Should Condo Dwellers Expect Higher Fees Soon?

This is a synopsis of the article "Higher Fees For Condo Dwellers?" by Mr. Jun Ramirez that appeared in Manila Bulletin on November 8, 2012 in the Metro News section.  No representations are made or claimed.

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  However, BIR Commissioner Kim S. Jacinto Henares appears to disagree and has withdrawn the tax exemption privilege in her recent Revenue Memorandum Circular No. 65-2012 because "it has no legal basis."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

Homes For The Law and REIT

Wow, I didn't realize I hadn't blogged in more than a week!  10 days to be exact.  Truth is, news tend to be more or less the same, day in and day out.  Save for your occasional surprising tidbit, like Holcim increasing the price of cement by P10 when demand is seen to actually start falling due to the wet season, there's really not much to say about the real estate industry.  Sure there are still lots of exciting developments; condos are springing up left and right, even in Leyte, can you believe it?  But in general, there aren't a lot of really interesting news to share.  Well, I decided to just talk a bit about P-Noy's effort to help out our cops and soldiers, and the REIT again.

News about the housing units distributed to qualified policemen and soldiers is interesting because everybody's struggling to get their own piece of land, and being a cop or soldier in the Philippines doesn't exactly make one rich.  So it's always good news to hear about the government helping them out.  It's not a bad deal, too.  The article states: "A housing unit at the AFP/PNP Heroes Ville Housing Project in San Jose del Monte City with a lot area of 36 square meters and floor area of 22 square meters is worth P140,000, payable in 30 years at six percent per annum."  The monthly amortization starts off at P200 for the first 5 years, and gradually goes up to P809.53 from the 26th year onwards.  Maybe that'll be enough incentive for our law enforcers to stay clean, if you get what I mean.

As far as the REIT goes, Finance secretary Cesar Purisima said he had signed the tax rules already, but the government will impose value-added tax (VAT) on properties that will be transferred to REITs.  Still, notwithstanding that fact, shares of property developers such as Ayala Land and SM Prime Holdings have gone up on speculation that the introduction of REIT in the country will boost its value.  Philippine Stock Exchange President Hans Sicat disclosed that the minimum public ownership required is 40%, which will further be expanded to 67% in the next three years.  I think it's wise to keep an eye out for this investment, as the real estate industry in the Philippines is currently very healthy, one might stand to gain a lot, were one to play the cards right.

That's all for now, folks.  Have a good weekend, watch a movie, spend time with loved ones.  Be happy, stay healthy.

Jon

REIT Tax Rules To Be Tackled

I read in BusinessWorld Online that the government representatives and the private sector are set to give the long-delayed REIT law another go next week.  The implementation of the REIT or Real Estate Investment Trust (Republic Act 9856) in the Philippines has stalled despite the law being passed in 2009.  The private sector, led by BDO Capital and Investment Corp. President Eduardo V. Francisco, wants more tax exemptions, particularly the VAT of 12%, to be eased, to attract more investors.  Several property big names have already expressed interest in REIT ventures, among them SM Prime Holdings, Inc., Ayala Land, Inc. and Robinsons Land Corp.  However, the Department of Finance does not agree, saying that VAT exemption will lead to billions lost in potential revenue.

REIT has the potential to further make investors excited with investing in real estate.  Let's hope the powers-that-be can finally come to an amicable solution.  

1,000 shares please,
Jon