BY JOHN PATRICK L. PAUMIG
IN TODAY’S interconnected world, international travel has evolved beyond mere sightseeing. Shopping has become a significant driver in influencing traveler choices and significantly impacting destination economies. Countries in Asia like Japan, Singapore, Taiwan, and South Korea have strategically leveraged tax incentives, competitive pricing, and exceptional shopping experiences. These strategies continue to attract global clientele. These nations understand that tourists are not just seeking relaxation; they are also looking for unique souvenirs, high-quality products, and the thrill of the hunt.
The Philippines, a country blessed with stunning natural beauty and rich cultural heritage, has long recognized the potential of tourism to fuel economic growth. On top of what the country offers, it now aims to develop a robust shopping tourism sector. Recognizing this gap, the Philippine government recently took a significant step forward with the enactment of Republic Act (RA) No. 12079, the “VAT Refund for Tourists” law. This legislation aims to position the Philippines as a competitive destination for shopping enthusiasts, encouraging tourists to explore the country’s diverse offerings and contribute to the nation’s economic prosperity.
As a rule, VAT is a tax on consumption. Hence, all goods consumed within the Philippines are subject to VAT. Stated otherwise, goods that will be consumed abroad should not be subjected thereto. Rightly so, non-resident tourists who are foreign passport holders may be refunded the 12% VAT paid on the purchase of goods.
The global landscape of shopping tourism
The allure of shopping tourism lies in its multifaceted benefits. For foreign tourists, it offers an opportunity to indulge in retail therapy, acquire souvenirs, and experience the local culture through the lens of its consumer goods. For host countries, it translates to increased revenue generation, job creation across various sectors (retail, tourism, hospitality), and enhanced international brand recognition.
Several factors contribute to the success of prominent shopping destinations. These are usually lower prices of goods achieved through tax exemptions or rebates. Tax refunds, duty-free shopping, and other tax breaks contribute to reducing the cost of purchases for foreign visitors. Unique shopping experiences such as curated shops, themed shopping districts, cultural markets, and personalized shopping assistance all contribute to a well-meaning travel experience. Surely, with the Philippines being the melting pot of both Eastern and Western cultures, we offer more than just handicrafts, fashion, and gourmet and local food.
The Philippines’ VAT Refund for Tourist Law
Last 6 December 2024, the VAT Refund for Tourist law, or RA No. 12079, was enacted. This represents a crucial step toward enhancing the Philippines’ competitiveness in the global shopping tourism market. Under the law, non-resident foreign passport holders can claim a refund on VAT paid for goods purchased personally from accredited stores. These purchases, however, must be taken out of the Philippines within sixty (60) days from the purchase date and the value of goods in a single transaction must be at least PHP3,000.00 to qualify for the refund. In addition, the amount refunded may be either electronically or in cash.
The PHP3,000.00 per transaction threshold is subject to review and adjustment every three years by the Secretary of Finance, upon the recommendation of the Commissioner of Internal Revenue, considering the Consumer Price Index (CPI) as published by the Philippine Statistics Authority. The law took effect on 6 December 2024 and within 90 days of its effectivity, the Secretary of Finance is mandated to promulgate the necessary rules and regulations to implement the law.
To effectively implement this system, the Department of Finance (DOF) is mandated to engage the services of reputable, globally recognized, and experienced VAT refund operators. In sum, the law aims to attract tourists to spend more on higher-priced items by incentivizing them through the refund mechanism, which would invariably boost overall tourism revenue. Further, this seeks to promote Philippine products by encouraging the purchase of local handicrafts, fashion, and other unique items, supporting local artisans and businesses. With increased tourist spending, legislators hope that it will lead to increased demand for goods and services within the tourism sector, which invariably promotes the creation of jobs in the retail and hospitality sector, encourages the development of infrastructure for increased transportation to and from shopping districts, and other possible untold benefits.
As to its implementation, it is hoped that it will be made electronically to do away with unnecessary manual documentation. A hassle-free refund procedure contributes to the overall image of the Philippines as a premier tourist destination. As the DOF is mandated to avail itself of a competitive VAT refund vendor, the latter should be able to apply what it has been doing in other countries with similar tourist incentives. Likewise, the accreditation of stores that can participate in the VAT refund should be simplified and made available to stores in far-flung island destinations of the country. Hopefully, this will not provide additional administrative compliance requirements to the participating stores. This accreditation and compliance process for store accreditation is crucial in ensuring the participation of stores even outside the metropolitan areas.
The Philippines’ VAT Refund for Tourist law represents a significant step towards realizing the country’s potential as a prominent shopping destination. By embracing this innovation, fostering collaboration between government, businesses, and tourism stakeholders, and continuously improving its offerings, the Philippines can successfully position itself as a sought-after destination for shopping enthusiasts worldwide.
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John Paumig is a Manager of the Tax Advisory and Compliance Practice Area at P&A Grant Thornton. One of the leading audit, tax, advisory, and outsourcing firms in the Philippines, P&A Grant Thornton is composed of 29 Partners and 1,500 staff members. We’d like to hear from you! Connect with us on LinkedIn and like us on Facebook: P&A Grant Thornton and email your comments to business.development@ph.gt.com. For more information, visit our website: www.grantthornton.com.ph.
