No trespassing please

Taxwise Or Otherwise
Mary Lianne V. Cabiao

Posted on September 26, 2013

Note, besides, that it is no more immoral to directly rob citizens than to slip indirect taxes into the price of goods that they cannot do without.

-- Albert Camus, Nobel Prize-winning author

WHAT are the things we cannot do without? Apart from food and clothing, we also need shelter, a roof over our head to keep us safe from harm. To address the housing needs of the ever-growing urban population, condominium units have proliferated in the metro. It has become a welcome alternative to suburban housing for city-dwellers who want security and accessibility to work, school, hospitals, etc.

It is no wonder then, that the Bureau of Internal Revenue (BIR) caused much uproar and aversion from current and prospective condominium unit owners when it issued Revenue Memorandum Circular (RMC) No. 65-2012 nearly a year ago, “Clarifying the Taxability of Association Dues, Membership Fees, and Other Assessments/Charges Collected by Condominium Corporations.”

Association contributions are collected to ensure maintenance of facilities and accessibility to shared services that redound to the members’ mutual benefit, such as security, repairs, upkeep of public areas, garbage collection and disposal, among others. In the past, the BIR had issued a number of rulings clearly declaring the tax exemption of such contributions.

The RMC, in effect, retracted the BIR’s previous position and declared, effective immediately, that association dues or membership fees form part of the gross income of the condominium corporation, subject to income tax and applicable withholding taxes under existing regulations. The BIR further explained that such dues and fees constitute income generated from services rendered to its members and tenants and, hence, should also be subject to VAT.

In reaction, interest groups found it onerous to shoulder the additional burden of the 30% income tax and 12% VAT levied on their monthly association dues or fees.

At least one interested group formally requested the BIR Commissioner to defer the implementation of the RMC so that certain issues could be properly threshed out. Perhaps since such request was not acted upon by the BIR, one nonstock, nonprofit condominium corporation took the issue to court, challenging the operative mandate of RMC No. 65-2012 as unjust, oppressive and confiscatory which is in violation of the due process clause under the Constitution. Among other things, the taxpayer argued that the RMC directly burdens the condominium unit owners with income tax and VAT on money pooled together and utilized exclusively for their mutual aid and protection, thereby diminishing and impairing their right to possess and enjoy their own property.

In response, the BIR argued that the disputed RMC was issued simply to clarify the prevailing position of the BIR. Simply put, the RMC merely interpreted an existing law which has already been in effect and which was not set to be amended.

In a resolution dated Sept. 5, 2013, the Regional Trial Court (RTC) of Makati declared RMC 65-2012 invalidly issued. The court ruled that the RMC did not merely seek to clarify an existing law, but changed its import and interpretation to the prejudice of the taxpayer. The RTC took note of the various rulings issued by the BIR declaring the tax exemption of association dues (which formed the basis for the prevailing industry practice) and the RMC’s failure to cite any particular law that it was purporting to clarify. It considered the RMC as introducing new legislation, imposing an additional tax burden.

Moreover, the court ruled that, by making the RMC immediately effective, the BIR has violated the constitutional mandate of due process. Citing jurisprudence, the RTC emphasized the right of affected taxpayers to be given due notice and the opportunity to be heard before a new issuance is given the force and effect of law. Since the RMC imposes a new tax liability, the requirements on notice, hearing and publication must be observed.

While the court decision is a welcome development for condominium unit owners and prospective owners alike, it has not reached finality and may still be elevated by the BIR on appeal to the higher courts. Until then, the affected parties have to wait with bated breath, anxiously anticipating the final verdict. At the very least, condominium unit owners may console themselves with the thought that the sentiments and calls for a review of RMC 65-2012 did not fall on deaf ears after all.

The author supports the government’s call to pay proper taxes for the love of our country, but there should be no infringement of rights. No trespassing please.

The author is a senior manager at the tax services department of Isla Lipana & Co., the Philippine member firm of the PricewaterhouseCoopers global network. Readers may send feedback to

The views or opinions presented in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from such article.