Reforming tourism-related taxes

Ask a foreign tourist what is most enjoyable about a visit to the Philippines, and one of the answers would invariably be the cheap shopping. Many really don’t care if what they bring home has a 12 percent value-added tax (VAT), because many of the goods bought in the country are still cheap by world travellers’ standards.

Thus, it would seem a waste of government time and resources to focus on setting up VAT refund counters in the country for the goods bought by foreign passport holders. The VAT that foreign tourists pay on consumer goods like clothes could be put to better use, like funding our Build Build Build projects.

Tax refunds on consumer goods that are brought back by tourists to their country of origin (and not consumed in the country where they buy them) are supposed to match or be lower than the price of the same goods in their own country.

Tourist VAT refund counters may sound first world and modern, but in reality, would best benefit countries that are actually producers of consumer goods. Japan, for example, has milk products that are sought after, and sold in other countries at a higher price.

Foreign tourists come to the Philippines to buy clothes, but these are mostly manufactured in China or Thailand and exported to our country. I can’t think of something that we produce locally that visitors from other countries will die for.

Plugging loopholes

Instead of setting up VAT refund counters for tourists, why not look at ways of plugging loopholes that have plagued the current VAT system.

The finance secretary has said that VAT refund counters are needed because it is an “international practice,” and that we want to be a “normal country.” Somehow, these arguments do not always ring right, especially since our government system has more quirks to fix that are currently not aligned to international practice, and yet demand priority attention to make us “normal” in the eyes of the world.

There is, for example, a need to set up a simpler VAT exemption system for exporters, not take away VAT exemptions, and to put an end to all the anxiety that the current initiatives to reform the current tax structure is creating on businesses.

One of the biggest values that the country derives from export processing zones (EPZs) is the employment of Filipinos. This contributes a big factor in the lowered unemployment rates, and spreads job opportunities outside Metro Manila where many EPZs are now found.

Our EPZs are doing well, and are competitive enough with the EPZs of other countries. There could be some opportunities for tweaking incentives to prevent loopholes and improve some areas, but let’s not rock the boat too hard so that it capsizes.

Travel taxes and refunds

One area where tax reform in tourism could come in handy would be in getting refunds, especially by foreign visitors who inadvertently are charged with a travel tax by their ticket issuing company or a terminal fee. There is quite a furor created when eligible foreigners try to get their refunds.

Better still, our travel tax reform initiatives should focus on simplifying taxation on travel. There are quite a number of rules, and perhaps more exemptions, which are bound to confuse travel agencies outside the country.

Different international airports in the Philippines also have different takes on the travel tax, and this needs to be standardized to reduce the overall confusion that is created. The same goes for terminal fees.

One of the most irritating encounters of a tourist at airports is to be asked to pay a tax or a terminal fee – definitely, not an “international practice” that a “normal country” does.

Focus on tourism infrastructure

Most tourists who come to the country are after the beaches, the warm climate, fresh seafood, and the relatively cheap vacation that they can get when using world-class hotels and being served by exceptionally hospitable hotel staff.

This is where the country gets the bigger bang for the buck, and which our government should focus on. We need the money to reengineer the Philippines as a tourism destination, where every potential visitor will find many things that will give back loads of nice memories.

While the temporary closure of Boracay had served to save it from further degradation, the stringent rules that limit tourist flow to the famous island has somehow robbed the whole place of its allure as a place to let your hair down and get drunk while enjoying the pristine waters and fine sand, the sea breeze, night life and crowds.

The height of merry-making in Boracay will likely be memories now for many people. A new set of tourists will be the mainstays now, those that value a more laid-back vacation, albeit more expensive, instead of the wild parties that had previously rocked the island shores.

Of course, another fun, Boracay-like destination can rise again, but our tourism officials have to work on it – and safeguard it from future excesses. Cebu, for example, is quickly becoming a byword among foreigners who look for places to go to for their annual holidays.

While Cebu’s tourism efforts have improved leaps and bounds, it still does not have the support of seamless transportation services, world-class seaports, first-grade roads and bridges, and a more organized menu of tourism experiences that visitors can choose from.

The support of the private sector in our tourism efforts cannot be put aside, and unsolicited proposals to upgrade and maintain airports and seaports should be encouraged, especially at this time when government efforts are more centered towards other infrastructure projects.

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