Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

Nineteenth Congress
First Regular Session

‘House biti No,_7143

Introduced by Representatives Joey Sarte Salceda, Mikaela Angela B. Suansing, Alfelito M.
Bascug, and Milagros A. Magsaysay

AN ACT
CREATING A VAT REFUND MECHANISM FOR NON-RESIDENT TOURISTS,
ADDING FOR THE PURPOSE A NEW SECTION 109-A TO THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED

EXPLANATORY NOTE

The Philippines remains one of the few major Asia-Pacific tourist destinations without a
working tourist VAT 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.

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 of 1997,
as amended, does not yet provide for a legal basis for such a system.

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, it appears that for every 1% in unrefunded VAT, the reduction in tourist
consumption in hotels and restaurants is 1.5%.

* Endres, Renata. (2010). Impact Of Value Added Tax On Tourism. International Business & Economics
Research Journal (IBER). 9. 10.19030/iber. v9i10.646.


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.

This proposal seeks to adopt best practices in VAT refund mechanisms among major Asia-
Pacific tourism destinations. 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 of between 0.8-6% of the total sale. Most revenue authorities
also require a minimum purchase value to process a refund application.

The bill requires that the total value of goods purchased per transaction should be P2,000,
and should be shipped out within 60 days of purchase. It also allows that a service agent be
designated to administer the tax refund system on behalf of the government.

This measure is expected to increase annual tourist expenditures on shopping from P59
billion to P69.62 billion, which offsets VAT expenditures of around P7.08 billion, assuming the
same tourist base. Further, a simulated model shows that tourist spending on shopping, accounting
for increased tourist arrivals because 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%

In view of the foregoing, the approval of this bill is urgently sought,
JOEY, ‘TE SALCEDA

MIKAE! .NGELA JUANSING

[5 FELIT f M. a
MILAGROS X% M. ‘SAY

? Tingting, Wang and Stewart, Miranda, The Law and Policy of VAT Tourist Tax Refund Schemes: A
Comparative Analysis (November 19, 2021). Tax and Transfer Policy Institute, working paper 19/2021,
Available at SSRN: https://ssrn.com/abstract=3969488 or http://dx.doi.org/10.2139/ssrn. 3969488


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

Nineteenth Congress
First Regular Session

“House Bill No._7143

Introduced by Representatives Joey Sarte Salceda, Mikaela Angela B. Suansing, Alfelito M.
Bascug, and Milagros A. Magsaysay

AN ACT
CREATING A VAT REFUND MECHANISM FOR NON-RESIDENT TOURISTS,
ADDING FOR THE PURPOSE A NEW SECTION 109A TO THE NATION:
INTERNAL REVENUE CODE, AS AMENDED

Be it enacted by the Senate and the House of Representatives of the Philippines in Congress
assembled:

SECTION 1. A new Section 109-A is hereby inserted after Section 109 of the National Internal
Revenue Code of 1997, as amended, to read as follows:

“SEC. 109-A. VAT REFUND FOR TOURISTS. — A TOURIST SHALL BE
ELIGIBLE FOR A VALUE-ADDED TAX (VAT) REFUND ON GOODS
PURCHASED IN THE PHILIPPINES IF SUCH GOODS ARE SHIPPED OR
TAKEN OUT OF THE COUNTRY WITHIN SIXTY (60) DAYS FROM THE
DATE OF PURCHASE, AND THE VALUE OF GOODS PURCHASED PER
TRANSACTION AMOUNTS TO AT LEAST TWO THOUSAND PESOS (PHP
2,000.00): PROVIDED, THAT SUCH THRESHOLD MAY BE REASONABLY
ADJUSTED TO AN AMOUNT THAT WOULD SUFFICIENTLY COVER THE
COST OF ADMINISTERING THE REFUND, AS DETERMINED BY THE
SECRETARY OF FINANCE UPON RECOMMENDATION OF THE
COMMISSIONER OF INTERNAL REVENUE: PROVIDED FURTHER, THAT
THE ADMINISTRATION OF THE REFUND PROCESS MAY BE
CONDUCTED THROUGH A SERVICE PROVIDER.

“FOR PURPOSES OF THIS SECTION, A ‘TOURIST’ SHALL REFER
TO A NON-RESIDENT INDIVIDUAL ENGAGED IN TRADE OR BUSINESS
IN THE PHILIPPINES, WHO COMES TO THE COUNTRY FOR TRAVEL,


RECREATION, LEISURE, OR BUSINESS FOR A PERIOD NOT
EXCEEDING THREE (3) MONTHS FOR LEISURE, BUSINESS OR OTHER
PURPOSES.”

Sec. 2. Separability Clause. — If any provision of this Act is declared unconstitutional, the
remaining parts or provision not affected thereby shall remain in full force and effect.

Sec. 3. Repealing Clause. — All laws, decrees, executive orders, implementing rules and
regulations, issuances, or any part thereof inconsistent with the provisions of this Act are deemed
repealed, amended, or modified accordingly.

Sec. 4. Effectivity.— This Act shall take effect fifteen (15) days after its publication in the
Official Gazette or in a newspaper of general circulation.

Approved,