Traveling to the Philippines will be even more fun. Thanks to Republic Act 12079, foreign tourists will be able to score a refund on the value-added tax (VAT) on their purchases, adding an extra treat to their Philippine getaway.

On 9 December 2024, President Ferdinand R. Marcos Jr. signed RA 12079 or An Act Creating a VAT Refund Mechanism for Non-Resident Tourists. It amended the National Internal Revenue Code of 1997 to include Section 112-A, a provision granting refunds to tourists.

To be eligible for the VAT refund, the purchaser must be a tourist. To qualify as a tourist, the individual must be a non-resident and must hold a foreign passport. The tourist must have purchased goods from duly accredited stores in the Philippines. The tourist must take the goods out of the Philippines within 60 days from the date of purchase.

The VAT refund applies only to goods purchased in the Philippines. This would accordingly include tangible personal property, such as clothing, electronics, and handicrafts. As the law limits the VAT refund to locally purchased goods, the refund does not extend to services, such as hotel accommodations.

The tourist must also meet a minimum purchase amount to qualify for a VAT refund. RA 12079 sets the minimum value of goods purchased per transaction to at least P3,000 or around $50.

The Secretary of Finance, upon the recommendation of the Commissioner of Internal Revenue, shall review and adjust this minimum amount every three years. They shall take into consideration the Consumer Price Index as published by the Philippine Statistics Authority.

Guidelines and further clarifications on the VAT refund scheme are expected to be outlined in the Implementing Rules and Regulations (IRR) to be issued by the Bureau of Internal Revenue (BIR).

RA 12079 mandates the Secretary of Finance, after due consultation with the Department of Trade and Industry, Department of Transportation, Department of Tourism, National Economic and Development Authority, Bureau of Customs, and BIR to promulgate the necessary rules and regulations to establish and implement the VAT Refund Mechanism.

While the law itself has paved the way for this exciting new benefit, tourists should note that the VAT refund system is not yet in operation. This is because the full implementation of the program hinges on the issuance of the IRR, which will outline the procedures and specific requirements for claiming the refund. Until these guidelines are finalized, the VAT refund process remains on hold.

However, the law makes it clear that once the system is up and running, the Department of Finance (DoF) shall engage the services of a globally recognized VAT refund operator to handle the process efficiently. This partnership is crucial to ensure that the system is smooth, reliable, and aligns with international standards.

Also, tourists will have the flexibility to choose how they want their refund — either electronically or in cash — depending on their preference and convenience at the time of departure. This added flexibility is designed to make the refund process as seamless as possible for the visitors.

In the meantime, while waiting for the operational details to be ironed out, tourists can look forward to this new opportunity to save on their shopping in the near future.

The introduction of the VAT refund mechanism is a significant step toward making the Philippines a more competitive and attractive tourist destination. By offering a tangible financial benefit, the government is not only enhancing the shopping experience for tourists but also promoting and reinforcing Filipinos’ craftsmanship and our local products.

This initiative is expected to encourage more spending and stimulate economic growth. Thus, the VAT refund program offers benefits to both tourists and locals alike, enriching every trip by making it not just more fun, but also more rewarding.

For more of Dean Nilo Divina’s legal tidbits, please visit www.divinalaw.com. For comments and questions, please send an email to cad@divinalaw.com.