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/ 35
INCOME TAXATION
Basic Principles
Learning Objectives:
After studying this chapter, you should be able to:
Define taxation.
Describe the nature, basis and objectives of taxation.
Differentiate the three inherent powers of the State.
Explain the principles of a sound taxation system.
Identify and explain constitutional and inherent limitations.
Describe various sources of taxation laws.
Name and describe the situs of taxation and its application,
Define tax and describe its essential characteristics.
Identify and distinguish classification of taxes.
10. Have a fair knowledge of the sources of tax authority and the sources of tax
laws, ©
11. Describe the powers of the Commissioner of Internal Revenue.
12, Distinguish between income and capital.
PON avawne
INTRODUCTION
Most people receive their initial exposure to the Philippine income
faced with the responsibility of filing their own tax returns. As
sometimes viewed as a robotized process of filing out gover
challenging activity.
tax system when first
4 result, tax work is
TMENE forms--not a very
Actually, the perception of tax work as a routine clerical process is a grossly distorted
view of the tax profession, Historically, most. professional:level work has. concemed
Conceptual issues. In today’s society, that emphasis is gt
systems handling an ever-increasing share of the
allows tax professionals and business manag
time to substantive matters.
Heater than ever with computer
Mechanical chores of tax practice. This
10 devote an even greater share of their hing the study of taxation, you should try to keep three basic points in ming,
In approachi
ir i Itis that ability to apply the rules of tax ay
lost in the detail of tax rules. Iti t c
1. Do ne situations that is important—not just having the talent to recite such ryjg
oy ret studying any area of tax law, you should be alert for possible decision,
y rote.
making implications.
2. Keep in mind that tax rules are a matter of law. Hence, only legal authority (eg A
: statute, a regulation, a court case) can ever be a tax authority, If the ‘correct
application” of law to a given set of facts results in a solution at odds with some
accounting, economic, social, or moral theory, it is still the aw that controls. As q
practical matter, most tax disputes arise over differences in opinion concerning
what constitutes the “correct application” of tax law to specific situations.
3. Give close attention to the use of language, particularly the wording of tax
authorities. Verbal distinctions are often critical. Terms having similar meanings in
everyday speech may have been defined différently in tax law.
TAXATION
Definition, Nature and Basis of Taxation
Taxation is the process or means by which the sovereign,
raises income to defray the necessary expenses of the gover
of the State, is inherent in sovereignty.
through its lawmaking body,
rnment. Taxation, as a power
Taxes are the lifeblood of the government and their
an imperious need (Commissioner vs, Pineda, 21
Continue to exist and operate without financial mes
government the right to tax citizens and Properties
prompt and certain availability are
SCRA 105). A government cannot
ans. This inherent power gives the
within its jurisdiction,
Taxation is indispensable and inevitable price for civilized society; without taxes, the
aeaemment would be paralyzed (Commissioner vs. Algue, inc, L-28896, Feb. 17, 1988,
158 SCRA 9).
2 | Income Taxation 2023 Edition by Prof. WIN Balada and Susan Ballada Upon taxation depends the Government's ability to serve the people for whose benefit
taxes are collected (Vera vs. Fernandez, 89 SCRA 199). The ultimate beneficiaries in the
process are both the government and the citizens. The state collects taxes in the
exercise of its sovereign rights for the support of the government, for the administration.
of the laws, and as a means for the continued operation of the various legitimate
functions of the state.
Objectives of Taxation
Taxation is much more than just a means of raising revenue for the government. It is
also one of the major means by which the national government attempts to achieve
various economic and social objectives. These objectives include shifting wealth from
the rich to the poor, maintaining price stability, stimulating economic growth, and
encouraging full employment.
In its efforts to achieve these objectives, Congress tends to use tax provisions in two
different ways. First, some tax rules are enacted for the purpose of mitigating certain
undesirable economic and social conditions already existing. For instance, low-income
individuals often pay little or no national income taxes because of the elaborate system
of exclusions, deductions, and credits of current law. Second, other tax rules provide
incentives for certain desirable activities. For instance, business can claim deductions for
depreciation of productive assets much faster than the assets actually wear out. This
provides incentive for businesses to invest in these assets, leading to increased
employment of low- and middle-income workers.
All too often, the incentive and mitigating aspects of various tax provisions work at
cross-purposes. Consider the two examples just mentioned. While the purpose of the
rapid depreciation rules may be to increase investments in productive facilities that will
lead to increased employment of low- and middle-income workers, rapid depreciation
rates may also greatly reduce the tax liabilities of wealthy individual business-owners
and thus actually increase, rather than reduce, the concentration of wealth in society.
Perhaps it is because of these conflicting objectives that Congress so often seems to
exhibit ‘confused’ behavior when writing tax rules. When an incentive provision is
enacted, numerous limitations and restrictions will usually prevent its application in
many circumstances. There may also be exceptions to the exceptions. Often the
congressional process of fine-tuning incentive tax provisions will create a maze of
statutory law under which significant tax savings are possible, but only if transactions
are carefully planned to fit within statutory requirements.
State Powers
1. Taxation. The power of.the state by which the sovereign raises revenue to defray
the necessary expenses of the government.
2. Eminent Domain. The power of the state to take private property for public use
upon payment of just compensation.
Chapter 1: Basic Principles | 3 ae ON
+ of the state to enact laws to promote public health,
Pubji
the general welfare of the people. lic
3. Police Power. The powe!
morals, public safety and
Aspects of Taxation
1. Levying of the tax, The imposition of tax requires legislative intervention. tn the
Philippines, itis Congress that levies taxes; and /
2. Collection of the tax levied. This is essentially an administrative function.
Basic Principles of a Sound Tax System
1. Fiscal adequacy. Sources of revenue are sufficient to meet government
expenditures;
2. Equality or theoretical justice. The tax imposed must be proportionate to taxpayer's
ability to pay; and
3. Administrative feasibility. The law must be capable of convenient, just and effective
administration,
Limitations on the Power of Taxation
The power of taxation is, however, subject to constitutional and inherent limitations
Constitutional limitations are those provided for in the constitution or implied from its
provisions while inherent limitations are restrictions to the power to tax attached to its
nature. The following are the inherent limitations:
Purpose. Taxes may be levied only for public purpose;
1
2. Territoriality. The State may tax persons and properties under its jurisdiction;
3. International comity. The property of a foreign State may not be taxed by another;
4
Exemption. Governmental agencies performing governmental functions are exempt
from taxation;
5. _Non-delegation. The power to tax being legislative in nature may not be delegated.
