Diokno overrules BIR: ‘Dasma’ Village association dues are tax exempt

Finance Secretary Benjamin Diokno is allowing the Dasmariñas Village Association Inc. (DVAI) to enjoy tax exemptions on its income from association dues and rental fees by reversing an earlier ruling of the Bureau of Internal Revenue (BIR).

Last year, the BIR ruled against DVAI’s request for issuance of a ruling exempting it from taxes slapped on its income from association or membership dues, facility rentals and trade businesses.

The BIR had told SyCip Gorres Velayo (SGV) & Co., which lodged the request on behalf of DVAI, that since the homeowners’ association of the posh Makati village “does not fall within the purview of those which may be exempted for income tax under Section 18 of the Magna Carta of Homeowners Association,” DVAI “shall be subject to the applicable internal revenue taxes on its income from association dues, rentals of their facilities, trade business, and other activities.”

The BIR had pointed out that Makati City, where Dasmariñas Village is located, was not lacking in resources to provide basic services to DVAI’s members.

Republic Act No. 9904, or the Magna Carta of Homeowners Association, mandated as a requisite qualification for tax exemption the lack of basic services support from the host city or municipality.

Village’s appeal

After DVAI appealed for review in June following receipt of the BIR’s 2021 ruling only last May, the DOF (Department of Finance) , in an opinion issued by Diokno last month, said the homeowners association was actually exempt from income tax, 12-percent value added tax (VAT), as well as percentage tax slapped on incomes derived from association dues and rentals of facilities.

The tax exemption can be availed as long as “such income and dues shall be used for the cleanliness, safety, security and other basic services needed by the members, including the maintenance of the facilities of their respective subdivision or village.”

The DOF said its review showed that DVAI had “met the conditions for tax exemption of rental income and dues under Section 18 of RA 9904.”

Exemption conditions

These three conditions included DVAI proving that it was a duly constituted homeowners’ association; that the Makati City government “did not appropriate funds and resources intended for basic services to the members of DVAI since it involves private properties”; and that the rental income and dues being collected by DVAI have been “used in providing the basic community services needed by the members, including the maintenance of the facilities of their village,” such as garbage and security services, as well as maintenance and repairs of streets and street lights.

The DOF nonetheless said that DVAI must still pay income taxes, VAT and percentage taxes on its other incomes from business, trade and other activities not derived from association dues nor rentals of its facilities.