Gorriceta Africa Cauton & Saavedra | View firm profile
By: Atty. Gerard Ceasar S. Baguio
February 28, 2025 – What better way to end a vacation than claiming Value-Added Tax (VAT) or Sales Tax refunds as you wait for your flight back home? Many countries recognize the benefit of encouraging tourists to shop locally by offering these refunds. However, for foreign visitors to the Philippines, this has been a long-overdue privilege. Imagine the joy of exploring the vibrant markets and stunning beaches of the Philippines, knowing that a portion of your spending will return to you—turning your shopping spree into an even more rewarding adventure. It’s high time the Philippines joins the ranks of tourist destinations that offer this tax benefit.
In a recent study of the National Tax Research Center on Comparative Value-Added Tax (VAT) and VAT-like Structures in ASEAN Member States, the Philippines has the highest VAT and VAT-like rates among Southeast Asian countries. To illustrate, while VAT in the Philippines is generally set at 12%, our ASEAN neighbors impose VAT at slightly or much lower rates as follows: Cambodia at 10%, Indonesia at 11%, Lao PDR at 7%, Thailand at 7%, and Vietnam at 10%. Additionally, three countries have VAT-like structures: Singapore with an 8% GST, Myanmar with a Commercial Tax of 5%, Malaysia with a three-tiered SST (10%, 5%, and 6%) and Timor-Leste with a two-tiered structure, with rates ranging from 0% to 5% for services tax and 0% to 2.50% for sales tax while Brunei does not impose VAT or similar taxes.
The Philippines’ tourism industry continuous to grow and remains to be a key contributor in the nation’s economic stability and progress. According to the latest data of the Department of Tourism (DOT), tourism revenues have soared from previous years, making the sector a significant driver of economic development, providing livelihood opportunities, particularly in rural and underserved regions.
Recognizing the vital role the tourism sector plays, President Ferdinand R. Marcos, Jr. signed into law Republic Act No. 12079 or the Value-Added Tax (VAT) Refund Mechanism for Non-Resident Tourists Act (the “Act”) on December 06, 2024. A priority measure, the Act aims not only to incentivizing foreign tourists to spend more in the country, but also to promote the Philippines as a premier global shopping destination. By allowing VAT refunds to non-residents, the country aims to attract more tourists to shop and explore, benefiting both tourism and local businesses.
Under the Act, non-resident tourists are now eligible to claim VAT refunds on their local purchases provided that the locally purchased goods: (i) are purchased in person by the tourist in duly accredited stores; (ii) are taken out of the Philippines by the tourist within sixty (60) days from the date of purchase; and (iii) have a value of at least Three Thousand Pesos (PHP 3,000.00) per transaction.
While the Act is a welcome and long overdue legislation, there are serious concerns that must first be addressed before its full implementation.
On fiscal adequacy, it is crucial to consider how the government intends to address the timing difference between the inflow of VAT payments from accredited vendors and the outflow of VAT refunds to tourists. As to administrative feasibility, it is essential to determine how transactions will be verified to avoid the refund of spurious and nonexistent transactions without imposing unnecessary burden on both the taxpayer and the government.
As of this writing, the Department of Finance has yet to issue the Act’s implementing rules and regulations. These rules will aim to clarify the implementation and limitations of the law including the coverage of eligibility for VAT refunds, the accreditation process for vendors, logistics and administration of VAT Refunds, and the verification of transactions during refund. While it is expected that the Department of Finance will consult the Department of Trade and Industry, Department of Transportation, Department of Tourism, National Economic and Development Authority, Bureau of Internal Revenue, and Bureau of Customs when drafting the implementing rules, it would be prudent to solicit inputs from private sector stakeholders as well.
Overall, the VAT refund mechanism is a strategic move to make the Philippines an even more attractive destination for tourists and global shoppers. Proper implementation is crucial to ensure the law’s success, addressing fiscal adequacy and administrative feasibility to avoid any potential issues. By ensuring a smooth and efficient VAT refund process, the country can maximize the benefits for both tourists and local businesses. So, whether you’re looking for local crafts, fashion, or electronics, there’s now an extra incentive to shop in the Philippines. With refunds, it’s definitely more fun in the Philippines!