Some Doctrines in Taxation
Prospectivity of Tax Laws
SI
Of the Supreme Courts "taren statute must state so explicitly and clearly. In the words
pram by such law, these i be imposed retroactively by law but, unless 5°
sour 4 (es 1, ”
"C2545. Court of Appeals, G.n BoD ye per fon nee prospectively.” (Hyde
» Dec. 21, 1990, 192 SCRA 604).
4 | Income
Taxation 202
3 Edition by
Prof. WIN Ballad
19 and Susan 9.1)... Double Taxation
Double taxation standing alone and not being forbidden by our fundamental law is not a
valid defense against the legality of a tax measure. However, if double taxation amounts
toa direct duplicate taxation, in that the same subject is taxed twice when it should be
taxed but once, in a fashion that both taxes are imposed for the same purpose by the
same taxing authority, within the same jurisdiction or taxing district, for the same
taxable period and for the same kind or character of a tax, then it becomes legally
objectionable for being oppressive and inequitable.
Indirect double taxation is one other than the direct double taxation. Though this type
may not prove unconstitutional, it is being avoided so as not to bring injustice to the
taxpayer. An example of this occurs when business taxis imposed by the municipal
government prior to the issuance of a business license to a taxpayer for engaging in an
advertising business. His income from his advertising business shall later be imposed
income tax by the national government.
When an item of income is taxed in the Philippines and the same income is taxed in
another country, there is only a case of indirect duplicate taxation which is not legally
prohibited because the taxes are imposed by different taxing authorities,
The usual methods of avoiding the occurrence of double taxation are: 1) allowing
reciprocal exemptions either by law or by treaty; 2) allowance of tax credit for foreign
taxes paid; 3) allowance of deduction for foreign taxes paid; and 4) reduction of the
Philippine tax rate.
Set-off of Taxes
Taxes are not subject to set-off or legal compensation under Article 1279 of the Civil
Code. This has been the Supreme Court ruling in Republic vs. Mambulao Lumber Co. (6
‘SCRA 622). However, the high court reversed itself in the subsequent case of Domingo
vs. Garlitos (8 SCRA 443), when it decided that legal compensation can take place when
the taxes and the taxpayer's claim are fully liquidated, due, and demandable.
Ina more recent case the Supreme Court echoed the Mambulao Lumber doctrine: “We
have consistently ruled that there can be no offsetting of taxes against the claims that
the taxpayer may have against the government. A person cannot refuse to pay a tax on
the ground that the government owes him an amount equal to or greater than the tax
being collected. The collection of a tax cannot await the results of a lawsuit against the
Bovernment” (Philex Mining Corporation vs. Commissioner of Internal Revenue, Court of
Appeals and The Court of Tax Appeals, G.R, 125704, Aug. 28, 1998).
Chapter 1: Basic Principles | 5
i > ON
i
Escape from Taxation
ers resort to tax avoidance and tax evasion in order t
0 ese;
a
It is common for taxpay!
from taxation, Tax avoidance happens when the taxpayer minimizes his tax liabij
deri avantage of legally available tax planning opportunities. This is otherwise ky,
vio; others call it tax planning. It is the process of controling 7
:
as tax minimiza
iy to avoid undesirable tax consequences. Tax avoidance is a completely
eal
actions so
activity. Just as the penalties of criminal law can be avoided by not committing a cri
seer be avoided by not engaging in those activities that are taxed. The law ie
vx savings are achieved by arranging one’s affairs,
an
violated in any way. Rather, t
by controlling the facts, so as to
ger tax liability.
there! avoid the application of those rules of law th;
would otherwise trigger a lar at
axpayer resorts to unlawful means to lessen or to ge,
‘also known e* fax dodging. Examples of tax evasion are
nd backdating an importan,
Tax evasion occurs when the t
away with his tax liability. This is
under-declaration of sales, overstatement of expenses ai
document.
sometimes become hazy in practice, the basic notions of tay
are conceptually distinct. Both avoidance and evasion seek
But the means by which that goal is sought are
f not conducting taxable transactions. On the
| process of not complying with applicable provision
sion connotes the integration of
While the dividing line may
avoidance and tax evasion
the same objective, namely saving taxes.
different. Avoidance is the legal process o!
other hand, tax evasion is the illegal
of the law once the transactions already exist. Tax eva!
three factors:
ved (ie., payment of less than the amount known by the
1. The end to be achie\
n it is shown that a taxis
taxpayer to be legally due, or nonpayment of the tax whe!
due);
‘An accompanying state of mind that is described as being in bi
deliberate and not accidental; and
3. A course of action or failure of action that is unlawful (Commissione!
Revenue vs, The Estate of Benigno P. Toda, Jr., G.R. 147188, Sept. 14, 2004).
ad faith, willful, or
1 of Internal
Situs of Taxation
The situs or
pa eierieies is the place of taxation. The rule is that the State may rightfully e"
Seer ‘ax where the subject being taxed has a situs under its jurisdiction.
'on is determined by a number of factors:
1. Subject mat
ter — or what is bei
anactor activi, tS Being taxed. He may be a person or it may be 2 properth
2. Nature of tax ~ or
which i
real property tax; tax to impose. it may be an income tax, an import duty ?
6 | income
Taxation 202
3 Edition by
y Prof. WIN Ballad
fa and Susan Ballada Escape from Taxation
‘ax avoidance and tax evasion in order to
Bets eommman fo eats when the taxpayer minimizes his tax agape
trom taxation Toy epaly availabe tax planning opportunities. Ths is otherwise knee
in aya e ey others call it tox planning. It is the process of controlling gy”
2 fox eis undesirable tax conséquences. Tax avoidance is a completely, lee
actions eee ethe penalties of criminal law can be avoided by not committing a crime,
taxes can be avoided by not engaging in those activities that are taxed. The law i
vated in any way. Rather, tox savings are achieved by arranging one’s ata, oo
thereby controlling the facts, so as to avoid the application of those rules of law tha,
would otherwise trigger a larger tax liability.
Tax evasion occurs when the taxpayer resorts to unlawful means to lessen oF to gy
away with his tax liability. Ths is also known e« ‘ax dodging. Examples of tax evasi
ion are
under-declaration of sales, overstatement of expenses and backdating an important
document.
