Global Daily Tax News, Philippines' Supreme Court Upholds Legality Of VAT Refunds For Tourists, (Jul 9, 2026)

The Philippines' Supreme Court (SC) has upheld the constitutionality of Republic Act No. (RA) 12079, which grants value-added tax (VAT) refunds on certain local purchases by non-resident foreign tourists.

The VAT refund applies to goods bought from duly accredited stores and taken out of the Philippines within 60 days from purchase. The value of the goods must be at least PHP3,000 (USD48.75) per transaction.

Section 5 of the law's Implementing Rules and Regulations limits the refund to retail and tangible goods, including clothing, apparel, electronics, gadgets, jewelry, accessories, souvenirs, food, or non-food consumables, and other items intended for personal use.

A case was brought by John Barry T. Tayam, challenging the validity of RA No. 12079, which introduced Section 112-A to the National Internal Revenue Code of 1997 providing for the scheme. Tayam argued that the law violates the constitutional guarantee of equal protection because it limits VAT refunds to foreign tourists and excludes Filipino citizens and residents.

The Office of the Solicitor General (OSG) argued that the petition should be dismissed, maintaining that foreign tourists and local consumers are not similarly situated. The OSG explained that the law was enacted to help the Philippines remain competitive with other countries that offer VAT refund programs to foreign visitors and to encourage tourism and foreign exchange inflows.

The SC agreed with the OSG.

It emphasized that equal protection does not require identical treatment for all persons. The Constitution permits different treatment for groups that are genuinely distinct, provided the classification is reasonable and related to the purpose of the law.

Applying these standards, the SC found that RA 12079 validly distinguishes foreign tourists from Filipino citizens and residents. The classification is directly related to the law's objective of promoting tourism and encouraging visitors to purchase local products.

The Court stressed that the law does not discriminate against Filipinos. Instead, it grants a specific incentive to foreign tourists as part of the State's effort to strengthen the tourism industry.

The SC also said the VAT refund system follows the basic rule of VAT that goods are taxed where they are consumed. Since the law requires foreign tourists to take the goods out of the Philippines within 60 days, the goods are considered to be consumed abroad and may qualify for a VAT refund. If the goods are consumed in the Philippines, they remain subject to Philippine VAT.

The SC also rejected claims that the law unfairly disadvantages foreigners with long-term visas. It explained that non-resident foreigners may still qualify for the VAT refund, even if they stay in the Philippines for an extended period, as long as they take the goods out of the country within 60 days and consume them abroad.

The SC said: "[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. In fine, foreign tourists may be granted privileges and benefits that are not extended to Filipino citizens, so long as these distinctions are based on reasonable and justifiable classifications, as in here."