CIR VS. CENTRAL LUZON DRUG CORP.

G.R. No. 159647 | April 15, 2005

FACTS: The respondent is engaged in retailing of pharmaceutical products and medicines.

Pursuant to RA 7432, it granted 20% discount to senior citizens in their medicine purchases from
January to December 1996. This total discount amounted to Php904,769. The respondent filed
to the CIR a claim for tax credit on the sales discount.

ISSUE: WON respondent can claim the 20% sales discount as a tax credit

RULING:
Yes. The law is clear that the private establishments where the senior citizens availed the 20%
discount can claim the cost as a tax credit.

A tax credit differs from a tax deduction. Tax credit generally refers to an amount that is subtracted
directly from one’s total tax liability. It is an allowance against the tax itself or a deduction from
what is owed. On the other hand, tax deduction is a subtraction from income for tax purposes or
an amount that is allowed by law to reduce income prior to the application of the tax rate to
compute the amount of tax which is due. Conversely, a tax credit reduces the tax due while tax
deduction reduces the income subject to tax in order to arrive at the taxable income. Since a tax
credit is used to reduce directly the tax that is due, there ought to be a tax liability before the tax
credit can be applied. 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.

Moreover, the tax credit that is contemplated under the law is a form of just compensation, not a
remedy for taxes that were erroneously or illegally assessed and collected. 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.