While the dividing line may sometimes become hazy in practice,
avoidance and tax evasion are conceptually distinct. Both avoi
the same objective, namely saving taxes. But the means by whit
the basic notions of tay
idance and evasion seek
ch that goal is sought ae
‘able transactions, On the
1. The end to be achieved
or nonpayment of the tax when it is shown that a tax is
2. An accompanying state of m ind that is described as by in faith, willful, or
i lescribed as being in bad faith, willful,
Sourse of action or failure of acti i
- action that is unlawful issic
Venue vs. The Estate of Benigno p, Toda, Jr, G.R, aris, sepe amet of mn
Situs of Taxation 3, Citizenship of the taxpayer; and
4, Residence of the taxpayer.
The following situs of taxation apply:
1. Persons ~ Residence of the taxpayer.
2. Real property or tangible personal property — Location of the property.
3. Intangible personal property — As a rule, situs is the domicile of the owner unless he
has acquired a situs elsewhere.
4, Income ~ Taxpayer's residence or citizenship, or place where the income was
earned.
5. Business, occupation and transaction - Place where business is being operated,
occupation being practiced and transaction completed.
6. Gratuitous transfer of property ~ Taxpayer's residence or citizenship, or location of
the property.
TAXES
Taxes are enforced proportional contributions from persons and property levied by the
lawmaking body of the State by virtue of its sovereignty for the support of the
government and all public needs.
Tax, in a general sense, is any contribution imposed by the government upon
individuals, for the use and service of the state, whether under the name of toll, tribute,
tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other name. Tax, in
its essential characteristics, is not a debt (Black’s Law Dictionary).
Essential Characteristics of a Tax
It is an enforced contribution;
It is levied by the lawmaking body;
Itis proportionate in character;
It is generally payable in money;
It is imposed for the purpose of raising revenues; and
Itis to be used for public purpose.
On wN Ee
Chapter 1: Basic Principles | 7 FS |
Types of Tax Rate Structures
i nal, Or progress;
ten described a ether regressive, proportional, or pre ers
Tax systems are erie if the average rate decreases as tl a oa eee n
: :
proportional tones (also called fat or uniform taxes), the svrage rate rent
constant for all levels ofthe tax base, whereas a progressive wet
ae increases.
average rate increases as the amount of the tax bases
Notice that the definitions of regressive, proportional, and aes fea On thy
direction of change in tax rates with respect to an eee aia se Wid
held political view that the rich should pay a larger amount of ta tra could yy
upheld under any of the three rate structures—even a regressive one.
Before a tax system can be classified as either regressive or Progressive, Ge MUst bg
expressed as a percentage of some base amount. In the previous technical definition,
the base used for this purpose is the base on which the tax is computed.
Constitutional Provision on Progressive System of Taxation
The Supreme Court declared Republic Act (R.A.) 9337 or the VAT Reform Act
constitutional. In the same decision, it clarified the constitutional Provision on
progressive system of taxation, The increase in corporate income tax rate and the
removal of certain.exemptions are meant to distribute the burden of taxation. Although
indirect taxes, e.g. VAT, are regressive by nature, the constitution does not prohibit the
imposition of indirect taxes. When the Constitution mandated Congress to evolve a
Progressive system of taxation, it simply meant that direct taxes should be preferred
and that the regressive indirect taxes can be minimized with exemptions and
differentiated rates (G.R. 168056, G.R. 168207, G.R. 168461, G.R. 168463, and Gp.
168730, Sept. 1, 2005).
Classification of Taxes
1. Asto subject matter oF object
‘a Personal, poll or capitation —
Whether citizens OF not, residii i
their Property or the Occupation in which they may
whether real or Personal, in proportion
value or j ,
'N accordance with Some other reasonable method of
Example: real estate tax, As to who bears the burden
a. Direct ~ Tax demanded from persons who are intended or bound by law to pay
the tax. Examples: community tax, income tax, estate tax, donor's tax.
b. Indirect - Tax which the taxpayer can shift to another. Examples: customs
duties, value-added tax, some percentage taxes.
As to determination of amount
a. Specific - Tax imposed based on a physical unit of measurement, as by head or
number, weight, or length or volume. Examples: tax on distilled spirits,
fermented liquors, cigars, wines, fireworks, etc.
b. Ad valorem ~ Tax of a fixed proportion of the value of property; needs an
independent appraiser to determine its value. Examples: real estate tax, certain
customs duties, excise taxes on cigarettes, gasoline and others.
Excise taxes on certain specific goods imposed under the National Internal Revenue
Code are either specific or ad valorem taxes.
As to purpose
a. General, fiscal or revenue ~ Tax with no particular purpose or object for which
the revenue is raised, but is simply raised for whatever need may arise.
Examples: income tax, value-added tax.
b. Special or regulatory ~ Tax imposed for a special purpose regardless of whether
revenue is raised or not, and is intended to achieve some social or economic
end. Example: protective tariffs or customs duties on certain imported goods to
protect local industries against foreign competition.
As to authority imposing the tax or scope
a. National - Tax imposed by the national government. Examples: internal revenue
taxes, tariff and customs duties.
b. Municipal or local - Tax imposed by municipal governments for specific needs.
Examples: real estate taxes, municipal licenses.
As to graduation or rate
a. Proportional - Tax based on a fixed percentage of the amount of property
income or other basis to be taxed. Examples: percentage taxes, real estate
taxes.
Chapter 1: Basic Principles | 9 b. Progressive or graduated ~ Tax rate increases as the tax base ng,
eas,
Examples: income tax, estate tax, donor's tax. 5
©. Regressive ~ Tax rate decreases as the tax base increases. Example: valyg
"add
tax
Tax Distinguished from Other Fees
1. From toll. Tollis a sum of money for the use of something, generally applied tg
consideration which is paid for the use of a road, bridge or the like, of » ia
Me
nature.
A tolls. a demand of proprietorship, is paid for the use of another's property ng
may be imposed by the government or private individuals or entities; while tay
demand of sovereignty, is paid for the support of the government and may 4,
imposed only by the State.
From penalty. Penalty is any sanction imposed as a punishment for violation of lay
or acts deemed injurious. Violation of tax laws may give rise to imposition of
penalty.
A penalty is designed to regulate conduct and may be imposed by the government
or private individuals or entities. Tax, on the other hand, is primarily aimed at raising
revenue and may be imposed only by the government.
