is not of compelling
significance in justifying its claim for just compensation. What is imperative is for it to establish that
there was taking in the constitutional sense or that, in the imposition of the mandatory discount, the
power exercised by the state was eminent domain.

According to Republic of the Philippines v. Vda. de Castellvi, five circumstances must be present in
45

order to qualify "taking" as an exercise of eminent domain. First, the expropriator must enter a
private property. Second, the entrance into private property must be for more than a momentary
period. Third, the entry into the property should be under warrant or color of legal
authority. Fourth, the property must be devoted to a public use or otherwise informally appropriated
or injuriously affected. Fifth, the utilization of the property for public use must be in such a way as to
oust the owner and deprive him of all beneficial enjoyment of the property. 46

The first requirement speaks of entry into a private property which clearly does not obtain in this
case. There is no private property that is; invaded or appropriated by the State. As it is, the petitioner
precipitately deemed future profits as private property and then proceeded to argue that the State
took it away without full compensation. This seemed preposterous considering that the subject of
what the petitioner supposed as taking was not even earned profits but merely an expectation of
profits, which may not even occur. For obvious reasons, there cannot be taking of a contingency or
of a mere possibility because it lacks physical existence that is necessary before there could be any
taking. Further, it is impossible to quantify the compensation for the loss of supposed profits before it
is earned.

The supposed taking also lacked the characteristics of permanence and consistency. The
47
1âwphi1

presence of these characteristics is significant because they can establish that the effect of the
questioned provisions is the same on all establishments and those losses are indeed its unavoidable
consequence. But apparently these indications are wanting in this case. The reason is that the
impact on the establishments varies depending on their response to the changes brought about by
the subject provisions. To be clear, establishments, are not prevented from adjusting their prices to
accommodate the effects of the granting of the discount and retain their profitability while being fully
compliant to the laws. It follows that losses are not inevitable because establishments are free to
take business measures to accommodate the contingency. Lacking in permanence and consistency,
there can be no taking in the constitutional sense. There cannot be taking in one establishment and
none in another, such that the former can claim compensation but the other may not. Simply told,
there is no taking to justify compensation; there is only poor business decision to blame.

There is also no ousting of the owner or deprivation of ownership. Establishments are neither
divested of ownership of any of their properties nor is anything forcibly taken from them. They
remain the owner of their goods and their profit or loss still depends on the performance of their
sales.

Apart from the foregoing, covered establishments are also provided with a mechanism to recoup the
amount of discounts they grant the senior citizens and PWDs. It is provided in Section 4(a) of R.A.
No. 9257 and Section 32 of R.A. No. 9442 that establishments may claim the discounts as "tax
deduction based on the net cost of the goods sold or services rendered." Basically, whatever amount
was given as discount, covered establishments may claim an equal amount as an expense or tax
deduction. The trouble is that the petitioner, in protesting the change in the tax treatment of the
discounts, apparently seeks tax incentive and not merely a return of the amount given as discounts.
It premised its interpretation of financial losses in terms of the effect of the change in the tax
treatment of the discount on its tax liability; hence, the claim that the measure was confiscatory.
However, as mentioned earlier in the discussion, loss of profits is not the inevitable result of the
change in tax treatment of the discounts; it is more appropriately a consequence of poor business
decision.

It bears emphasizing that the law does not place a cap on the amount of mark up that covered
establishments may impose on their items. This rests on the discretion of the establishment which,
of course, is expected to put in the price of the overhead costs, expectation of profits and other
considerations into the selling price of an item. In a simple illustration, here is Drug A, with
acquisition cost of ₱8.00, and selling price of ₱10.00. Then comes a law that imposes 20% on senior
citizens and PWDs, which affected Establishments 1, 2 and 3. Let us suppose that the approximate
number of patrons who purchases Drug A is 100, half of which are senior citizens and PWDs. Before
the passage of the law, all of the establishments are earning the same amount from profit from the
sale of Drug A, viz.:

Before the passage of the law:

Drug A

Acquisition cost ₱8.00

Number of patrons 100

Sales:

100 x ₱10.00 = ₱1,000.00

Profit: ₱200
After the passage of the law, the three establishments reacted differently. Establishment 1 was
passive and maintained the price of Drug A at ₱8.00 which understandably resulted in diminution of
profits.

