VAT refund system for tourists expected to be in place by 2022

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VAT tourism

THE Department of Finance (DoF) is considering establishing a system to issue value-added tax (VAT) refunds to foreign visitors.

Finance Secretary Carlos G. Dominguez III said the department is studying how to implement a VAT refund for foreign tourists buying goods in the Philippines, for launch before 2022.

“We want to be a normal country,” Mr. Dominguez told reporters during a recent briefing, noting that refunding VAT paid by foreign visitors is an international practice. “It’s the right thing to do. We are giving them what is due. I don’t know if it will entice more tourists… [but] it’s really the international practice to do it.”

The basis for refunds is the VAT-free status of exports. The 12% VAT is typically levied on goods consumed within the Philippines.

“We will not tax VAT on exports — we will tax VAT on what’s consumed here. And if you export it, you get a refund for whatever you pay,” Mr. Dominguez said.

Finance Undersecretary Karl Kendrick T. Chua said separately that the government will test the refund system with export firms, as part of changes under the Tax Reform for Acceleration and Inclusion (TRAIN) law which took effect on Jan. 1.

The new law removes a number of exemptions to the consumption duty but provides for the creation of an “enhanced” VAT refund system for direct exporters.

Asked why the government is pursuing this change now, Mr. Chua said the Philippines is in a better position to forego these revenues compared to its “cash-strapped” position in previous years.

Mr. Dominguez added that he wants to see the tax refund for tourists in place “before the end of the administration,” noting that most Southeast Asian nations observe this practice.

Some Asian countries place dedicated VAT refund stations in international airports, where foreigners can present receipts and get a refund for purchased items. Others provide tax refund desks within stores.

Some 6.6 million foreign tourists visited the Philippines in 2017, beating the government’s 6.5-million goal for the year. The Tourism department projects 7.4 million tourist arrivals in 2018, which is expected to spur consumption and contribute to overall economic growth. — Melissa Luz T. Lopez