Taxation, 2019 Bar — Question A.3

QUESTION

All the homeowners belonging to ABC Village Homeowners' Association elected a new set of members of the Board of Trustees for the Association effective January 2019. The first thing that the Board looked into is the need to increase the prevailing association dues. Mr. X, one of the trustees, proposed an increase of 100% to account for the payment of the 12% value-added tax (VAT) on the association dues which were being collected for services allegedly rendered "in the course of trade or business" by ABC Village Homeowners' Association. (a) What constitutes transactions done "in the course of trade or business" for purposes of applying VAT? (2%) (b) Is Mr. X correct in stating that the association dues are subject to VAT? Explain. (3%)

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