HOUSE Ways and Means Chair (Albay, 2nd district) led the committee on tackling the proposed VAT refund mechanism for foreign tourists, which the Palace has already approved for piloting following a proposal from the Private Sector Advisory Council.
“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.
A simulated model shows that tourist spending on shopping, accounting for increased tourist arrivals as a result of the refund system, will increase to P76.58 billion, or a total increase of P17.6 billion in tourist sales, representing a growth by 29.8%.”
Salceda is also filing a counterpart measure in the House “to expand the discussion on the proposal.”
“The Philippines remains one of the few major Asia-Pacific tourist destinations without a working VAT tourist refund mechanism. 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,” Salceda said. Salceda highlighted the fact in a presentation he made this morning to the committee.
“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% in unrefunded VAT, the reduction in tourist consumption in hotels and restaurants is 1.5%.”
“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.”
In response, Salceda created a technical working group to hammer out issues on the language and implementation of the proposal, suggesting that the language be included in the Ease of Paying Taxes Act, which is likely to be sponsored in the Senate floor this week.
Salceda also suggested that the BIR adopt best practices in international VAT refund mechanisms.
“For example, most revenue authorities allow a full rebate, but charge a service fee paid to the collecting and refunding agent. Revenue authorities also typically employ an agent, who collects a service fee (between 0.8-6% of the total sale). Most revenue authorities also require a minimum purchase value (per store, per day, or cumulative) to process a refund application.”
