SC Affirms. Constitutionality of Law Granting VAT Refunds to Foreigners

The Supreme Court (SC) 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 39-page decision penned by Associate Justice Amy Lazaro-Javier, the SC En Banc ruled that Republic Act (RA) 12079, or a law “granting VAT refund to foreign tourists was not arbitrarily done (and ) it is a policy decision based on legitimate state interests, i.e. the need to remain competitive as a global tourist destination.”

It can be recalled that Tayam filed a petition arguing that the policy was unconstitutional as it violated Article VI, Section 28 (1) of the 1987 Constitution, particularly the “constitutional right to equal protection of the law as the measure excluded Filipino citizens and residents from eligibility for VAT refund.”

While the law requires a minimum purchase of P3,000 for foreign tourists staying in the country to avail themselves of the VAT refund within 60 days before leaving, Tayam alleged that it would deprive the government of a minimum of P321.43 worth of refunded VAT for every purchase or as high as P1.93 billion every year.

In dismissing his petition, the high court noted that Tayam’s argument that the law is unfair to Filipinos has “nothing to do with the principles of equality and uniformity under the principle of taxation,”

“Verily, the law does not discriminate against Filipino citizens. The primary goal of the State to boost tourism can only be realized if certain privileges are granted to foreign tourists. Nothing more,” the Supreme Court said.

It also pointed out that neighboring countries such as Indonesia, Malaysia, Singapore, Thailand, Vietnam, China and Japan and those in Europe “have long implemented this VAT refund mechanism for foreign tourists.”

The VAT refund law was “a policy decision based on legitimate state interests, i.e., the need to remain competitive as a global tourist destination,” the high court added.

The SC pointed out the state interest behind the policy, stating that a mere difference in treatment does not violate the constitution if it rests on a reasonable foundation.

“[A] mere difference in treatment, without more, does not violate the equal protection clause. Granting 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 SC said.

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