THE Philippine economy stands to gain as much as P5.7 billion annually if the government would implement a value-added tax (VAT) refund scheme for foreign tourists, according to the National Economic and Development Authority (Neda).
At a Senate hearing on Wednesday, Neda Undersecretary Rosemarie G. Edillon disclosed that based on their computations, the proposed VAT refund scheme for non-resident tourists would generate additional economic activity worth at least P3.8 billion to P5.7 billion annually from 2024 to 2028.
Edillon said a full VAT refund scenario would yield a contribution to the GDP of P8.6 billion to P12.8 billion, as against the estimated P4.7 billion to P7.1 billion status quo scenario (no VAT refund scheme).
“The difference between the full refund scenario and the status quo is P3.8 billion to P5.7 billion, meaning, it will really generate additional activity,” Edillon told the Senate Committee on Ways and Means.
Edillon noted that a full refund scheme would boost non-resident tourists’ annual spending to between P6 billion and P9 billion. Under a policy status quo, non-resident tourists’ annual spending would be between P3.4 billion and P5.1 billion, she added.
Edillon explained that non-resident tourists have a higher marginal propensity to consume (at 0.7) compared to resident Filipinos (at 0.64).
This means that non-resident tourists would spend more of their additional income as compared to a local resident.
Furthermore, Edillon said the VAT refund scheme would generate 5,000 to 6,000 new jobs because of improved economic activities related to the tourism industry.
Edillon noted that tourism accounts for 12.6 percent of the country’s GDP and employment.
Finance OIC-Undersecretary for Revenue Generation and Local Finance Dakila Elteen M. Napao revealed at the hearing that the government would lose between P2.9 billion and P4.1 billion in revenues because of the VAT refund scheme for foreign tourists.
Department of Finance (DOF) representatives explained that the P2.9-billion estimate took into consideration only general merchandise and apparel, while grocery spending was factored in in the P4.1-billion estimate.
“There will be revenue erosion but at the same time we have recognized that based on studies, there will be an uptick in economic activities that will eventually resort to a recoupment of the loss revenues in terms of economic income to the different sectors,” Napao said.
Tourism Undersecretary Shereen Gail C. Yu-Pamintuan said the establishment of the VAT refund for non-resident tourists mechanism is critical in making the Philippines as a “premiere shopping destination.”
“We recognize that, regardless of the motivation of the traveler to visit a destination, shopping will always be a bulk part of the expenditure that tourists make,” she said.
“Several studies have established that the refund mechanism also increases shopping [spending] and there’s a marginal increase of tourists,” she added.
Yu-Pamintuan said the VAT refund scheme, which is being eyed by the Marcos Jr. administration to be implemented starting next year, would help the country hit its prepandemic tourist arrivals of over 8 million.
“This measure will greatly contribute to reaching 8.2 million [tourist arrivals] and go beyond that number,” she said.
Yu-Pamintuan noted that the Philippines is the only country in Southeast Asia that does not have a VAT refund mechanism for non-resident tourists.
Sen. Sherwin Gatchalian, who chairs the Ways and Means panel, said the end goal of the VAT refund scheme is to boost foreign tourist arrivals in the country and increase the “marketability” of the Philippines as a tourism destination to foreigners.
“This is a happy measure: instead of imposing taxes, we are refunding taxes. We want to put the Philippines on the tourism map,” Gatchalian said.
“The government will lose some amount in the form of revenue but we hope this loss will be compensated by the increased foot traffic in our country,” he added.
The committee deliberated Senate Bills 2148 and 2023, which was authored by Gatchalian, and House Bill 7292, all of which seek to establish a VAT refund mechanism for non-resident tourists in the country.
The Neda, DOF and the DOT all expressed “full” support for the VAT refund system for non-resident tourists.