From special assessment. Special assessment is an enforced proportional
contribution from owners of lands for special benefits resulting from public
improvements.
Special assessment is levied only on land, is not a personal liability of the person
assessed, is based wholly on benefits and is exceptional both as to time and place.
Tax is levied on persons, property, or exercise of privilege, which may be made a
personal liability of the person assessed, is based on necessity and is of general
application.
4. From permit or license fee. Permit or license fee is a charge imposed under the
police power for purposes of regulation.
License fee is j i
taxislewsss:tP0se for regulation and involves the exercise of police power while
i aa Beane and involves the exercise of the taxing power. Failure to pay
necessarily maken. 2” oct OF a business illegal while failure to pay a tax does not
'¥ Make an act or a business illegal.
10 | Income
Toxation 20:
23 Edition by Prof. wy Ballada and Susan Ballada
fa b. Progressive or graduated ~ Tax rate increases as the tax base ing,
eas,
Examples: income tax, estate tax, donor's tax. 5,
c. Regressive ~ Tax rate decreases as the tax base increases. Example: valu,
tax. Saddeg
Tax Distinguished from Other Fees
1. From toll, Toll is a sum of money for the use of something, generally applied t
consideration which is paid for the use of a road, bridge or the like, of 3
nature,
0 the
Pubji
A toll is a demand of proprietorship, is paid for the use of another's property an
may be imposed by the government or private individuals or entities; while tax is
demand of sovereignty, is paid for the support of the government and may 5;
imposed only by the State.
2. From penalty. Penalty is any sanction imposed as a punishment for violation of lay
or acts deemed injurious. Violation of tax laws may give rise to imposition of
penalty.
A penalty is designed to regulate conduct and may be imposed by the government
or private individuals or entities. Tax, on the other hand, is primarily aimed at raising
revenue and may be imposed only by the government.
3. From special assessment. Special assessment is an enforced proportional
contribution from owners of lands for special benefits resulting from public
improvements.
Special assessment is levied only on land, is not a personal liability of the person
assessed, is based wholly on benefits and is exceptional both as to time and place.
Tax is levied on persons, property, or exercise of privilege, which may be made a
personal liability of the person assessed, is based on necessity and is of general
application,
From permit or license fee. Permit or license fee is a charge imposed under the
Police power for purposes of regulation.
License fee is im
taxis levied for
a license fee m,
Necessarily
‘posed for regulation and involves the exercise of police power while
Fevenue and involves the exercise of the taxing power. Failure to pay
‘ mee
mares a” act or a business illegal while failure to pay a tax does not
an act or a business illegal,
10 | incom
' Taxation 2023 egiy,
23 Edition by Prof. WIN Ballada and Susan Ballada 5. From debt. A debt is generally based on contract, is assignable and may be paid in
Kind while a tax is based on law, cannot generally be assigned and is generally
payable in money. A person cannot be imprisoned for non-payment of debt while
he can be for non-payment of tax (except poll tax).
From revenue. Revenue is broader than tax since it refers to all funds or income
derived by the government taxes included. Other sources of revenues are
government services, income from public enterprises and foreign loans.
From customs duties. Customs duties are taxes imposed on goods exported from or
imported to a country. Customs duties are actually taxes but the latter is broader in
scope.
TAX LAWS
Sources of Tax Authority
The three branches of the national government are the President and his administration
(executive), the Congress (legislative), and the Courts (judicial). Congress creates
statutory law. Republic Act 8424, The National Internal Revenue Code (NIRC) of 1997, is
a statutory law.
The administrative branch of the national government includes the Department of
Finance (DOF), of which the Bureau of Internal Revenue (BIR) is a bureau. Two
commonly encountered types of administrative tax authorities are Revenue Regulations
and Revenue Rulings. Most Revenue Regulations are administrative interpretations of
the statutes enacted by Congress and tend to be somewhat more detailed than the
Code itself. Revenue Rulings are much more detailed, as they are issued in order to
explain the tax results of very specific transactions.
Court decisions occur when the BIR and taxpayers are unable to agree on what
constitutes the correct application of the tax statutes to specific situations. While
Congress writes the statutes an administrative branch implements them, the judiciary
branch has the final say on what the words of the statutes really mean in actual
application. In summary, tax ‘law,’ in general, is composed of all three elements: (1) the
Code, (2) Regulations and Rulings, and (3) decisions of various courts that hear tax cases.
Sources of Tax Laws
1. Constitution;
2. Statutes and Presidential Decrees;
3. Revenue Regulations by the Department of Finance;
Chapter 1: Basic Principles | 11 4. Rulings issued by the Commissioner of internal Revenue and Opinions by the
Secretary of Justice;
5. Decisions of the Supreme Court and the Court of Tax Appeals;
The “rational basis test” is applied to
in the face of an equal protection! ¢
social and economic policy,
suspect lines nor
fauge the constitutionality of an assailed jay
hallenge. it has been held that “in areas 4)
* Statutory classification that neither proceeds algp,
infringes constitutional rights must be upheld again al
provide aan alcnee if there is any reasonably conceivable state of facts that cou
provide a rational basis for the classification." Under this test, itis sufficient that th
legislative classification is rationally related to achieving some legitimate State
oe es American Tobacco vs, Jose Isidro Camacho, et al, G.R. 163583, Ap,
6. Provincial, city, muni
icipal, and barangay
in the Local Governm,
Y ordinances subject to limitations set for,
lent Code; and
7. Treaties or international agreements the purpose of which is to avoid or Minimize
double taxation,
Republic Act 9282
R.A. 9282 expanded the jurisdiction of the Court
effect on Apr. 22, 2004. It a
features of R.A. 9282 follow:
of Tax Appeals (CTA). This law took
mended R.A. 1125—the law creating the CTA. Some salien
The CTA shall be of the same level as the Court of Appeals (CA).
