Economy 4 MIN READ

Proposed VAT refund program expected to boost economic output

June 15, 2023By BusinessWorld

The proposed value-added tax (VAT) refund for foreign tourists could contribute up to PHP 12.8 billion to the Philippines’ gross domestic product (GDP) through increased spending and additional jobs, an official of the National Economic and Development Authority (NEDA) said on Wednesday.

“Under the full refund scenario, the additional gross value added, so addition to the GDP, will be PHP 8.6 billion to PHP 12.8 billion annually from 2024 to 2028,” Undersecretary Rosemarie G. Edillon of NEDA’s planning and policy department told a Senate hearing on Wednesday.

She added that “additional spending per annum will be between PHP 6 billion and PHP 9 billion from 2024 to 2028 for the full refund.”

The increase in spending would create 5,000 to 6,000 jobs, Ms. Edillon added.

The proposed measure seeks to establish a VAT refund scheme for non-resident tourists on goods that cost at least PHP 3,000 and are exported from the Philippines within 60 days of purchase.

The Finance secretary, upon the recommendation of the Bureau of Internal Revenue commissioner and the Tourism secretary, may adjust the threshold amount based on inflation and other factors. The two measures on the proposed VAT refund, Senate Bills No. 2023 and 2148, have yet to be consolidated.

The House of Representatives in March approved a similar measure on third and final reading.

In 2021, the share of Tourism Direct Gross Value Added (TDGVA) to GDP, or the contribution of tourism industries to the economy, was at 5.2%, up slightly from 5.1% in 2020 but lower than the 12.9% seen in 2019 or before the coronavirus pandemic, data from the Philippine Statistics Authority (PSA) showed.

The TDGVA amounted to PHP 1.001 trillion in 2021, up by 9.2% from PHP 917.2 billion in 2020 but lower than PHP 2.51 trillion in 2019.

In 2021, inbound tourists spent 27.6% of their total travel budget on accommodation, 22.6% on food, 36.5% on transport, 6.2% on entertainment and recreation, and 6% on shopping. Less than 1% each went to travel agencies and miscellaneous expenses.

Shereen Gail C. Yu-Pamintuan, undersecretary for administration and finance of the Tourism department, said they expect tourist arrivals to reach around 4.5 million this year and to return to the pre-pandemic or 2019 level of 8.2 million by 2024.

The proposed refund would encourage tourists “to spend the amount that was given back to them through our duty-free sales,” Ms. Yu-Pamintuan said.

However, she noted that shopping the least prioritized tourist activity because the 12% VAT is deemed high, adding that tourists mainly visit the Philippines for its beaches, activities on nature and adventure, as well as heritage and culture.

“If we remove the VAT on the goods that will not be consumed here in the Philippines, then it will continue to go up the rank as a primary purpose of coming,” Ms. Yu-Pamintuan said.

“In other words, we lost on shopping, but we gain VAT in other components,” Senator Sherwin T. Gatchalian, the chairman of the Senate Ways and Means panel, said.

Roberto S. Claudio, vice chairman of the Philippine Retailers Association, cited data from the Global Service Providers showing that 69% of the countries worldwide, including nine in Asia, currently have a tax-free shopping scheme.

Mr. Claudio said the Philippines is the only Southeast Asian country without a VAT refund for tourists.

“A lot of countries are now moving to digital schemes which bring great automation and great services for the merchant and the traveler…encouraging travelers to shop,” Gavin Ingram, general counsel for Asia Pacific and vice-president for strategic planning of Global Blue, a tourist tax shopping refund company based in Nyon, Switzerland, told the committee.

Meanwhile, John Paolo R. Rivera, executive director officer-in-charge of the Dr. Andrew L. Tan Center for Tourism at the Asian Institute of Management, said the Philippines needs to make traveling to the country convenient for tourists.

“While the Philippines indeed has one of the best tourism attractions in the world, getting to those destinations remains to be a challenge because the necessary infrastructure is either not there or not efficient enough,” Mr. Rivera said in a Viber message.

He also cited issues such as flight cancellations, overbooking, airport congestion, transportation, overcharging drivers, among others, that are “not good to boost the Philippine brand.”

A technical working group on the measure will convene next week. Mr. Gatchalian told reporters after the hearing that the bill may be approved in a month and could be signed into law by yearend. — Beatriz Marie D. Cruz, Reporter

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