The Supreme Court (SC) invalidated a Bureau of Internal Revenue Circular that imposes a 12 percent

The Supreme Court (SC) invalidated a Bureau of Internal Revenue Circular that imposes a 12 percent Value Added Tax (VAT) and 32 percent Income Tax on association dues, membership fees and other charges collected by condominium corporations from its members and tenants. In the decision written by Associate Justice Amy C. Lazaro Javier, the SC invalidated the BIR RMC No. 65-2012 “for ordering that gross receipts of the condominium corporations including association dues, membership fees, and other assessments/charges are subject to VAT, income tax and income payments made to it are subject to applicable withholding taxes.”

“A law will not be construed as imposing a tax unless it does so clearly and expressly. In case of doubt, tax laws must be construed strictly against the government and in favor of the taxpayer,” the SC said.

“It also pointed out that “taxes, as burdens that must be endured by the taxpayer, should not be presumed to go beyond what the law expressly and clearly declares.”

 The decision was made public by the SC last June 17, 2020. It reversed the decision issued by the Court of Appeals in 2014 as it reinstated the ruling handed down by the Makati City Regional Trial Court (RTC) 2013.

The RTC grated the petition of First E-Bank Condominium Corporation to void RMC No. 65-2012 which the BIR issued on October 31, 2012. The CA reversed the RTC ruling. In invalidating the RMC No. 65-2012, the SC said that a condominium corporation is not designed to engage in activities to generate income or profit that would warrant the imposition of VAT and income tax. It pointed out that the setting up of condominium corporations is sanctioned by the Republic Act No. 4726, the condominium Act. Under RA 4726, the SC said a condominium is an interest in real property consisting of a separate interest in a unit in a residential, industrial or commercial building, and an undivided interest in common, directly, in the land on which it is located and in other common areas of the building.

Link for RMC No. 65-2012