Establishment 1

Drug A

Acquisition cost ₱8.00

Number of patrons 100

Sales

100 x ₱10.00 = ₱1,000.00

Deduction: ₱100.00

Profit: ₱100.00

On the other hand, Establishment 2, mindful that the new law will affect the profitability of the
business, made a calculated decision by increasing the mark up of Drug A to ₱3.20, instead of only
₱2.00. This brought a positive result to the earnings of the company.

Establishment 2

Drug A

Acquisition cost ;₱8.00

Number of patron 100

Sales

100 x ₱10.00 = ₱1,000.00

Deduction: ₱112.00

Profit: ₱208.00

For its part, Establishment 3 raised the mark up on Drug A to only ₱3.00 just to even out the effect of
the law. This measure left a negligible effect on its profit, but Establishment 3 took it as a social duty:
to share in the cause being promoted by the government while still maintaining profitability.
 Establishment 3

Drug A

Acquisition cost ₱8.00

Number of patrons 100

Sales

100 x ₱10.00 = ₱1,000.00

Deduction: ₱110.00

Profit: ₱190.00

The foregoing demonstrates that it is not the law per se which occasioned the losses in the covered
establishments but bad business I judgment. One of the main considerations in making business
decisions is the law because its effect is widespread and inevitable. Literally, anything can be a
subject of legislation. It is therefore incumbent upon business managers to cover this contingency
and consider it in making business strategies. As shown in the illustration, the better responses were
exemplified by Establishments 2 and 3 which promptly put in the additional costs brought about by
the law into the price of Drug A. In doing so, they were able to maintain the profitability of the
business, even earning some more, while at the same time being fully compliant with the law. This is
not to mention that the illustration is even too simplistic and not' the most ideal since it dealt only with
a single drug being purchased by both regular patrons and senior citizens and PWDs. It did not
consider the accumulated profits from the other medical and non-medical products being sold by the
establishments which are expected to further curb the effect of the granting of the discounts in the
business.

It is therefore unthinkable how the petitioner could have suffered losses due to the mandated
discounts in R.A. Nos. 9257 and 9442, when a fractional increase in the prices of items could bring
the business standing at a balance even with the introduction of the subject laws. A level adjustment
in the pricing of items is a reasonable business measure to take in order to adapt to the contingency.
This could even make establishments earn more, as shown in the illustration, since every fractional
increase in the price of covered items translates to a wider cushion to taper off the effect of the
granting of discounts and ultimately results to additional profits gained from the purchases of the
same items by regular patrons who are not entitled to the discount. Clearly, the effect of the subject
laws in the financial standing of covered companies depends largely on how they respond and forge
a balance between profitability and their sense of social responsibility. The adaptation is entirely up
to them and they are not powerless to make adjustments to accommodate the subject legislations.

Still, the petitioner argues that the law is confiscatory in the sense that the State takes away a
portion of its supposed profits which could have gone into its coffers and utilizes it for public purpose.
The petitioner claims that the action of the State amounts to taking for which it should be
compensated.
To reiterate, the subject provisions only affect the petitioner's right to profit, and not earned profits.
Unfortunately for the petitioner, the right to profit is not a vested right or an entitlement that has
accrued on the person or entity such that its invasion or deprivation warrants compensation. Vested
rights are "fixed, unalterable, or irrevocable."48 More extensively, they are depicted as follows:

Rights which have so completely and definitely accrued to or settled in a person that they are not
subject to be defeated or cancelled by the act of any other private person, and which it is right and
equitable that the government should recognize and protect, as being lawful in themselves, and
settled according to the then current rules of law, and of which the individual could not be deprived
arbitrarily without injustice, or of which he could not justly be deprived otherwise than by the
established methods of procedure and for the public welfare. x x x A right is not 'vested' unless it is
more than a mere expectation based on the anticipated continuance of present laws; it must be an
established interest in property, not open to doubt. x x x To be vested in its accurate legal sense,
a right must be complete and consummated, and one of which the person to whom it belongs
cannot be divested without his consent.x x x. (Emphasis ours)
49

Right to profits does not give the petitioner the cause of action to ask for just compensation, it being
only an inchoate right or one that has not fully developed and therefore cannot be claimed as one's
50

own. An inchoate right is a mere expectation, which may or may not come into existence. It is
contingent as it only comes "into existence on an event or condition which may not happen or be
performed until some other event may prevent their vesting." Certainly, the petitioner cannot claim
51

confiscation or taking of something that has yet to exist. It cannot claim deprivation of profit before
the consummation of a sale and the purchase by a senior citizen or PWD.

