Senate OKs bill refunding VAT for foreign tourists

MANILA, Philippines — The Senate on Monday, September 23, approved on the third and final reading a bill that would refund foreign tourists the value-added tax for goods purchased in the Philippines.  

Senate Bill 2415 or “An act creating a VAT refund mechanism for non-resident tourists” would add another section to the National Internal Revenue Code of 1997.

“A tourist shall be eligible for a value-added tax refund on locally purchased goods if the following prerequisites are present,” the bill read. 

The requirements for VAT refund are as follows: 

• Goods must be purchases in local, duly accredited stores 
• Goods must be taken out of the Philippines by the tourists within 60 days of purchase 
• Goods must have a value of at least P3,000. The threshold will be subject to review every three years by the Finance Secretary

Under the bill, the Department of Finance must also engage the service of at least one, globally recognized VAT refund operator that will provide the end-to-end solutions for the refund system. 

The refund system will be charged against the General Appropriations Act. 

Senate Bill 2415 got 20 yes votes, with only one negative vote from Senate Minority Leader Aquilino Pimentel III. 

Pimentel argued that there was no guarantee that the Philippines’ earnings from foreign tourists’ sales could outweigh the potential losses from the taxes from foreigners. 

The senator said that up to P4 billion in taxes could be lost due to the measure.

“This measure exposes the government to further tax leakages. Despite having the highest VAT rate in Southeast Asia, our VAT collection efficiency is the lowest in the region at just 40%. We have already lost billions in revenues due to these inefficiencies,” he added. 

However, Sen. Sherwin Gatchalian, the author of the bill, said that the bill was for the long run growth of the tourism industry. 

“The revenue cost we may incur from these refunds, will be offset by the increased spending of tourists, which in turn will generate more jobs, stimulate local industries and ultimately, boost our economic activity,” Gatchalian said. 

Citing the National Economic Development Authority, Gatchalian said that the measure could have a net income of P3.3 billion to P5.7 billion for the country.