Tax free purchasing: Why shopping for objects abroad with out vacationer VAT refunds can result in ‘double taxation’

WHY DO PEOPLE STILL SPEND IF THERE’S NO VAT REFUND?

Whereas some international locations reminiscent of UK and the US don’t have tax refunds for vacationers, there are a number of elements that attraction to vacationers to do their purchasing abroad – the novelty of the objects, souvenirs for family members and affordability. 

“(There) might be sure genuine objects which can be solely obtainable in particular international locations, reminiscent of KitKats of sure flavours solely present in Japan and never in the remainder of the world … and souvenirs are sometimes some of the standard causes for vacationers to make purchases – both as memorabilia for themselves or (as) items for his or her family members again dwelling,” stated Assoc Prof Lau. 

On Jan 17, the Singapore Tourism Board stated the nation’s tourism receipts are estimated to reach S$13.8 billion to S$14.3 billion for 2022 – about 50 to 52 per cent of 2019 ranges. 

Within the first 9 months of 2022, receipts got here as much as an estimated S$8.96 billion, with the highest spenders hailing from Indonesia, India and Australia. 

Assoc Prof Lau added that the flexibility to buy merchandise at a inexpensive value attributable to beneficial trade charges can be a part of the attraction. 

In keeping with Nikkei, duty-free gross sales in Japan to this point in December 2022 have exceeded pre-COVID outcomes for a similar interval at some shops. The nation lifted the ban for individual inbound travellers in October.

The weaker yen can be driving up high-priced purchases by international vacationers, it added.

Nikkei reported that duty-free gross sales in November 2022 at Takashimaya and 4 different high-end shops rebounded to between 50 per cent and 90 per cent of gross sales in November 2019.

Whereas beneficial trade charges might appeal to vacationers to buy at locations that don’t supply tax refunds, Assoc Prof Lau stated some analysis has proven that one of many prime elements influencing purchasing tourism is with the ability to get pleasure from worth for cash. 

“Even when VAT refunds are usually not obtainable, vacationers will nonetheless purchase in the event that they see worth in what they purchase. 

“Extending past that is the rarity of sure fascinating merchandise that can not be bought outdoors of specific international locations – such cultural artwork and craft, luxurious objects, (and extra).” 

For locations such because the UK, beneficial trade charges should still attraction to customers because the pound has fallen round 13 per cent between 2021 and 2022, stated Prof Sum, who additionally famous that the UK VAT charge is 20 per cent.

A beneficial trade charge might not attraction to customers of branded merchandise from Europe, particularly in France, Germany and Italy if the international locations don’t supply VAT refunds, he added.

WHY DO YOU HAVE TO PAY GST ON PRODUCTS BOUGHT OVERSEAS? 

One motive international locations make residents pay GST upon returning house is to in all probability deter residents who buy objects abroad in bulk with the intention of creating a revenue by promoting them at dwelling, thus benefitting from the tax reduction from the international locations they’ve visited, stated Assoc Prof Lau. 

Travellers purchasing for items abroad may need to deal with first paying GST or VAT within the nation they journey to, and once more when the identical items are introduced or imported into Singapore, to the extent that the quantity isn’t lined by the GST reduction, stated Assoc Prof Poh. 

“Any GST refund that they’ll acquire abroad will alleviate the incidence of double taxation that they doubtlessly face,” he added.

Some shoppers could also be deterred from purchasing in international locations with little or no tax refund, notably for big-ticket objects, stated Assoc Prof Poh. 

Nonetheless, the price of such a tax refund scheme can’t be accounted for in absolute phrases, stated Assoc Prof Lau. 

“It depends upon how a lot a rustic advantages from tourism spending versus the lack of VAT tax. It is sensible for international locations that relies upon rather a lot on purchasing tourism that may enhance their native retail scenes reminiscent of Singapore, Japan and South Korea,” he added.