Condo dwellers and owners are likely to be paying higher association and membership dues soon because the Bureau of Internal Revenue (BIR) has decided to impose income and value-added tax (VAT) on these monthly charges.Apparently, in previous BIR rulings, condo corporations that collect said fees were exempted from paying the taxes (income tax and VAT) on the grounds that these were not for gain nor profit, but for managing and maintaining the condominium property. However, BIR Commissioner Kim S. Jacinto Henares appears to disagree and has withdrawn the tax exemption privilege in her recent Revenue Memorandum Circular No. 65-2012 because "it has no legal basis." She maintains that association dues and membership fees form part of the gross earnings of the condo corporations, thus subject to both income and business taxes.
Commissioner Henares further explains that the VAT collection is in line with Section 106 of the tax code, imposing it on persons or entities engaged in the sale of goods and services. Thus, even non-profit and non-stock corporations, and even government entities, are subject to VAT on the sale or exchange of goods and services. This ruling was affirmed by the Supreme Court on its March 30, 2000 decision (BIR vs. the Commonwealth Management and Services Corporation).
In other words, this withdrawal of the tax exemptions might (or should I say 'will?') increase the association and membership fees as well as service fees because the condo corporations and operators most likely will pass on the extra financial burden to their residents and unit owners.
For those who do not know, VAT is currently 12%. So if this is going to happen, expect your dues to go up by at least that much. Ah well, it's still worth the convenience of living in a condominium, isn't it?
Keep your chin up,
Jon
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