THE Supreme Court has upheld the constitutionality of the law granting value-added tax (VAT) refunds to non-resident foreign tourists, ruling that the incentive is a valid policy measure to promote tourism and does not violate the Constitution’s equal protection clause.
In a decision penned by Associate Justice Amy Lazaro-Javier, the Supreme Court dismissed the petition filed by John Barry Tayam questioning the validity of Republic Act 12079, which introduced Section 112-A of the National Internal Revenue Code establishing a VAT refund system for qualified foreign tourists.
Under the law, non-resident foreign tourists may claim VAT refunds on purchases worth at least P3,000 per transaction from accredited retailers, provided the goods are taken out of the Philippines within 60 days of purchase.
The implementing rules limit the refund to retail tangible goods, including clothing, electronics, jewelry, souvenirs, food, and other items intended for personal use.
The Court said the measure seeks to encourage tourist spending, stimulate economic activity, and promote Philippine products and craftsmanship.
Tayam argued that the law violates the equal protection clause by extending VAT refunds only to foreign tourists while excluding Filipino citizens and residents.
The Office of the Solicitor General (OSG), however, maintained that the petition should be dismissed, arguing that foreign tourists and local consumers are not similarly situated. It said the law was enacted to keep the Philippines competitive with countries that offer VAT refund programs and to boost tourism and foreign exchange earnings.
The Supreme Court agreed, stressing that the equal protection clause does not require identical treatment for all persons but permits reasonable classifications that are substantially related to a legitimate government objective.
It ruled that distinguishing foreign tourists from Filipino citizens and residents is directly related to the law’s purpose of promoting tourism and increasing purchases of local products.
“The grant of VAT refund to foreign tourists was not arbitrarily done. It is a policy decision based on legitimate state interests, i.e., the need to remain competitive as a global tourist destination,” the Court said.
The tribunal also rejected claims that the measure discriminates against Filipinos, saying it merely provides a specific incentive for foreign visitors as part of the government’s tourism strategy.
The Supreme Court further explained that the VAT refund system is consistent with the principle that consumption taxes should be imposed where goods are consumed.
Since qualified tourists must bring the purchased goods out of the country within 60 days, the items are deemed consumed abroad and may qualify for a refund. Goods consumed in the Philippines remain subject to VAT.
The Court likewise dismissed arguments that the law unfairly excludes foreigners holding long-term visas, saying non-resident foreign nationals may still qualify for the refund so long as they meet the statutory requirements.
It also noted that VAT refund programs for foreign tourists are widely practiced in countries such as Indonesia, Malaysia, Singapore, Thailand, Vietnam, China, Japan, and member states of the European Union.
In a separate concurring and dissenting opinion, Senior Associate Justice Marvic Leonen said the petition should have been dismissed outright because Tayam lacked legal standing, having failed to show that the law directly caused him any injury.
Associate Justice Maria Filomena Singh, in a concurring opinion, said the VAT refund mechanism is consistent with the nature of VAT as a tax on consumption, which is generally imposed in the country where goods and services are ultimately consumed.
FRANCO JOSE BAROÑA