It shall be composed of a presiding justice a
sessions, four justices shall constitute a
members shall be necessary to render a deci
nd five associate justices. For en banc
Quorum, The affirmative vote of four
ision or resolution,
* There shall be two divisions (with three members each);
presiding justice and the most senior associate. Two justice
sessions of a division. In order to render a decision/resol
of two members of a division is necessary.
the chairmen shall be the
es constitute a quorum for
lution, the affirmative vote
The CTA has exclusive original jurisdiction over all criminal offenses arising from
violations of the NIRC and other laws administered by the BIR where the principal
amount of taxes and fees (exclusive of charges and Penalties) claimed is P1 million and
' Equal protection is a constitutional guarantee which means that no person or class of persons shall be
denied the same protection of the laws which is enjoyed by other persons or other classes in like ,
circumstances in their lives, liberty, property, and in their pursuit of happiness. Equal protection with
respect to classification for taxation purposes, does not require identity of treatment, but oily ae ha
classification rests on real and not feigned differences, (2) that the distinction have some id oa
purpose for which classification is made, and (3) that the difference treatments be Pas ea
to difference in classification, as to be wholly arbitrary (Walters vs City of St. Louis, Mo.,
U.S. Supreme Court Reporter 505, 509, 98 Lawyer's Edition 660).
12 | Income Taxation 2023 Edition by Prof. WIN Ballada and Susan Ballada
abo
coll
pen
The
Cor
refi
cas
ina
Th
jur
co
Ca
va
pe
In =
above. For the same amount of claim, the CTA has exclusive original jurisdiction in tax
collection cases involving final and executory assessments for taxes, fees, charges and
penalties.
The CTA has the exclusive jurisdiction to review on appeal decisions of the
Commissioner of Internal Revenue (CIR) in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties, or other matters. In
case of inaction by the BIR where the NIRC provides a specific period of action, the
inaction shall be deemed a denial and the CTA has the jurisdiction to review the same.
The Supreme Court has ruled that while the Revised Rules of the CTA confers on the CTA
jurisdiction to resolve tax disputes in general, this does not include cases where the
constitutionality of a law or rule is challenged (British American Tobacco vs. Jose Isidro
Camacho, et. al., G.R. 163583). The regular courts have jurisdiction to pass upon the
validity of a law, or a rule or regulation issued by an administrative agency in the
performance of its quasi legislative function.
Interpretation and Construction of Tax Statutes
The recognized rules in statutory construction also apply to tax statutes. As in other
statutes, the legislative intent is the primary concern. However, where there is doubt in
determining the legislative intent, the doubt must be resolved liberally in favor of
taxpayers and strictly against the taxing authority,
Exemptions in taxation are highly disfavored in law; they are not to be presumed nor
implied but must be clearly expressed. A tax exemption, when granted, shall be strictly
construed against the grantee. Thus, he who claims the tax exemption must be able to
justify his claim or right. As decided by the Supreme Court: “The exception contained in
the tax statutes must be strictly construed against the one claiming the exemption
because the law does not look with favor on tax exemptions and that he who would
seek to be, thus, privileged must justify it by words too plain to be mistaken and too
categorical to be misinterpreted.” (Commissioner of Internal Revenue vs. J. Kiener
Company, Ltd., 65 SCRA 143)
Philippine Tax Laws and Taxes
1, National Internal Revenue Code of 1997 (P.D. 1158, as amended);
income taxes (individual and corporate);
estate and donor’s taxes;
value-added tax;
other percentage taxes;
excise tax; and
f. documentary stamp tax.
aos
Chapter 1: Basic Principles | 13 ee |
2. Tariff and Customs Code of 1978 (P.0. 1464, as amended);
a. import duties; and
b. export duties.
3. Local Government Code of 1991 (R.A. 7160);
real property tax;
business taxes, fees and charges;
professional tax;
community tax; and
tax on banks and other financial institutions.
paose
4. Special Laws
a. Motor Vehicle Law (R.A. 4136) - motor vehicle fees;
b. Private Motor Vehicle Tax Law (P.D. 1958) — private motor vehicle tax;
Philippine Immigration Act of 1940 (C.A. 613, as amended) — immigration tax
and
d. Travel Tax Law (P.D. 1183, as amended) — travel tax.
Tax Laws Versus GAAP and GAAS
All returns required to be filed by the Tax Code shall be prepared always in conformity
with the provisions of the Tax Code, and the rules and regulations issued implementing
said Tax Code. Taxability of income and deductibility of expenses shall be determined
strictly in accordance with the provisions of the Tax Code and the rules and regulations
issued implementing the said Tax Code. In case of difference between the provisions of
the Tax Code and the rules and regulations implementing the Tax Code, on one hand,
and the generally accepted accounting principles (GAAP) and the generally accepted
auditing standards (GAAS) on the other hand, the provisions of the Tax Code and the
rules and regulations issued implementing the said Tax Code shall prevail (Revenue
Memorandum Circular 22-04, Apr. 12, 2004).
Internal Revenue Laws
Revenue law is a law passed for the purpose of authorizing the levy and collection of
taxes in some form to raise revenue. A revenue law is said to be a national revenue la
when itis applicable all over the country.
Internal revenue laws are neither political nor penal in nature although there 2
Penalties in case of violations. Tax laws are civil in nature.
u :
4 | Income Taxation 2023 Edition ‘by Prof. WIN Ballada and Susan Ballada History of the Philippine Internal Revenue Law
ned after that existing in the United
The first Philippine Internal Revenue Law, patter
2, 1904 as Act 1189 effective
states, was approved by the Philippine Commission on July
Aug. 4, 1904, Subsequent internal revenue laws were approved in 1913, 1916 and 1917.
On june 15, 1939, the National Assembly approved the National Internal Revenue Code
(NIRC) as Commonwealth Act 466, which took effect on July 1, 1939. The Code was
amended by Republic Act 6110 otherwise known as The Omnibus Tax Law in 1969,
Presidential Decree 69 in 1972, NIRCs of 1977 and 1986, and various presidential
decrees and executive orders.
Enacted on July 28, 1997 by the Philippine Congress was Republic Act 8424, An Act
[Amending the National Internal Revenue Code, As Amended, And For Other Purposes,
otherwise known as the “Tax Reform Act of 1997." The Act declares the policy of the
State to promote sustainable economic growth through the rationalization of the
Philippine internal revenue tax system, including tax administration; to provide, as much
as possible, an equitable relief to a greater number of taxpayers in order to improve
levels of disposable income and increase economic activity; and to create a robust
environment for business to enable firms to compete better in the regional as well as
the global market, at the same time that the State ensures that Government is able to
provide for the needs of those under its jurisdiction and care.
the Code imposes progressive rates of income taxes on citizens and resident aliens The
progressive scheme of income taxation was introduced in our tax system af measure
Ff raising more revenues to meet adequately the increasing needs of the government
snd at the same time to correct inequalities in taxation by equitably distributing the tax
burden based upon the principle of ability to pay.