Right to profit is not an accrued right; it is not fixed, absolute nor indefeasible. It does not come into
being until the occurrence or realization of a condition precedent. It is a mere "contingency that might
never eventuate into a right. It stands for a mere possibility of profit but nothing might ever be
payable under it."52

The inchoate nature of the right to profit precludes the possibility of compensation because it lacks
the quality or characteristic which is necessary before any act of taking or expropriation can be
effected. Moreover, there is no yardstick fitting to quantify a contingency or to determine
compensation for a mere possibility. Certainly, "taking" presupposes the existence of a subject that
has a quantifiable or determinable value, characteristics which a mere contingency does not
possess.

Anent the question regarding the shift from tax credit to tax deduction, suffice it is to say that it is
within the province of Congress to do so in the exercise of its legislative power. It has the authority to
choose the subject of legislation, outline the effective measures to achieve its declared policies and
even impose penalties in case of non-compliance. It has the sole discretion to decide which policies
to pursue and devise means to achieve them, and courts often do not interfere in this exercise for as
long as it does not transcend constitutional limitations. "In performing this duty, the legislature has no
guide but its judgment and discretion and the wisdom of experience." In Carter v. Carter Coal
53

Co., legislative discretion has been described as follows:

Legislative congressional discretion begins with the choice of means, and ends with the adoption
of methods and details to carry the delegated powers into effect. x x x [W]hile the powers are rigidly
limited to the enumerations of the Constitution, the means which may be employed to carry the
powers into effect are not restricted, save that they must be appropriate, plainly adapted to the end,
and not prohibited by, but consistent with, the letter and spirit of the Constitution. x x x. (Emphasis
55

ours)
Corollary, whether to treat the discount as a tax deduction or tax credit is a matter addressed to the
wisdom of the legislature. After all, it is within its prerogative to enact laws which it deems sufficient
to address a specific public concern. And, in the process of legislation, a bill goes through rigorous
tests of validity, necessity and sufficiency in both houses of Congress before enrolment. It
undergoes close scrutiny of the members of Congress and necessarily had to surpass the
arguments hurled against its passage. Thus, the presumption of validity that goes with every law as
a form of deference to the process it had gone through and also to the legislature's exercise of
discretion. Thus, in lchong, etc., et al. v. Hernandez) etc., and Sarmiento, the Court emphasized,
56

thus:

It must not be overlooked, in the first place, that the legislature, which is the constitutional
repository of police power and exercises the prerogative of determining the policy of the State, is by
force of circumstances primarily the judge of necessity, adequacy or reasonableness and
wisdom, of any law promulgated in the exercise of the police power, or of the measures
adopted to implement the public policy or to achieve public interest.x x x. (Emphasis ours)
57

The legislature may also grant rights and impose additional burdens: It may also regulate industries,
in the exercise of police power, for the protection of the public. R.A. Nos. 9257 and 9442 are akin to
regulatory laws, the issuance of which is within the ambit of police power. 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 fall under this category.58

Indeed, regulatory laws are within the category of police power measures from which affected
persons or entities cannot claim exclusion or compensation. For instance, private establishments
cannot protest that the imposition of the minimum wage is confiscatory since it eats up a
considerable chunk of its profits or that the mandated remuneration is not commensurate for the
work done. The compulsory nature of the provision for minimum wages underlies the effort of the
State; as R.A. No. 6727 expresses it, to promote productivity-improvement and gain-sharing
59

measures to ensure a decent standard of living for the workers and their families; to guarantee the
rights of labor to its just share in the fruits of production; to enhance employment generation in the
countryside through industry dispersal; and to allow business and industry reasonable returns on
investment, expansion and growth, and as the Constitution expresses it, to affirm labor as a primary
social economic force. 60

