‘Happy tax’ bill

Foreign tourists coming here could soon avail refunds for paying value-added tax (VAT) on goods they purchased from accredited retailers in the Philippines. Dubbed as “happy tax” bill, this measure will be an added come-on to the country’s tourism program. As the chairman of the Senate ways and means committee, Senator Sherwin Gatchalian vowed to sponsor the passage into law of this urgent administration measure to help achieve the target of eight million tourists arrival in the country by the end of this year.

Speaking at the Kapihan sa Manila Bay last Wednesday, Sen. Gatchalian disclosed he will formally present the proposed “happy tax” bill this week to jumpstart the deliberations at the Senate floor. This is Senate Bill 2023, or an Act Creating a VAT Refund Mechanism for Non-Resident Tourists, Adding For The Purpose A New Section 112-A to the National Internal Revenue Code of 1997, As Amended.

“We prioritize what we call a happy tax measure. This is the refund tax for tourists. We want to join the efforts to increase tourists in our country,” Gatchalian pointed out.

Once approved into law by the 19th Congress, tourists can claim refunds out of the 12 percent VAT, a consumption tax imposed on all goods and products. Foreign tourists will be entitled to VAT refund of goods they purchased and will bring out of the country within sixty (60) days after they bought them and the value of goods purchased amounts not less than P3,000 per transaction.

The VAT refunds should be a good complementary incentive to our new country branding “Love, the Philippines.”

Just last January, the Presidential Communications Office (PCO) announced that President Ferdinand “Bongbong” Marcos Jr. (PBBM) approved a VAT refund program for foreign tourists. The PCO bared PBBM would issue an Executive Order (EO) to implement the VAT refund program to start next year. Our country’s 1987 Constitution, however, provides that the President can only wield power on tax measures while the Congress is in recess or is adjourned.

In the same PCO announcement, it cited the VAT exemption for foreign tourists was among the proposals that were presented to PBBM by the Private Sector Advisory Council (PSAC). The PSAC, headed by businessman-leader Sabin Aboitiz, president and chief executive officer of the Aboitiz Equity Venture, endorsed this VAT refund program to cater to foreign visitors among other measures such as promoting tourism investment, improving airport infrastructure and operations all over the Philippines to boost our country’s tourism industry.

The Philippines recorded 2.65 million international visitors last year. According to the Department of Tourism (DOT), foreign tourists brought in an estimated $3.68 billion in revenues. Exceeding the DOT’s 2022 target of 1.7 million tourists, 2.02 million foreign nationals and 628,445 Filipinos based abroad comprised last year’s total arrivals.

In comparison with the record for 2021, we only had 163,879 tourists following the country’s lockdowns and the border controls in other countries. Travel restrictions imposed by various governments at the height of the COVID-19 pandemic that struck in early 2020 prevented travels of the people around the world. The highest DOT record of arrivals during the pre-pandemic period hit an annual level of 8.26 million.

Latest available data from the Philippine Statistics Authority (PSA) showed that inbound tourism expenditures registered at P27.62 billion in 2021, down by P79.2 billion from the P132.58 billion a year before. Of the total expenditure, shopping accounts for an estimated six percent of the expenditures at P1.65 billion. Compared to pre-pandemic levels, inbound tourism expenditures for shopping accounted for 11 percent of the P600 billion inbound tourism expenditure in 2019 at P66.128 billion.

This is why, Gatchalian pointed out, the Senators deemed it wise to prioritize the immediate passage into law of the proposed “happy tax” bill. Its counterpart measure is House Bill 7292 was principally authored by Rep. Joey Salceda who earlier threw fits over the snob of Mt. Mayon in Albay on the logos of the DOT’s new country brand. The Albay congressman, who chairs the committee on ways and means, is Gatchalian’s counterpart at the House of Representatives.

Under this bill, the VAT refund process should be in a digital form similar to those adopted by countries such as Singapore to make it easier for foreign tourists to claim the VAT refund. The proposed measure will include a provision on the accreditation of retailers that would be recognized for the VAT refund. Such an accreditation process would deter those who may attempt to defraud the government through the VAT refund program, according to Gatchalian.
Furthermore, he added, such an accreditation process should make it easier for micro and small enterprises to be included in the VAT refund scheme.

Gatchalian believes the approval into law of the proposed “happy tax” bill will help entice foreign tourists to go to the Philippines where they can enjoy the same VAT refund privileges instead of going to other countries in the region. The Senator noted the Philippines is one of the few countries in the Association of Southeast Asian Nations (ASEAN) that is not implementing a VAT refund scheme to tourists.

Although the “happy tax” bill will mean certain amount of revenue losses for the Philippine government, Gatchalian justified its beneficial impact to the country’s economy far outweighs the VAT foregone from this particular source.

Gatchalian gathered that the sense of the Senators is to approve this “happy tax” bill than impose new taxes.

At the outset, Gatchalian frowned upon on the other newly endorsed administration proposed tax bills. The Department of Finance (DOF) earlier broached the imposition of tax on “junk foods” as well as increasing the tax rates on “sweetened” products.

He reiterated though the Senate support also in approving into law soon the last two packages of the Comprehensive Tax Reform Program (CTRP) still pending in Congress. But the “happy tax” bill gets approved first.