The Bureau of Internal Revenue
the Bureau of Internal Revenue (BIR) functions under the supervision and control of the
Department of Finance (DOF). The Bureau was created by Commonwealth, Act 466,
approved by the National Assembly on June 15, 1939, effective July 2, 1939, which
revised and codified the then internal revenue laws of the Philippines.
The mission of the BIR is “to collect taxes efficiently and effectively, for and at the least
cost to the government, through impartial and consistent enforcement of internal
revenue laws, and convenient and honest service to taxpayers.”
BIR collection accounts for more than 60% of the national government's total revenues.
The BIR carries the bulk of the burden of solving the country’s budget deficit problem.
Chapter 1: Basic Principles | 15 C-.... EE
Tax Collection system
With a growing taxpayer population and limited resources, the BIR adopted the “self.
assessment system” when Republic Act 2343 was enacted in 1959. Republic Act 8424
otherwise known as the Tax Reform Act of 1997 retained this principle.
.e taxpayer calculates the tax by himself or through
files it with the proper tax office, and pays the tay
is computed and determined is
sulting tax a “self-assessed” tax,
Under the self-assessment system, th
an accountant, fills up his tax return,
due thereon upon filing. The process by which the tax
What is called the “self-assessment” method, and the re
Over the years, the BIR has employed various collection methods, amending processes
or introducing innovations as the need arises. On the whole, however, the methods of
collection utilized by the BIR may be classified into two (2) major categories: collection
through voluntary compliance and collection by enforcement.
‘The act of tendering the payment of the self-assessed tax is referred to as “voluntary
compliance” or “voluntary payment.” Collection by enforcement, on the other hand, is
conducted through the identification of sectors of business or industries, and/or
segments of economic activities where the degree of compliance is low, and the
subsequent audit or investigation of enterprises and companies that are part of these
selected industries.
The Attrition Act of 2005
Republic Act 9335, otherwise known as the Attrition Act of 2005, was enacted to
improve the revenue collection performance of the BIR and the Bureau of Customs
(BOC) through the creation of a Revenue Performance Evaluation Board and of 2
Rewards and Incentives Fund. This Act shall cover all officials and employees of the BIR
and the BOC, regardless of employment status; with at least six months of service.
‘The Board has the following powers and functions:
1. to prescribe the rules and guidelines for the allocation, distribution and release of
the Fund;
2. to set the criteria and procedures for removing from service officials and employees
whose revenue collection falls short of the target by at least 7.5%;
3. to terminate personnel in accordance with the criteria adopted; and
4, to prescribe a system for performance evaluation.
16 | Income Taxation 2023 Edition by Prof. WIN Ballada and Susan Ballad.
jallada
The Fund is to be
respective revenue t
Excess of Ce
the Reve
30%
More
R.A. 9335 took effe
to June 2006. Th
Teves, et al, Supre
Policy Directions «
With the promulg
the legal recog
transactions, it ni
existing tax admit
The BIR is leanin
Commerce trans
1. Tax neutralit
that the ta
transactions
conventiona
2. All other tax
commerce,
transactions
3. BIR will har
raising reve
4, BIR will rat
which E-Cor
economic c
5. The tax tre
acceptance
Philippines
view to ave The Fund is to be sourced from the collection of BIR and BOC in excess of their
respective revenue targets for the year as provided below:
Excess of Collection Over Percent (96) of the Excess
the Revenue Targets Collection to Accrue
to the Fund
30% or below = 15%
More than 30% = 15% of the first 30% plus
20% of the remaining excess
R.A. 9335 took effect on Feb. 11, 2005. However, its implementation has been deferred
to June 2006. This law and its IRR are constitutional (BOCEA vs. Hon. Margarito B.
Teves, et al, Supreme Court (En Banc) G.R. 181707, Dec. 6, 2011).
Policy Directions on E-Commerce
With the promulgation into law of R.A. 8792 or the E-Commerce Law, which provides for
the legal recognition and use of electronic commercial and non-commercial
transactions, it now becomes imperative for the BIR to introduce this concept into its
existing tax administration system.
The BIR is leaning towards the following policy directions insofar as they relate to E-
Commerce transactions:
1.
Tax neutrality should be the governing principle in the interim. This presupposes
that the taxing authority should impose no more taxes upon E-Commerce
transactions than what is imposed upon the same activity conducted by
conventional means.
All other taxation principles, which guide the government in relation to conventional
commerce, should be the same guiding principles applicable to E-Commerce
transactions.
BIR will harness the potential of E-Commerce in bringing about greater efficiency in
raising revenues and an improved taxpayer service.
BIR will rationalize its role in providing an appropriate fiscal environment within
which E-Commerce may flourish, ensuring that business decisions are influenced by
economic considerations rather than by tax considerations.
The tax treatment for E-Commerce transactions should have a high international
acceptance, but it must strike a balance between the fiscal sovereignty of the
Philippines and the fair sharing of the tax base on its counterpart countries with a
view to avoiding double taxation.
Chapter 1: Basic Principles | 17 we |
BIR Issuances and Rulings Defined
igned by the Secretary of Finance, upon
Revenue Regulations (RRs) are issuances signe
recommendation of the Commissioner of Internal ccm eee or
define rules and regulations for the effective enone the
National Internal Revenue Code (NIRC) and related statutes.
. ish perti
Revenue Memorandum Circulars (RMCs) are leer tht tae Hee mene
applicable portions, as well as amplifications, of laws, rules, 8! nts,
issued by the BIR and other agencies/offices.
Revenue Memorandum Orders (RMOs) are issuances that provide directives o,
instructions; prescribe guidelines; and outline processes, operations, activities,
workflows, methods and procedures necessary in the implementation of stated policies,
goals, objectives, plans and programs of the Bureau in all areas of operations, except
auditing.
Revenue Memorandum Rulings (RMRs) are rulings, opinions and interpretations of the
Commissioner of Internal Revenue with respect to the provisions of the Tax Code and
other .tax laws, as applied to a specific set of facts, with or without established
Precedents, and which the Commissioner may issue from time to time for the purpose
of providing taxpayers guidance on the tax consequences in specific situations, BIR
Rulings, therefore, cannot contravene duly issued RMRs; otherwise, the Rulings are null
and void ab initio.
