Who burdens VAT of homeowners association dues?
QUESTION: Rltr. John, The Bureau of Internal Revenue (BIR) has just released Revenue Memorandum Circular (RMC) No. 65-2012 which says association dues, membership fees, and other assessments/charges collected by condominium corporations are subject to VAT. Is the BIR correct? Who should pay the VAT?
ANSWER: Yes, the BIR is correct. Homeowners Association dues have VAT because there are "services" rendered in exchange of the due. Services in Association Dues includes homeowners administration, maintenance of common areas, and private security services. But who pays the VAT?
VAT is a type of tax that can be passed on the bottom line user of the VATable product or service, unless there is a prior agreement that someone else will. If the occupant of the condo unit is the owner of the unit, then the owner shoulders the VAT.
If the unit is on rent under a correct lease offer and contract, then the tenant pays the VAT. However, if the unit is rented out with a lease offer and contract is wrongly made, then the owner of the property pays the VAT. I taught this clearly in my blog titled, "Professional Real Estate Management Service (PREMS)".
WRONGLY MADE LEASE OFFER A wrongly made lease offer and contract is one wherein the rent includes association dues. This happens when the price of the rent being offered includes association dues. Example: "Condo for Rent. Makati. P30,000 incl Assn Dues". Again, if the unit is rented out with a lease offer and contract is wrongly made, then the owner of the property shoulders the VAT, not the tenant. Lahat na tax pahirap talaga yan. Pero meron namn yang return sa society, especially in the production of public goods and services. Hindi ang homeowners association ang pinahirapan ng VAT on HA Dues, kundi ang homeowner or ang tenant. Ang condo na walang maayos na PMO or HA ay marumi, hindi secured, maraming kalat sa hallway. In taxation theory and practice, when you say VAT, all kinds of VAT, pinapasa talaga ang burden nyan sa user ng product or service. VAT is an application of Economics. I finished BS Economics in UP. The Association merely "remits" VAT to BIR. The Association charges VAT to the burden of the homeowner. TAX EXEMPTION If they want Homeowners Associations to be Tax Exempt, I can help, I have an "idea" that is worth a million pesos (but like a missionary in hell, I won't even get paid a single centavo). Argue on grounds of...... tantarantantannnnn.... "SELF-HELP", just like the CONSLA argument. If a group of people are pooling their money for a self-help endeavor, it can be tax exempt. When the Association pays the Private Company for the security and janitorial services, the Association pays VAT. Any procurement or acquisition done by the Association is not VAT exempt. But when the members of the Association contributes membership fee or association dues, there should be no VAT on it because it is an internal fund-raising activity, a self-help mechanism of members, no service rendered. If the Association is a service contractor and the private security and janitorial company is a sub-contractor, then the Association Due is VATable. But I doubt if the Association is classified as a service provider or service contractor. It looks like the BIR is wrong. Hmmmmm, I'll study this more. By the way, for everone's information, Homeowners Associations (HA) is one of the integral cluster of the IPORESP. They have a cluster of their own. Their Presidents and Chief Administrators can be a member of IPORESP. This is per IPORESP By-Laws. This is the reason why we care for matters that affect Homeowners Associations.
HAs are exempt from taxes. You must also read http://petalcorin.blogspot.com/2013/07/a-law-exempting-homeowners-association.html.
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