Philippine retailers said it is likely that the planned value added tax (VAT) refund on foreign tourists’ purchases may not be given immediately at the point of purchases.
Paul Santos, president of the Philippine Retailers Association (PRA), told reporters at the press conference of the Philippine Furniture Furnishings Market (PFFM) for its fair slated on July 5-7 in Manila, that this kind of a conservative tax refund scheme is likely to be adopted.
Santos’ pronouncement came as Malacanang announced its approval of a VAT refund program for foreign tourists by 2024. At present, the government collects a 12 percent VAT on goods consumed within the Southeast Asian country. The plan is to allow foreigners to get a VAT refund on items they are taking out of the Philippines, similar to what many other countries offer.
According to Santos, it is most likely that the government will adopt the conservative approach on the VAT refund system. This means that local shops will give tourists a form to fill out and the refund is granted only when all documentations are presented on their exit from the Philippines, similar to the EU scheme.
Another variant, he said, is to issue an immediate refund at the shops and submit all documents at the airport. But if the tax authority does not receive the documents within a specified number of days, the refund is lost. Santos, however, said that since the VAT refund is a tax measure, it might need an act of Congress.
There is no current legislation authorizing a VAT refund system, except for the “de minimis” rule in the Customs Modernization Act, which waives the payment of Customs tax and duty on certain imports for a certain value, but not on domestic purchases whose VAT and duty components will be refunded back to tourists.
“We suspect this requires legislation from Congress and the President himself endorsed it, so we’ll probably see some action from Congress when they resume their session in July,” he added.
In pushing for the implementation of a VAT refund mechanism, Santos cited the success of other countries that adopted such scheme.
He cited the case of UK, which eliminated the VAT refund for tourists, but the British people and retailers wanted it back as it deters shopping in the country. Instead of buying stuff in London, tourists ended buying it in Paris where a VAT refund scheme has been put in place.
In Asia, Japan and Hong Kong have similar sales tax refund. “They have not repealed this tourist privilege,” he said.
He explained that granting this privilege to tourists would encourage them to do their shopping in the country. “Shopping is an integral part of tourist’s experience,” he said adding, “When you visit Hong Kong or Singapore, apart from sightseeing, the next thing to do is shop.”
“We want to encourage similar behavior, we want to encourage shopping across all areas in the Philippines. We want tourists to spend most of their dollars or euros in Philippine shops,” he said. Once implemented, this would expand the privilege for tourist purchases at duty free shops.
With much success of this mechanism in attracting more tourists by other countries, Santos said it is about time to implement a similar scheme.
The government aims to boost visitor arrivals this year to 4.8 million tourists from only 2.65 million foreign visitors last year who brought in an estimated $3.68 billion in revenue, exceeding its 2022 target of 1.7 million tourists, according to the Department of Tourism.
Tourist arrivals into the country reached 8.26 million pre-pandemic.