BIR Rulings are official positions of the BIR on inquiries of taxpayers, who request
clarification on certain provisions of the Tax Code, other tax laws, or their implementing
regulations, usually for seeking tax exemptions. Rulings are based on particular facts
and circumstances presented and are interpretations of the law at a specific point in
time. Tax rulings cannot be cited as precedent, but can provide useful information on
how the BIR may treat a similar transaction. They are also issued to answer questions of
individuals and juridical entities regarding their status as taxpayers, and the effect of
their transactions for taxation purposes.
The BIR does not give planning advice or “approve” tax planning arrangements or
resolve an issue through a ruling if the matter can be determined through another
process (i.e., appeal). The Law and Legislative Division wi
to a request in the following instances:
1. The taxpayer has directed a simi
2. The same issue involving the sa
litigation;
3. The same issue involving the same tax
ongoing audit, administrative protest, claj
collection proceeding (R
ar inquiry to another office of the BIR;
ime taxpayer or a related taxpayer is pending in a case in
‘ayer is the subject of a Pending investigation.
im for refund or issuance of tax credit certificate,
‘evenue Memorandum Order 9-2014, Feb. 6, 2014)
18 | Income Taxation 2023 Edition by Prof. WIN Ballada and Susan Balk
an Ballada revenue Bulletins (RBs) refer to periodic issuances, notices and official announcements
of the Commissioner of Internal Revenue that consolidate the Bureau of Internal
Revenue’s position on certain specific issues of law or administration in relation to the
provisions of the Tax Code, relevant to tax laws and other issuances for the guidance of
the public.
The BIR also issues Revenue Audit Memorandum Orders (RAMOs).
Revenue Regulations 5-2012 was published on April 4, 2012. Then, the Commissioner,
thru RMC 22-2012, clarified that:
1. AIlBIR rulings issued prior to Jan. 1, 1998 (the effectivity date of R.A. 8424) —
a. Are not to be used as precedent by any taxpayer as a basis to secure rulings for
themselves for current business transaction/s or in support of their position against any
assessment; :
b. Are not to be used by any BIR action lawyer in issuing new rulings for request for rulings
involving current business transaction/s.
2. BIR rulings issued prior to Jan. 1, 1998 remain valid but only:
a. To the taxpayer who was issued the ruling; and
b. Covering the specific transaction/s which is the, subject of the same ruling.
3, BIR rulings issued prior to Jan. 1, 1998 shall remain valid as mentioned above, unless
expressly notified of its revocation or unless the legal basis in law for such issuance has
already been repealed/amended in the current Tax Code.
A BIR issuance cannot be applied retroactively if it will prejudice the interest of
taxpayers (COL Financial Group, Inc. vs. Commissioner of Internal Revenue, CTA (3rd
Division) Case 8454, Apr. 15, 2014).
Powers and Duties of the Bureau of Internal Revenue
The chief officials of the Bureau are the Commissioner and seven (7) Deputy
Commissioners. The Deputy Commissioners are tasked to handle particular groups
within the Bureau such as information systems, legal and inspection, operations,
resource management, tax reforms administration, special concerns and large
taxpayers. Its powers and duties follow:
1. Assessment and collection of all national internal revenue taxes, fees and charges;
Enforcement of all forfeitures, penalties, and fines;
Execution of judgments in all cases decided in its favor by the Court of Tax Appeals
and ordinary courts; and
4. Administration of supervisory and police powers conferred to it.
Chapter 1: Bosic Principles | 19 a aa a
Powers of the Commissioner
1. Interpret
nterpret tax laws and decide tax cases; f persons,
stimony of persons;
2. Obtain information, and to summon, examine, Sree ane ee and
m —
Make assessments and prescribe additional requir’
enforcement. i ffi th
n officer with rank
4. Delegate powers vested in him by the Code to any subordinate
equivalent to a division chief or higher.
ayer.
axes:
5. Suspend business operations of a taxp:
6. Compromise, abate and refund or credit t
0021, “The Exchange of Information
In Mar. 5, 2010, the President signed Republic Act 1 BIR with
on Tax Matters Act of 2009.” This law provides the Commissioner of the more
powers to fight tax evasion by expanding its authority to look into Se
counts and. sharing the obtained information with the requesting ign tax
authority.
ection 6(F) of R.A. 8424 or the Tax Reform Act of
Section 3 of R.A, 10021, amending S« .
tire into bank deposit
1997, provides the Commissioner with the authority to ing
accounts and other related information held by financial institutions of:
1. Adecedent to determine his gross estate;
Any Taxpayer who has filed an application for compromise of his tax liability under Sec. 204
2
(A)(2) of this Code by reason of financial incapacity to pay his tax liability.
When a taxpayer files an application to compromise the payment of his tax liabilities based
‘on his claim that his financial position demonstrates a clear inability on his part to pay the
tax assessed, his application shall only be considered upon waiving in writing his privilege
under Republic Act 1405, Republic Act 6426, otherwise known as the Foreign Currency
Deposit Act of the Philippines, or under other general or special laws. The waiver then
constitutes as the authority of the Commissioner to inquire into the bank deposits of the
taxpayer.
3. Aspecific taxpayer or taxpayers subject of a request for the supply of tax information froma
foreign tax authority pursuant to an international convention or agreement on tax matte’
to which the Philippines is a signatory or a party of: Provided, That the information obtained
from the banks and other financial institutions may be used by the Bureau of Intend
Revenue for tax assessment, verification, audit and enforcement purposes.
In case of a request from a foreign tax authority for tax information held by banks até
financial institutions, the exchange of information shall be done in a secure mannet
eu confidentially thereof under such rules and regulations as may be promulgat
by the Secretary of Finance, upon recommendation of the Commissioner.
The
Commissioner shall. provi i i
forei Provide the tax information obtained upon request of
an tax authori A
gn tax authority when such Tequesting foreign tax authority has provided the
20 | income Taxation 2023 Editio Prof. WIN Ballada and Susan Ballada
Icon jt 4 Edition by Prof. WIN Ballad. Me :
Powers of the Commissioner
ke testimony of persons;
inistration ar
2. Obtain information, and to summon, admi nd
3. Make assessments and prescribe addition?
enforcement. Code to any subordinate o
4. Delegate powers vested in him by the Co!
equivalent to a division chief or higher
5. Suspend business operations of @ ears es,
6. Compromise, abate and refund or credit taxes:
fficer with rank
«The Exchange of Information
In Mar. 5, 2010, the President signed Republic Act 10022, "The
joner of the BIR with more
on Tax Matters Act of 2009.” This law provides the us into a taxpayer's bank
Powers to fight tax evasion by expanding its authority
ata requesting foreign tay
accounts and sharing the obtained information with: the red
authority.
the Tax Reform Act of
Section 3 of R.A. 10021, amending Section 6(F) of R.A. ace reese Taeaes
1997, provides the Commissioner with the authority place
accounts and other related information held by financial insti
1. Adecedent to determine his gross estate;
2. Any Taxpayer who has filed an application for compromise of his tax liability under Sec. 204
(A)(2) of this Code by reason of financial incapacity to pay his tax liability.
