The Supreme Court (SC) has upheld the constitutionality of the law granting refunds of value-added tax (VAT) to non-resident foreign tourists, ruling that the measure does not violate the constitutional requirements of uniform and equitable taxation or the equal protection clause because the classification rests on substantial distinctions and serves legitimate state interests.

In a decision penned by Associate Justice Amy C. Lazaro-Javier and promulgated on April 22, 2026, the SC dismissed the petition challenging the constitutionality of Republic Act No. 12079, which created a VAT refund mechanism for non-resident foreign tourists.

“Therefore, 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 stressed.

FACTS AND ISSUE

The case stemmed from a petition for certiorari and prohibition filed by John Barry T. Tayam challenging Republic Act No. 12079, which created a VAT refund mechanism for non-resident foreign tourists. The law allows eligible foreign tourists to claim refunds on VAT paid for locally purchased goods, subject to eligibility requirements prescribed by law.

Tayam argued that the law violated the equal protection clause and the constitutional requirement that taxation be uniform and equitable by granting VAT refunds only to non-resident foreign tourists while excluding Filipino citizens and residents. He also questioned the law’s treatment of certain foreign nationals residing in the Philippines and Filipinos living abroad using Philippine passports.

The Office of the Solicitor General argued that Tayam lacked legal standing, that the petition presented no justiciable controversy, and that the classification was consistent with the destination principle governing VAT and rested on substantial distinctions.

The principal issue before the Court was whether Republic Act No. 12079 violated the constitutional requirements of uniform and equitable taxation and the equal protection clause.

RULING

Before reaching the merits, the SC held that the petition satisfied the requisites for judicial review and could properly be resolved.

On the merits, the SC upheld Republic Act No. 12079. It ruled that the Constitution allows reasonable classifications in taxation and that non-resident foreign tourists and Filipino citizens or residents are not similarly situated because the VAT refund mechanism follows the destination principle, under which VAT is imposed where goods are consumed, making non-resident foreign tourists a distinct class from Filipino citizens and residents.

The SC also rejected claims that long-term foreign visa holders and Filipinos living abroad were unfairly treated, explaining that foreigners who remain non-residents may still qualify if they satisfy the statutory requirements, while Philippine citizens cannot be considered foreign tourists.

It likewise noted that VAT refund systems for foreign tourists are a widely adopted international practice supporting Congress’ objective of making the Philippines more 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,” the SC said.

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