VAT refund for foreign tourists 'unfair' to Filipinos —Koko

Senate Minority Leader Aquilino "Koko" Pimentel III on Monday expressed opposition to the bill seeking to implement a Value Added Tax (VAT) refund mechanism for foreign tourists, saying this won't benefit Filipinos.

The lawmaker made the manifestation before the Senate approved on second reading Senate Bill 2415 which seeks to refund the VAT of the products purchased by foreigners with a transaction value of at least P3,000.

Although Pimentel noted the need to boost tourism in the country, the lawmaker said the measure is "misguided and presents significant risks that far outweigh its projected benefits."

The minority leader said the 149,000 average increase of tourist arrivals from 2024 to 2028 are "merely projections and will come at a cost" to the government of around P4 billion over the next five years.

"Why are we so eager to give away P4 billion of our taxpayers' money to foreigners, while millions of our own citizens continue to face hardship? Imagine the impact of P4 billion if used properly for our countrymen." Pimentel said.

According to Pimentel, this amount could build 1,600 new classrooms and 138 to 190 kilometers of concrete roads. The P4 billion could also support 400,000 college students or 800,000 elementary or high school students under the Assistance to Individuals in Crisis Situation social aid program of the government.

"Let us be clear: this fund comes largely from Filipino taxpayers, and it was never intended to be exhausted for the benefit of foreign tourists... unless we establish a robust mechanism to track actual tourist expenditures and the corresponding VAT paid by them, this proposal remains fundamentally unfair to our kababayans," he pointed out.

Moreover, Pimentel said that the proposed measure lacks the assurance that it will genuinely boost the economy or that VAT refunds will be claimed solely by bonafide non-resident tourists which may cause "leakages or scams."

He then emphasized that VAT leakages have already been plaguing the current system, citing a World Bank study that showed that the Philippines lost P539 billion in potential revenues due to this problem.

Even the Department of Finance, he said, has admitted that the VAT collections only stand at 40%.

"If we cannot prevent leakage and abuse in the current system, how can we expect that this new VAT refund program won’t suffer from similar inefficiencies? It’s not difficult to imagine how this measure could become yet another avenue for abuse, allowing unscrupulous individuals to exploit loopholes and siphon away our country's resources," Pimentel said.

While it was claimed that this proposal would be "no out-of-pocket expense" on the part of the government, Pimentel noted that this VAT refund system would still incur administrative costs of setting up booths, hiring personnel, and managing the program.

"The resources we intend to give back to tourists could be better allocated toward projects that directly uplift our people. We should be focusing on measures that strengthen our tax system, curb leakages, and use public funds efficiently to benefit Filipinos—our primary responsibility as legislators," he said.

Instead of this proposal, Pimentel said the government must focus on improving the overall experience of foreign tourists by upgrading our infrastructure, enhancing their safety, and improving travel and transportation, as well as accommodation.

"Tourists will visit our country for its beauty, culture, and hospitality. By investing in the right areas, we will not need VAT refunds to make the Philippines a desirable destination," he said.

"Let us prioritize laws that serve the Filipinos first and foremost. Let us find more meaningful ways to boost our economy without compromising our tax revenues or creating new avenues for abuse," he ended.

In response, Senator Sherwin Gatchalian, the sponsor of the measure, said he would respond to Pimentel's position at the proper time.

"I respect his opinion towards this bill and I respect his views towards the concept that we are proposing and at the proper time, I'll respond to his turno en contra," Gatchalian said. —LDF, GMA Integrated News