The Supreme Court (SC) has declared constitutional Republic Act (RA) No. 12079 which grants value-added tax (VAT) refunds on certain purchases of non-resident foreign tourists in the country.

The VAT refund applies to goods like clothing, apparel, electronics, gadgets, jewelry, food and others items purchased for at least P3,000 per transaction and are intended for personal use.

RA 12079 aims to encourage tourist spending, stimulate economic activity, and promote Philippine products and craftsmanship, particularly those produced in communities near tourist destinations.

With the decision, the SC dismissed the petition filed by John Barry T. Tayam. It was written for the full court by Associate Justice Amy C. Lazaro-Javier and made public on Monday, July 6.

The SC said that the VAT refund programs for foreign tourists are widely practiced around the world. It noted that several Asian countries --including Indonesia, Malaysia, Singapore, Thailand, Vietnam, China, and Japan -- as well as members of the European Union have long implemented similar systems.

A summary of the decision issued by the SC’s Office of the Spokesperson stated that Tayam, in his petition, argued that RA 12079 violates that the constitutional guarantee of equal protection because it limits VAT refunds to foreign tourists and excludes Filipino citizens and residents.

Representing the government, the Office of the Solicitor General (OSG) asked the SC to dismiss the petition as it argued that foreign tourists and local consumers are not similarly situated.

The OSG pointed out that RA 12079 was enacted to help the Philippines remain competitive with other countries that offer VAT refund programs to foreign visitors and to encourage tourism and foreign exchange inflows.

The SC agreed with the OSG and stressed that equal protection does not require identical treatment for all persons.

It said that the Constitution permits different treatment for groups that are genuinely distinct, provided the classification is reasonable and related to the purpose of the law.

It also said that RA 12079 validly distinguishes foreign tourists from Filipino citizens and residents, and that the classification is directly related to the law’s objective of promoting tourism and encouraging visitors to purchase local products.

The law does not discriminate against Filipinos, and, instead, grants a specific incentive to foreign tourists as part of the government’s effort to strengthen the tourism industry, the SC said.

At the same time, the SC said that the VAT refund system follows the basic rule of VAT that goods are taxed where they are consumed.

Thus, it also said that since RA 12079 requires foreign tourists to take the goods out of the Philippines within 60 days, the goods are considered to be consumed abroad and may qualify for a VAT refund.

If the goods are consumed in the Philippines, they remain subject to Philippine VAT, it added.

The SC also rejected claims that the law unfairly disadvantages foreigners with long-term visas. It said that non-resident foreigners may still qualify for the VAT refund, even if they stay in the Philippines for an extended period, as long as they take the goods out of the country within 60 days and consume them abroad.

It pointed out: “Granting VAT refund to foreign tourists was not arbitrarily done. It is a policy decision based on legitimate state interests, i.e., the need to remain competitive as a global tourist destination. In fine, foreign tourists may be granted privileges and benefits that are not extended to Filipino citizens, so long as these distinctions are based on reasonable and justifiable classifications, as in here.”