Taxing ill-gotten wealth

By: Atty. Rey Christian M. Guintibano on February 5, 2026

CORRUPTION remains a problem in the country.

Despite repeated reforms and policy initiatives, public funds continue to be vulnerable to misuse and misappropriation. Recent government investigations have revealed that an estimated 60 percent of flood control funds may have been diverted for private gain, with more than P1 trillion spent on such projects over the years.

While public discourse often focuses on the criminal and administrative liability of those involved in corruption, an equally important but sometimes overlooked issue is taxing ill-gotten wealth. Can the government also tax income obtained through illegal or corrupt means?

The Bureau of Internal Revenue (BIR) has consistently taken the stance that income from all sources, whether legal or illegal, is subject to tax. This position is anchored on Section 32 of the National Internal Revenue Code (Tax Code), which broadly defines gross income as: “All income derived from whatever source.” The phrase “from whatever source” reflects the legislature’s intent to cast a wide net in defining taxable income, as it does not distinguish between lawful and unlawful sources.

In one Supreme Court case, it was held that the phrase “from whatever source” indicates a legislative policy to include all income not expressly exempted within the class of taxable income. The Court further explained that “income” has been interpreted to mean “cash received or its equivalent” and “the amount of money coming to a person within a specific time.”

Applying this definition, ill-gotten wealth clearly falls within the concept of income. Funds obtained through corruption, bribery, or embezzlement constitute cash received or its equivalent.

Since such gains are not among those expressly exempted under the Tax Code, they remain taxable. Even if the source is unlawful, the economic benefit received by the individual is undeniable. In this sense, ill-gotten wealth is undoubtedly income for tax purposes.

Tax Amnesty Act

The BIR’s position on the taxability of ill-gotten wealth is further reinforced by the Tax Amnesty Act, which expressly excludes cases involving unlawfully acquired assets. Under the law, taxpayers with pending cases involving unexplained or unlawfully acquired wealth, violations of the Anti-Money Laundering Act, tax evasion, fraud, illegal exactions, and malversation of public funds and property are barred from availing of the amnesty.

The Court of Tax Appeals has also tackled an assessment arising from income allegedly derived from illegal gambling. For instance, after a raid, the BIR assessed the taxpayer for failure to report income based on documents purportedly linked to gambling operations. While the case was ultimately decided in favor of the taxpayer due to the BIR’s failure to present credible evidence proving actual participation and taxable income, the ruling nonetheless affirmed that income from illegal activities may be taxed, provided it is properly proven and substantiated.

In pursuing corrupt officials and recovering stolen assets, tax enforcement plays a vital complementary role. Under Section 71 of the Tax Code, the president is empowered to authorize the inspection and production of income tax returns filed with the BIR.

The BIR commissioner may even publish the list of names and addresses of persons who have filed tax returns in any newspaper. In this context, the phrase “follow the money” becomes particularly relevant, as tracing financial flows through tax returns allows authorities not only to recover unlawfully acquired assets but also to impose corresponding tax liabilities. This not only strengthens accountability but also reduces the incentive to profit from corruption.

Ultimately, taxing ill-gotten wealth is not merely about revenue generation. It is about reinforcing the rule of law and affirming that no one is above the legal and fiscal obligations imposed on all citizens.

When people see that stolen wealth is traced, taxed, and recovered, confidence in public institutions and governance is strengthened.

Rey Christian M. Guintibano is an Associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com.

The article was published at the More to Follow Column at The Manila Times on February 5, 2026. Please see this link.

https://www.manilatimes.net/2026/02/05/business/top-business/taxing-ill-gotten-wealth/2271685