VAT refund for foreigner tourists to help PH reach pre-pandemic numbers —DOT

The proposed Value-Added Tax (VAT) refund mechanism for non-Philippine resident tourists would help the county reach the pre-pandemic numbers of incoming foreign tourists, an official of the Department of Tourism told a Senate panel Wednesday.

“Our projection is we will hit the 8.2 [million] by next year and the added value of this measure because of the shopping tourism will just greatly contribute to reaching the 8.2 as well as to go beyond that number,” Tourism Undersecretary Shereen Gail Pamintuan said during a Senate hearing on the bills seeking to create a VAT refund mechanism for foreign tourists.

“We believe that because of the competitiveness that the VAT refund incentives scheme will bring, it will encourage tourists to actually spend more and stay longer which means this will directly improve the growth of the local economy and also contribute to job generation,” she added.

Senator Sherwin Gatchalian, who presided over the hearing, asked the DOT to provide a study on the possible effects of the VAT refund scheme on the number of tourists that will come into the Philippines.

According to Pamintuan, the Philippines is the only country in the ASEAN which does not implement a tax refund mechanism for foreign tourists. 

The country’s top competitors on tourism, particularly China, Japan, South Korea, Thailand, Singapore, Indonesia, Malaysia, and Taiwan also impose a VAT Refund Scheme.

Based on DOT’s study, Pamintuan said the country's top competitors have the same offerings to foreign tourists as the Philippines such as beach, recreation, and nature. What sets them apart is the availability of a shopping portfolio and better VAT refund scheme.

She said the department will improve the product portfolio and add “shopping tourism” as one of the country’s strongest offerings to foreign tourists.

Meanwhile, the Department of Finance projected around P2.9 to P4.1 billion in foregone revenues should the country implement a tax refund scheme.

In the P2.9 billion, the DOF only accounted for the apparel and general merchandise share of total shopping, while the P4.1 billion accounted for the apparel, general merchandise, and grocery.

Global Blue, a company which provides services for tax-free shopping in several countries across the globe, shared to the Senate panel a study which showed the economic impact of imposing a VAT refund scheme in the European Union.

Global Blue vice president for Strategic Planning Gavin Ingram said that in the study, the VAT refunded in the EU was at 2.8 billion euros but its economic contribution has reached 5.2 billion euros.

The study also projected that in 2025, the VAT refund will be at 3.8 billion euros but the economic contribution is expected to reach 6 billion euros.

The 2019 tourism spending in the EU likewise produced 233,000 jobs and contributed 13.1 billion in EU’s GDP, Ingram shared.

“Many countries in the world are looking at implementing for the first time a VAT refund scheme and also at modernizing their VAT refund scheme because… the significant economic benefit introduced in this scheme far outweighs the amount of VAT that is refunded,” Ingram said.

Ingram said the digital VAT refund scheme would also help merchants and travelers have a “seamless” refund mechanism.

Gatchalian and Senator Jinggoy Estrada filed two separate measures for the VAT Refund Scheme.

In both bills, foreigners who locally purchased goods amounting to at least P3,000 from duly accredited stores can avail of the VAT refund within 60 days from the date of purchase.

Under Gatchalian’s bill, tourists shall be entitled to a VAT refund in an amount not exceeding 85% of the total amount of VAT by the tourist on locally purchased items that they take with them out of the country.—LDF, GMA Integrated News