By Aubrey Rose A. Inosante, Reporter
THE P3,000 ($51) minimum purchase requirement for nonresident tourists to qualify for a value-added tax (VAT) refund is “just right” to ensure small businesses benefit, analysts said.
President Ferdinand R. Marcos, Jr. recently signed into law Republic Act (RA) No. 12079, which allows tourists to claim VAT refunds on purchases worth at least P3,000 from government-accredited stores, in an effort to boost tourism receipts.
“The P3,000 is just right to benefit micro, small and medium enterprise (MSME) retailers and local products,” Philippine Retailers Association (PRA) President Roberto S. Claudio said.
He said the purchase cap is kept to a minimum to benefit locally made products.
“I think it’s a good entry and good starting point. Some countries are still higher than P3,000 as well. I think we’re above the middle, so I think that’s a good place to be,” Tourism Congress of the Philippines President James M. Montenegro said via phone call.
Under RA 12079, the value of the locally bought goods from accredited stores must reach at least P3,000 per transaction, provided these goods are taken out of the country within 60 days of purchase.
“This law is primarily designed to boost tourist arrivals and expenditure. Hopefully, it will also increase the sales revenue of retailers,” Mr. Claudio said.
Mr. Montenegro said the minimum purchase amount could be adjusted in the future.
The threshold is subject to review and adjustment every three years by the Finance secretary, upon recommendation of the Commissioner of Internal Revenue, considering the inflation data from the statistics agency.
“I think the minimum rate is at par with our ASEAN [Association of Southeast Asian Nations] neighbors. If you look at the minimum amounts in other countries, it is almost the same,” Eleanor L. Roque, a tax principal at P&A Grant Thornton, told BusinessWorld.
The Philippines has joined other ASEAN countries with a tax refund program for nonresident tourists. The scheme has increased retail activity, particularly in sectors such as fashion, electronics and souvenirs.
In Thailand, tourists are eligible for a VAT refund if they buy goods worth at least 2,000 baht ($58) from each store per day.
In Malaysia, the minimum purchase is 300 ringgit ($67). Singapore allows tourists to spend at least S$100 ($74), while in Indonesia, it starts at 500,000 rupiah ($31).
“It is good to have a minimum amount as it limits the refund claim to valuable expenses. De minimis spendings are normally not considered for VAT refund as it is not administratively practical. In some cases, the cost will be more expensive than the amount being refunded,” Ms. Roque said.
She said the government should tap accredited international firms in the VAT refund processing, adding that the “government should take advantage of the track record and best practices of these known companies.”
Ms. Roque said the government should ensure the goods bought are really brought out of the country.
“Physical inspection of the goods when exiting the country should be strict to ensure that local buyers do not use tourists for availing themselves of the VAT refund,” she added.
However, Philippine Institute for Development Studies Senior Research Fellow John Paolo R. Rivera said the P3,000 threshold “may not be enough to significantly encourage higher spending among affluent tourists,” especially compared with ASEAN counterparts.
“A higher or more flexible threshold might align better with international best practices and encourage larger purchases,” he said.
Mr. Rivera also urged the government to simplify the VAT refund process, rather than make it “extra bureaucratic.”
He cited countries such as Singapore and Thailand, which have digitalized their VAT refund process at airports or designated outlets, reducing friction.
Mr. Rivera also urged the government to expand access by having refund points beyond airports like seaports or malls, to ensure greater convenience.
“The Philippines must also do away with excessive forms by using technology to link transactions directly to refund systems that can streamline the process and minimize fraud. Tax refund should not be as difficult as applying for a plate number, license, etc.,” he said.
SHOPPING TOURISMAt the signing ceremony last week, Mr. Marcos said the law is expected to boost tourism spending by 30% and support the county’s goal to become a major shopping destination.
“You’d probably see that shopping accounts for approximately 20% of total inbound tourism expenditure. This is where the impact of the VAT refund law for nonresidents will be felt,” University of the Philippines Professor Edieser DL. Dela Santa said in an e-mail.
As the Philippines boosts tourism spending, he said arrivals would not necessarily increase because foreign tourists are more likely to be influenced by other conditions like airfares and exchange rates.
In 2023, tourism-related spending by nonresidents stood at P697.46 billion, the Department of Tourism (DoT) said.
The United Nations Tourism said on its website that shopping is a key area of tourist spending. It significantly contributes to national economies, both directly and through its connections to other economic sectors.
The Department of Finance (DoF) has said foregone revenues from the law could be offset by higher tourism spending.
“Data from the DoF show savings from the refund fully channeled into additional tourism spending may boost economic output by P2.8 billion to P4 billion annually,” it said.