Similarly, the imposition of price control on staple goods in R.A. No. 7581 is likewise a valid
61

exercise of police power and affected establishments cannot argue that the law was depriving them
of supposed gains. The law seeks to ensure the availability of basic necessities and prime
commodities at reasonable prices at all times without denying legitimate business a fair return on
investment. It likewise aims to provide effective and sufficient protection to consumers against
hoarding, profiteering and cartels with respect to the supply, distribution, marketing and pricing of
said goods, especially during periods of calamity, emergency, widespread illegal price manipulation
and other similar situations. 62

More relevantly, in Manila Memorial Park, Inc., it was ruled that it is within the bounds of the police
63

power of the state to impose burden on private entities, even if it may affect their profits, such as in
the imposition of price control measures. There is no compensable taking but only a recognition of
the fact that they are subject to the regulation of the State and that all personal or private interests
must bow down to the more paramount interest of the State.

This notwithstanding, the regulatory power of the State does not authorize the destruction of the
business. While a business may be regulated, such regulation must be within the bounds of
reason, i.e., the regulatory ordinance must be reasonable, and its provision cannot be oppressive
amounting to an arbitrary interference with the business or calling subject of regulation. A lawful
business or calling may not, under the guise of regulation, be unreasonably interfered with even by
the exercise of police power. After all, regulation only signifies control or restraint, it does not mean
64

suppression or absolute prohibition. Thus, in Philippine Communications Satellite

The power to regulate is not the power to destroy useful and harmless enterprises, but is the power
to protect, foster, promote, preserve, and control with due regard for the interest, first and foremost,
of the public, then of the utility and of its patrons. Any regulation, therefore, which operates as an
effective confiscation of private property or constitutes an arbitrary or unreasonable infringement of
property rights is void, because it is repugnant to the constitutional guaranties of due process and
equal protection of the laws. (Citation omitted)
66

Here, the petitioner failed to show that R.A. Nos. 9257 and 9442, under the guise of regulation, allow
undue interference in an otherwise legitimate business. On the contrary, it was shown that the
1avvphi1

questioned laws do not meddle in the business or take anything from it but only regulate its
realization of profits.

The subject laws do not violate the

The petitioner argues that R.A. Nos. 9257 and 9442 are violative of the equal protection clause in
that it failed to distinguish between those who have the capacity to pay and those who do not, in
granting the 20% discount. R.A. No. 9257, in particular, removed the income qualification in R.A. No.
7432 of'₱60,000.00 per annum before a senior citizen may be entitled to the 20o/o discount.

The contention lacks merit.

The petitioner's argument is dismissive of the reasonable qualification on which the subject laws
were based. In City of Manila v. Hon. Laguio, Jr., the Court emphasized:
67

Equal protection requires that all persons or things similarly situated should be treated alike, both as
to rights conferred and responsibilities imposed. Similar subjects, in other words, should not be
treated differently, so as to give undue favor to some and unjustly discriminate against others. The
guarantee means that no person or class of persons shall be denied the same protection of laws
which is enjoyed by other persons or other classes in like circumstances. (Citations omitted)
68

"The equal protection clause is not infringed by legislation which applies only to those persons falling
within a specified class. If the groupings are characterized by substantial distinctions that make real
differences, one class may be treated and regulated differently from another." For a classification to
69

be valid, (1) it must be based upon substantial distinctions, (2) it must be germane to the purposes of
the law, (3) it must not be limited to existing conditions only, and (4) it must apply equally to all
members of the same class. 70

To recognize all senior citizens as a group, without distinction as to income, is a valid classification.
The Constitution itself considered the elderly as a class of their own and deemed it a priority to
address their needs. When the Constitution declared its intention to prioritize the predicament of the
underprivileged sick, elderly, disabled, women, and children, it did not make any reservation as to
71

income, race, religion or any other personal circumstances. It was a blanket privilege afforded the
group of citizens in the enumeration in view of the vulnerability of their class.
R.A. No. 9257 is an implementation of the avowed policy of the Constitution to enact measures that
protect and enhance the right of all the people to human dignity, reduce social, economic, and
political inequalities. 72 Specifically, it caters to the welfare of all senior citizens. The classification is
based on age and therefore qualifies all who have attained the age of 60. Senior citizens are a class
of their own, who are in need and should be entitled to government support, and the fact that they
may still be earning for their own sustenance should not disqualify them from the privilege.