VAT refund for tourist purchases explored

MANILA, Philippines – The National Tax Research Center is supporting a Senate resolution proposing the implementation—although with a very limited scope—of a refund on value-added tax for foreign tourists and balikbayans in an effort to encourage greater tourist arrivals.

Filed by Sen. Miriam Defensor-Santiago, Senate Resolution No. 928 directs the “proper Senate committee” to study the possibility of offering a VAT refund for purchases made by foreigners in retail stores.

The proposal is based on the idea that sales made to foreigners and balikbayan tourists who bring the goods outside the Philippines are considered exports and, thus, should not be taxed.

Under the law, balikbayans include overseas Filipino workers and Filipinos who have been abroad continuously for at least a year—including accompanying spouses and children—as well as former Filipino citizens.

According to the NTRC, a part of the Department of Finance, the VAT refund is hoped to increase the flow of tourism and help generate businesses that would offset revenues that would be lost.

However, the NTRC clarified that such a refund can only apply to purchases made in duty-free shops since these are the only stores in the country that accept foreign currency as payment.

Also, the NTRC recommended that—to minimize abuse—the refund system should include specific requirements on who can claim, where to claim and how to claim the rebate.

Further, the system must set a minimum sales amount that “should be neither too low so as to open the privilege to abuse nor … too high so as to defeat the purpose.”

The NTRC cites a threshold of $20, which is the minimum purchase set in other countries or $30.

The agency estimates that the government may forego revenues of P188.4 million a year if the threshold was $20 and P282.5 million if $30.

“The threshold should be accompanied by the setting up of strict procedural requirements and safety measures in the availment of the refund so as not to deplete the much needed revenues of the government,” the NTRC said. –Ronnel Domingo, Philippine Daily Inquirer