Enhancing the Philippine tourism experience: VAT refunds for foreign tourists
The Philippines has long been regarded as a premier tropical destination for foreign tourists from around the world. From the pristine white sands of Boracay and the world-class surfing waves of Siargao, to the vibrant streets of Metro Manila and Cebu, the country offers a diverse range of attractions that cater to all types of travelers. In recent years, the Philippines has witnessed a remarkable surge in international arrivals, highlighting its growing appeal and competitiveness as a top travel destination.
Department of Tourism (DoT) Secretary Christina Garcia Frasco has formally announced that the Philippine tourism sector has firmly established its role as a key economic pillar of the national economy, as it achieved unprecedented record-high tourism revenue of approximately P760 billion in 2024.1
In a bid to further boost its appeal and competitiveness in the global tourism market, the Philippine government has introduced a significant policy shift through the enactment of Republic Act No. 12079 on Dec. 6, 2024. The legislation establishes a Value-Added Tax (VAT) refund system for non-resident tourists, aiming to encourage higher spending among foreign visitors and align the Philippines with other leading tourist destinations that offer similar tax incentives.
VAT is ultimately a tax on consumption, even though it is assessed on many levels of transactions on the basis of a fixed percentage. The ultimate burden of tax on consumer goods or services falls on the end user. Providers of these goods or services pass the liability to the final consumers, allowing the providers to offset their own VAT liability (input VAT) with the VAT payments they receive from the final consumers (output VAT).2 The VAT refund system for foreign tourists operates on the premise that the tourists who acquire merchandise in a tourism country do not consume the purchased goods in such country. Such a VAT refund for non-resident tourists adheres to the destination principle of the Philippine VAT system in which goods and services are taxed only in the country where they are consumed.3
The concept of a VAT refund for tourists is not entirely new to Filipinos. Many who have traveled abroad may have experienced and benefited from similar tax rebate systems in other countries. Japan, South Korea, and various European countries have long implemented efficient tax rebate systems that allow foreign tourists to reclaim a portion of the VAT paid on goods purchased during their stay in the country.
Under R.A. No. 12079, a tourist shall be eligible for a VAT refund on locally purchased goods if the following requisites are present:
a. Goods are purchased in person from duly accredited stores;
b. The goods are taken out of the Philippines within 60 days from date of purchase; and,
c. The value of the goods purchased per transaction is equivalent to at least P3,000.
The threshold for the value of the goods purchased per transaction is subject to review and adjustment every three years by the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, taking into consideration the Consumer Price Index as published by the Philippine Statistics Authority.
The Department of Finance (DoF) is tasked with the responsibility of engaging reputable and experienced VAT refund operators to establish and manage an efficient refund system pursuant to the provisions of R.A. No. 12079. The VAT refund process will accommodate the preferences and convenience of non-resident tourists by allowing refunds to be processed either electronically or in cash, depending on the specific mechanisms implemented. As of this date, the DoF has not yet promulgated the rules and regulations necessary for the effective and faithful implementation of R.A. 12079.
With the implementation of the new law, an estimated 30% increase in tourist spending is projected, promising substantial economic benefits for a wide range of sectors within the Philippine economy.4 The anticipated surge in expenditures by foreign visitors is expected to significantly boost revenues for large-scale industries, including hospitality, retail, and transportation, which are well-positioned to accommodate higher tourist demand, as well as micro, small and medium enterprises (MSMEs).
The success of this legislation hinges not only on the issuance of clear and comprehensive rules and regulations, but also on the readiness of businesses to comply with new requirements brought about by the new law. For businesses and investors, particularly those in the retail sector, a thorough understanding of the legal and regulatory landscape will be essential in maximizing the opportunities presented by R.A. No. 12079. n
1 “PHL hits record high tourism revenue in 2024,” available at https://beta.tourism.gov.ph/news_and_updates/phl-hits-record-high-tourism-revenue-in-2024, last visited on March 9.
2 Commissioner of Internal Revenue v. Magsaysay Lines, G.R. No. 146984, July 28, 2006, 497 SCRA 63.
3 Commissioner of Internal Revenue v. Filminera Resources Corp., G.R. No. 236325, Sept. 16, 2020, 954 SCRA 505.
4 News releases — “PBBM okays proposals to boost tourism,” available at https://pco.gov.ph/news_releases/pbbm-okays-proposals-to-boost-tourism, last visited on March 9.
The views and opinions expressed in this article are those of the author. This article is for general informational and educational purposes only and not offered as and does not constitute legal advice or legal opinion.
Christine L. Paulma is an associate of the Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW), Davao Branch.
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