When a taxpayer files an application to compromise the payment of his tax liabilities based
con his claim that his financial position demonstrates a clear inability on his part to pay the
tax assessed, his application shall only be considered upon waiving in writing his privilege
under Republic Act 1405, Republic Act 6426, otherwise known as the Foreign Currency
Deposit Act of the Philippines, or under other general or special laws. The waiver then
Constitutes as the authority of the Commissioner to inquire into the bank deposits of the
taxpayer.
ign tax authority for tax infor
financial institutions, the exchange of information shall b
ensure confidentially thereof under si
by the Secretary of Finance, upon rec
mation held by banks and
e done in a secure manner?
ations as may be promulgated
e Commissioner
uch rules and regul,
‘omMMendation of th
Obtained upon request of th
‘8X authority has provided tM
20 | income r
" Texation 2023 Edition by Prop
WIN Batlada
nd Susan Ball
lada following inform:
the request:
n to demonstrate the foreseeable relevance of the information to
a. The identity of the person under examination or investigation;
A statement of the information being sought including its nature and the form in which the
said foreign tax authority prefers to receive the information from the Commissioner;
¢_ The tax purpose for which the information is being sought;
4, Grounds for believing that the information requested is held in the Philippines or is in the
possession oF control of a person within the jurisdiction of the Philippines;
To the extent known, the name and address of any person believed to be in possession of
the requested information;
f. Astatement that the request is in conformity with the law and administrative practices of
the said foreign tax authority, such that if the requested information was within the
jurisdiction of the said foreign tax authority then it would be able to obtain the information
under its laws or in the normal course of administrative practice and that it is in conformity
with a convention or international agreement;
g. Astatement that the requesting foreign tax authority is also allowed under its domestic laws
to exchange or furnish the information subject of the request (RR 10-2010, Oct. 6, 2010); and
h, Astatement that the requesting foreign tax authority has exhausted all means available in its
own territory to obtain the information, except those that would give rise to
disproportionate difficulties.
Revenue Regulations 3-2014, issued Feb. 11, 2014, amended Sec. 10 of RR 10-2010, to
read as follows: “A taxpayer shall be duly notified in writing by the Commissioner that a
foreign tax authority is requesting for exchange of information held by financial
institutions pursuant to an international convention or agreement on tax matters within
60 days from receipt of the said request. However, if notification within this period will
undermine the chances of success of the investigation conducted by the requesting
foreign tax authority, the taxpayer shall be notified within 6 calendar months from
receipt of the request.”
Pursuant to Section 20 (B) of the Tax Code, as amended by R.A. 11534 or CREATE Act,
the Secretary of Finance may order the Commissioner to furnish the Department of
Finance (DOF) such specifically identified information related to entities receiving
incentives under Title XIII of the Tax Code of 1997, as amended, with justification clearly
stated therefor. ‘
Tax Incentives
An example of a law that grants tax incentives is the Adopt-a-School Act of 1998 (R.A.
8525). Revenue Regulations 10-2003 implements the tax incentive provisions of said
law. A pre-qualified adopting private entity which enters into an agreement with a
Public school shall be entitled to the following tax incentives:
* Deduction from gross income of the amount of contribution/donation that were actually,
directly and exclusively incurred for the Program, subject to limitations, plus an additional
amount equivalent to 50% of such contribution/donation;
Chapter 1: Basic Principles | 21 SO a
or from paym
fer and Busi
ment of donor's taX. Donation apy
* Exemption of the Assistance made by the don ness Taxation by the Same boo,
donor's tax are covered in another text, Trans
team.
tion Act of 2009, states
Section 19 of R.A, 10028, the Expanded Breastfeeding pret facility, establishment g,
that "The expenses incurced by a private health and 7 cable expenses fo
institution, in complying with the provisions ofthis ACH ANT Tor svided That the
deduction shall apply for the taxable period ben ae plshments and institutions shay
further, That all health and non-health facilites me a prov rove
(6) months p
hall secure a "Working
comply with the provisions of this Act within sik" B
finally, That such facilities, establishments or In' ot Health to be filed with the
Mother-Baby-Friendly Certificate” from the Deserta ve a
Bureau of Internal Revenue, before they can avail o
ce Act of 2010, a lawyer or professional
as defined by the Supreme Court, shall
ross income, the amount that could
Per Republic Act 9999 or the Free Legal Assistan
partnerships rendering actual free legal services,
be entitled to an allowable deduction from the gr 4
have been collected for the actual free legal services rendered or up to 10% of the gross
income derived from the actual performance of the legal profession, pies lover
Provided, That the actual free legal services herein contemplated a Ibe a lusive o
the minimum 60 hours mandatory legal aid services rendered to indigent litigants as
required under the Rule on Mandatory Legal Aid Services for Practicing Lawyers, under
BAR Matter 2012, issued by the Supreme Court,
INCOME AND INCOME TAXES
Income Defined and Distinguished from Capital
Income, in its broad sense, means all wealth, which flows into the taxpayer other than a
mere return of capital. It is the return in money from one’s business, labor, or capital
invested, e.g., gains, profits, salary and wages. The words ‘income from any source
whatever’ disclose a legislative policy to include all income not expressly exempted from
the class of taxable income under our laws (Commissioner vs. BOAC, L-65773, Apr. 30.
1987, citing Madrigal vs. Rafferty, 38 Phil. 14).
Income is also defined as the amount of money coming to a person or corporation
within a specified time, whether as payment for services, interest or profit from
investment. Unless otherwise Specified, it means cash or its equivalent. Income may
also be thought of as a flow of the fruits of one’s labor.
Capital isa fund or property existin
W at one distinct point of time. In her
e. Income, on the othe
fans, denotes flow of wealth during a definite period of time wire ni
Income is the service of wealth. In the Madrigal case. the
essential distinction between capital and income: .
