“Due to their constitutionally recognized vital role in the economic development of our society’s marginalized sectors,” the country’s multi-purpose cooperatives were given preferential tax treatment by the government.
Thus, the Supreme Court (SC) said cooperatives, which are tax exempt, cannot be forced to shell out the 20 per cent discount to senior citizens in the purchases of goods even if they are members or non-members.
In a decision written by Associate Justice Marvic M.V.F. Leonen, the SC said “a marked difference lies between cooperatives and other private establishments that do not enjoy the same tax exemption.”
The SC said:
“Private establishments that issue senior citizen discounts are entitled to a return of the discounts they extended. However, the legislature, in the exercise of its police power, watered down their reimbursements to a tax deduction from what used to be a tax credit.
“Nonetheless, whether through a tax credit or a tax deduction, there is no arguing that business establishments are still entitled to recoup some of the discounts they issued to senior citizens.
“As a tax-exempt entity, the Silliman University Cooperative (the cooperative involved in the decision) could not have availed of a tax deduction to offset a portion of the senior citizen discounts it issued to its clients, whether member or non-member.
“Thus, to insist that it was nevertheless mandated to issue a 20 percent discount would have been confiscatory and a deprivation of private property without due process of law.”
With the ruling, the SC reversed the July 2014 decision of the municipal trial court in cities (MTCC) which was upheld by the regional trial court (RTC) in December 2014 and affirmed by the Court of Appeals (CA) in July 2016.
The SC acquitted Roberto A. Estoconing, a professor of Silliman University and general manager of the Silliman University Cooperative, of violations of Republic Act No. 7432, the Senior Citizens Act as amended by RA 9994.
The lower courts convicted Estoconing and sentenced him to a prison term ranging from two to three years with a fine of P50,000. Estoconing elevated his case all the way to the SC and got a favorable decision.
The case against Estoconing was filed in 2012 by government prosecutors based on the complaint of Manuel Utzurrum, a member of the university’s cooperative.
Utzurrum claimed that in 2011 he purchased his favorite soft drink from the university cooperative and demanded a 20 per cent discount since he is a senior citizen. He said that for eight times for eight purchases of soft drink, his demands were rejected.
In his defense, Estoconing asserted that the Silliman University Cooperative, being a cooperative registered under the Cooperative Development Authority (CDA), was exempted by law from the coverage of the Expanded Senior Citizens Act.
He also insisted that as a member-owner of the cooperative, Utzurrum received the annual patronage refund, so he was disqualified from demanding the 20 percent senior citizen discount under the law's no double discount provision.
He reiterated his defense in his SC petition. He also told the SC that if the university cooperative were forced to extend senior citizen discounts, it would have to shoulder the burden with no way to avail of the tax deductions, leading to financial losses and possible bankruptcy.
In resolving the petition, the SC had to harmonize the provisions in RA RA 9257, the first amendment to RA 7432, and RA9994, and RA 9520, the Cooperative Code of the Philippines.
The SC said “the scope of the legislative power to tax not only includes the power to determine the tax rate and its method of collection, but also whom to tax or to exclude from taxation.”
It said: “In this instance, the legislature deliberately opted not to exercise its power to tax when it came to cooperatives to encourage their formation and development. The Silliman University Cooperative is a primary multi-purpose cooperative duly registered with the Cooperative Development Authority on Jan. 11, 2010, and received its Certificate of Tax Exemption from the Bureau of Internal Revenue on May 15, 2012.”
“The Certificate of Tax Exemption enumerates the tax exemptions and privileges granted to it under Section 61 of Republic Act No. 9520. Section 61 provides that cooperatives that transact ‘business with both members and non-members shall not be subject to tax on their transactions with members,’ while cooperatives that transact with non-members will only be taxable if their ‘accumulated reserves and undivided net savings’ are more than Pl 0,000,000,” the SC said.
The SC also said:
“It is true that a business establishment's availment of a tax benefit is ‘merely permissive, not imperative.’ A business establishment may even opt to ignore the tax credit or tax deduction altogether and consider its issuance of senior citizen discounts ‘as an act of beneficence, an expression of its social conscience.’
“However, the option to avail of a tax benefit must still be available to the business establishment and not be rendered illusory. Being forced to act benevolently is antithetical to the entire concept of charitable giving.
“To reiterate, the imposition of the senior citizen discount is a valid exercise of the State's police power to address social justice and human rights. The tax deduction scheme emanates from the State's exercise of its police power, which empowers it to ‘regulate the acquisition, ownership, use, and disposition of property and its increments’ and --not its power of eminent domain.
“Given the possible ambiguity in the interpretation of the two laws, we find that the prosecution was unable to support its claim beyond reasonable doubt that the Silliman University Cooperative, as a restaurant operator, was obligated to issue a 20 percent senior citizen discount to senior citizen members and non-members alike.
“We sympathize with the senior citizen who claimed to be the offended party here. We understand how difficult it may have been for him to be denied the senior citizen discount from his favorite watering hole for his favorite soft drink.
“Yet, we must take a larger view. It does not seem reasonable that cooperatives, favored by the State for social justice reasons, will be at a disadvantage vis-a-vis private commercial establishments. The latter are allowed by law to claim the senior citizen discount as a tax deduction, and the State is not compelling them to reduce the potential benefits they could give to their owners.
“We acquit petitioner on the ground of reasonable doubt that the law applies to him.
“In so doing, we earnestly suggest that the offended senior citizen make a choice: to continue with his habit of patronizing the cooperative, or to find a private establishment that will certainly sell him his favorite drink with a certain discount.
“Life is full of choices; this is not the most difficult of them.
“WHEREFORE, the Petition is GRANTED. The assailed Court of Appeals' July 29, 2016 Decision and Jan. 31, 2017 Resolution in CA-G.R. CEB-CR No. 02477 are REVERSED and SET ASIDE. Let a copy of this Decision be provided to the Senate and the House of Representatives, through the Senate President and the House Speaker, for remedial legislation, if necessary. SO ORDERED.”