The proposed Value-Added Tax (VAT) Refund Program for foreign tourists has moved forward in the House of Representatives.

This, after the Albay 2nd district Rep. Joey Salceda-led Committee on Ways and Means formed during a public hearing Monday, Feb. 13 a technical working group (TWG) to create the legislation for the program.

Before this, Malacañang announced that President Ferdinand "Bongbong" Marcos Jr. had approved the recommendation of the Private Sector Advisory Council (PSAC) Tourism Sector Group to implement the refund mechanism for foreign tourists by 2024.

“The Philippines remains one of the few major Asia-Pacific tourist destinations without a working VAT tourist refund mechanism," Salceda said during the hearing.

"Only India and Cambodia are the other countries in the top 15 tourist destinations in Asia-Pacific with this gap in procedure. This reduces the country’s competitiveness among its peer and neighbor countries,” noted the solon, who is an economist.

Salceda, in his presentation during the hearing, said that the National Internal Revenue Code, as amended, does not yet provide for a legal basis for such a refund system.

“While the President has approved the proposal of the Private Sector Advisory Council to institute a VAT refund system for tourist purchases, the National Internal Revenue Code, as amended, does not yet provide for a legal basis for such a system,” Salceda added.

“The lack of such a system, as well as a standing legal basis for it, foregoes gross value-added in the tourism sector. Renata (2010) found that high VAT rates on tourists have significant negative effects on consumption volume for hotels and restaurants. Due to high elasticities in the tourism sector, the multiplier appears to be, for every 1 percent in unrefunded VAT, the reduction in tourist consumption in hotels and restaurants is 1.5 percent," he said.

“The credibility of the VAT refund system appears to affect the destination choices of shopping-focused tourists. This is particularly the case for Australia, where a credible VAT refund system has created a tourist shopping industry," noted the Bicolano.

As for the direction of the TWG, Salceda suggested that the language be included in the proposed Ease of Paying Taxes Act, which is likely to be sponsored on the Senate floor this week.

Salceda also suggested that the Bureau of Internal Revenue (BIR) adopt best practices in international VAT refund mechanisms.

A VAT refund system is expected to increase annual tourist expenditures on shopping from P59 billion to P69.62 billion, for VAT foregone revenues of around P7.08 billion, assuming the same tourist base, Salceda said.