BIR eases up on taxes on condo, homeowners

MANILA, Philippines - The Bureau of Internal Revenue (BIR) has relaxed its ruling on the collection of income and value added taxes on association dues and membership fees collected by condominium corporations and homeowners associations.

In a memorandum circular 9-2013, BIR commissioner Kim Henares said association dues and membership fees will not be subject to tax, VAT and percentage tax if the local government unit having jurisdiction over the homeowners’ association issues a certification, stating it lacks the financial resources to cover basic services to members.

Basic community services is defined under Sec. 3(d) of R.A. No. 9904 as those referring to services and facilities that redound to the benefit of all homeowners including security, street and vicinity lights, maintenance, repairs and cleaning of streets, and garbage collection and disposal, among others.

Henares said the homeowners’ association must present proof that the income and dues are used for the cleanliness, safety, security and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages.

The homeowners organization, according to Henares, must likewise be duly constituted as “association” as defined under R.A. 9904  which grants tax incentives to homeowners associations.

The BIR issued the exemptions amid an uproar over the removal of the VAT exemption on condominium and homeowners association dues, membership fees and other charges collected from members and tenants.

The agency previously exempted condominium and homeowners associations from the payment of income tax and VAT.  This was premised on the theory that the money collected was merely held in trust to be used for administrative expenses incurred in servicing members.  

The BIR, however, dodged its previous position and has ruled that a condominium corporation or homeowners association provides services and benefits to its members and thus payments to it shall be considered as income and consequently must be subject to tax.

This means posh executive villages such as Forbes Park and Dasmarinas Village shall no longer enjoy tax perks as Makati City is not lacking in funds to provide essential services to the exclusive villages.

Bayan Muna Rep. Neri Colmenares and Rep. Teddy Casino objected to the BIR’s ruling, saying such a plan would discourage people from buying their own homes and could result in a slowdown in the residential construction business.

Several homeowners associations and property firms have also raised howl over the BIR’s new ruling.