The government has introduced an online system for retailers wanting to apply for value-added tax (VAT) refunds for foreign tourists to lure more of them to come and spend their money here.

The Finance Ministry’s tax office announced on Thursday that under the system, foreign tourists may be exempted from VAT when shopping at retailers, who will then issue a receipt for tourists to redeem the VAT at tax representative offices in airports as stipulated in a tax directorate general regulation issued on July 25.

According to a Finance Ministerial regulation issued on July 5, foreign tourists would be able to refund their paid 10 percent VAT if they spent between Rp 5 million (US$440) and Rp 50 million.

Local retailers interested in joining the VAT refund program must apply through vatrefund.pajak.go.id, and be processed within 10 days after the form is submitted online, according to tax office spokesperson Kismantoro Petrus.

“The utilization of web-based technology is aimed at making it easier for corporate taxpayers to submit their applications, issue tax invoices, activate their accounts and manage their retail stores in the VAT refund scheme for tourists as well as monitor their tax invoices,” he said in a statement.

“With more corporate taxpayers joining this scheme, we can boost local trade numbers and pull more foreign tourists to Indonesia.”

The VAT refund system has been tried out since early April 2010. The tax directorate general appointed 49 stores whose merchandise sales taxes could be returned to foreign buyers.

Indonesian Retailers Association (Aprindo) executive director Tutum Rahanta described the new system as “one step ahead” carried out by the government to turn Indonesia into one of the world’s top shopping destinations.

“The VAT refund system will boost Indonesia’s attractiveness as a shopping destination among international tourists,” he said on Friday, citing Singapore as a model. Tutum added that the refund, when implemented well, might also help increase the number of foreign tourists to the archipelago.

Tutum, however, said the VAT refund system also needed support, including from good services at domestic airports. Another challenge would be to offer quality goods that could attract the appetite of foreign buyers.

Rudiana, deputy chairman of the Jakarta branch of the Association of Indonesian Tour and Travel Agencies (Asita), welcomed the VAT refund system although the move was “a bit late”.

He said although the move would not have a big impact on the domestic industry in the near future, it would in the long-term enhance Indonesia’s competitiveness with neighboring countries such as Malaysia and Singapore.

“Our products, such as garments, are now priced cheaper compared to those of other countries,” he said.

“The tax refund will lower already-inexpensive prices. Hence, foreign tourists will likely increase their spending here.”

He further said the refund would be mostly effective in local tourist destinations such as Bandung in West Java, which is a main shopping destination for visitors from Malaysia and Brunei.

“Indonesian products are well known for their quality, thereby the tax refund will really help in terms of price,” he said.

At least 717,800 foreign tourists visited Indonesia in July, up 2.3 percent compared to a year earlier, but down 9 percent compared to June as investors postponed their visits to the archipelago due to the Ramadhan fasting month, the Central Statistics Agency (BPS) reported earlier this month.

According to the BPS report, most of the foreign investors originated from Australia and Singapore, with each accounting for 12 percent of total tourists, followed by China (11 percent), Malaysia (10 percent) and Japan (5.7 percent).