Tourist VAT refund seen adding up to P13 billion to GDP

[Lee]

Quote

 

MANILA, Philippines — The plan to refund the value-added tax (VAT) of foreign tourists is expected to add up to P13 billion to the economy annually amid the propensity of travelers to consume more with such a reimbursement mechanism.                 (Call me skeptical )

During the Senate Committee on Ways and Means hearing yesterday, the National Economic and Development Authority (NEDA) expressed support to implement a VAT refund for non-resident tourists as it can increase tourism receipts and attract more visitors.

NEDA Undersecretary Rosemarie Edillon said based on the agency’s study, the additional spending per annum is estimated to be from P6 billion to P9 billion starting 2024.

This is in comparison to the status quo, which means no VAT refund, that yields revenues of P3.4 billion to P5.1 billion.

Considering multiplier effects on other sectors, particularly retail trade, such a mechanism could redound to P8.6 billion to P12.8 billion in additional gross value added (GVA) per year.

This compares to the P4.7 billion to P7.1 billion in GVA currently.

“The difference between the refund scenario versus the status quo is P3.8 billion to P5.7 billion, so it will really generate additional activities,” Edillon said.

“International tourism is considered an export of services and we need to consider ourselves as competing with our neighbors. Since our neighbors have already implemented this scheme, it will be good for us to do the same,” she said.

The NEDA assumption took into consideration the tourism arrival projections under the Tourism Development Plan, marginal propensity of tourists to consume more, average spending at P9,311, as well as the country’s VAT collection efficiency rate at 40 percent.

Data showed that foreign tourists allocate 12 percent of their budget to shopping, which is almost the same as for recreation and entertainment.

Most of their budget at 30 percent still goes to accommodation, about 16 to 20 percent for food, and roughly 13 to 20 percent for transport services.

Finance Assistant Secretary Dakila Napao, for his part, emphasized that the expected revenue loss of some P4 billion would be more than compensated by the increase in other expenses.

“We know that there will be revenue erosion, but at the same time we recognize that there will be an uptick in economic activities that will result in the recoupment of lost revenues,” Napao said.

Further, Napao clarified that only 85 percent of the VAT would be refunded as the government will take into account transaction fees and other fees to be paid to the third-party service provider so as not to burden the government with additional costs.

The VAT refund seeks to stimulate tourism and trade, make the country competitive against neighboring countries, and boost profitability of domestic business.

Currently, the Philippines imposes a 12 percent VAT on goods and services. Across the top 15 tourist destinations in Asia Pacific, VAT rates range from a low of five percent in Taiwan to a high of 18 percent in India.

In terms of refund rate, full refund is being implemented in Thailand, Japan, Malaysia, South Korea, Indonesia, Singapore, Taiwan, and Australia.

It should be noted that only India, the Philippines, and Cambodia do not have a working VAT refund mechanism for tourists among the top 15 destinations in Asia Pacific.

 

 

Tourist VAT refund seen adding up to P13 billion to GDP (msn.com)

[JJReyes]

Let me get this straight.  You add 12% VAT and then give it back.  Magically, this increases government revenues.  Now suppose you don't impose the 12% VAT from the start.  How come this would result in loss revenues?

[Mike J]

7 hours ago, JJReyes said:

Let me get this straight.  You add 12% VAT and then give it back.  Magically, this increases government revenues.  Now suppose you don't impose the 12% VAT from the start.  How come this would result in loss revenues?

Sounds like smoke and mirrors and baffle them with BS to me.  If I understand their flawed logic it goes like this.

1.  Implementing a refund will reduce tax revenue by 3.4 to 5.1 billion peso.  A range that large leads me to believe the number is a WAG (see note)

2.  Doing a refund of VAT for tourists will generate increased tourism.  (I have doubts) 

3.  Increased tourism will mean more spending.  (Common sense, spending will always go up with more tourists)

4.  The increased spending will be 6 to 9 billion peso.  (Again I think is a WAG number)

5.  The increased spending into the economy will produce a multiplier effect.  <snip>Considering multiplier effects on other sectors, particularly retail trade, such a mechanism could redound to P8.6 billion to P12.8 billion in additional gross value added (GVA) per year.  This compares to the P4.7 billion to P7.1 billion in GVA currently.<end snip>  (Again these are WAG numbers)

And number 5 shows, to me anyway, how the whole argument breaks down.  The difference in GVA according to the WAG numbers would be somewhere between 3.9 and 5.7 billion peso.  The highest estimate of increase in the GVA is 5.7 billion peso (rebound from 7.1 to 12.8 billion).  12 percent of the that 5.7 billion comes to 684 million peso gain in tax revenue.  How in the hell does a VAT tax increase of 684 million offset a VAT loss of 3.4 to 5.1 billion? 

The program will however increase the number of folks who work for the government and they keep 15 percent of the VAT refund.  I think the people pushing this are looking to form an entire new department.  More jobs, more opportunity to get all four feet into the public trough? 

Note;  WAG = Wild Ass Guess

Another note - do we have any accountants on the forum who can check my logic and/or math for errors.  Maybe I am way off in my thinking?

 

 

[hk blues]

Other than the leap of faith that a VAT refund will somehow encourage more tourists to come and that those tourists will not pocket the VAT refund and spend it instead on more goods and services, I can't see the reason for such positivity about the money to be earned from the scheme.

[Gator]

Yup, I don’t know about the rest of you guys, but my main priority when a selecting a country to visit is whether or not they refund their VAT! 🤣🤣🤣 

[Jack Peterson]

Just now, Gator said:

my main priority when a selecting a country to visit is whether or not they refund their VAT! 🤣🤣🤣 

 Many Countries do refund Vat, so there must be some advantage in it for Governmental coffers  

[OnMyWay]

11 hours ago, Mike J said:

Sounds like smoke and mirrors and baffle them with BS to me.  If I understand their flawed logic it goes like this.

Rest assured the 12 bureaucracies the create to administer the program will each skim something. 

[OnMyWay]

3 hours ago, hk blues said:

Other than the leap of faith that a VAT refund will somehow encourage more tourists to come and that those tourists will not pocket the VAT refund and spend it instead on more goods and services, I can't see the reason for such positivity about the money to be earned from the scheme.

Usually you don't get the refund until you are leaving the country, so unless you are going to spend it at the airport duty free shops, it seems unlikely to be spend in the Philippines.

[OnMyWay]

24 minutes ago, Gator said:

Yup, I don’t know about the rest of you guys, but my main priority when a selecting a country to visit is whether or not they refund their VAT! 🤣🤣🤣 

Maybe a high roller planning on buying expensive gifts will choose a country based on this.  Philippines?  I still haven't thought of something desirable to buy here that would be worth the tax refund hassle.  Am I missing something.  There is no VAT on bargirls now, right?  

[JJReyes]

One beneficiary are retail stores who convinces a potential customer to purchase expensive merchandise because they will get a 12% discount in the form a VAT rebate.  (Not really a discount because it's an add on to the purchase price.)  The government officials at the airport are very slow in examining every page of your passport, your hotel and restaurant receipts proving you are a tourist, and the waiting line gets longer and longer.  Pissed off, the customer angrily walks away swearing never to return to the Philippines.