MANILA – The Supreme Court (SC) has declared constitutional Republic Act (RA) No. 12079, which grants value-added tax (VAT) refunds on certain purchases made by non-resident foreign tourists in the Philippines.

In a decision penned by Associate Justice Amy C. Lazaro-Javier, the SC En Banc dismissed a petition filed by John Barry T. Tayam questioning the validity of the law.

RA No. 12079 introduced Section 112-A of the National Internal Revenue Code of 1997, creating a VAT refund system for non-resident foreign tourists who purchase goods from accredited stores in the Philippines.

Under the law, tourists may claim VAT refunds for purchases worth at least P3,000 per transaction, provided the goods are taken out of the country within 60 days from the date of purchase.

Its implementing rules limit the VAT refund to retail and tangible goods, including clothing, electronics, gadgets, jewelry, accessories, souvenirs, food and non-food consumables, and other items intended for personal use.

The law aims to encourage tourist spending, boost economic activity, and promote Philippine-made products, particularly those produced by communities near tourist destinations.

Tayam argued that the measure violates the Constitution’s equal protection clause because it grants VAT refunds only to foreign tourists while excluding Filipino citizens and residents.

The Office of the Solicitor General countered 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 offering similar VAT refund programs and to encourage tourism and foreign exchange inflows.

The Supreme Court agreed, ruling that the equal protection clause does not require identical treatment of all persons.

The tribunal said the Constitution allows different treatment for groups that are genuinely distinct, provided the classification is reasonable and connected to the law’s purpose.

It found that RA No. 12079 validly distinguishes non-resident foreign tourists from Filipino citizens and residents because the classification directly supports the government’s objective of promoting tourism and encouraging visitors to buy locally made products.

The SC stressed that the law does not discriminate against Filipinos but instead provides a specific incentive to foreign tourists as part of efforts to strengthen the country’s tourism industry.

The Court also said the VAT refund mechanism is consistent with the principle that value-added tax is imposed where goods are ultimately consumed. Since the law requires tourists to bring the goods out of the Philippines within 60 days, the items are considered consumed abroad and may qualify for a refund. Goods consumed within the country remain subject to Philippine VAT.

The tribunal likewise rejected claims that the law unfairly disadvantages foreigners holding long-term visas, explaining that non-resident foreign nationals may still qualify for VAT refunds if they comply with the law’s requirements, including taking the goods out of the country within the prescribed period.

The SC also noted that VAT refund programs for foreign tourists are common in several countries, including Indonesia, Malaysia, Singapore, Thailand, Vietnam, China, Japan, and member states of the European Union.

In its ruling, the Court 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.”

In a separate concurring and dissenting opinion, Senior Associate Justice Marvic M.V.F. Leonen said the petition should have been dismissed outright because Tayam lacked legal standing, noting that he failed to show he was directly affected by the law.

Meanwhile, in a concurring opinion, Associate Justice Maria Filomena D. Singh said the VAT refund system is consistent with the nature of VAT as a tax on consumption, explaining that goods and services are generally taxed in the country where they are ultimately consumed.