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I was browsing the Wikitravel article on Las Vegas and read this:

Like most U.S. states, Nevada has not implemented a tax refund mechanism for international travelers.

This got me wondering, and I found this website on traveling to Canada, which says:

After you visit our beautiful country, don’t forget to get some of your money back! As an international tourist or non-resident, you may be eligible for a tax refund on the GST/HST you paid on short-term accommodations and/or camping accommodations included in an eligible tour package.

Why would any jurisdiction allow to apply for a tax refund if you're an international visitor? Isn't it a major boost to get money from overseas instead of having to tax your local residents, especially from something like accommodations?

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    To encourage tourism, of course. It's perfectly OK if you don't allow tax refunds, but the potential tourists might vote with their feet :-) Also tourists don't get the benefits of taxation, so refunding tax would be less of a problem and also make the tourists feel better - why should I contribute to Canada's pension system if I'm not going to be entitled to it?
    – xuq01
    Jun 27, 2018 at 18:47
  • But if you refund their taxes, then how will you benefit from having visitors? Are they expecting few people to apply for a refund (seems reasonable)? Because you came to their country and they can do whatever they want with the money you spend there?
    – Azor Ahai -him-
    Jun 27, 2018 at 18:53
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    The government doesn't directly get a cut when they refund the tax, but the general populace still benefits when foreigners spend money in their country. If a store owner profits $1 for each widget sold, he'll profit no matter who buys the widget - he doesn't care if the government collects the $0.10 in tax or not.
    – Nuclear Hoagie
    Jun 27, 2018 at 19:02
  • @AzorAhai See Nuclear's answer; tourism benefits the country even if no taxes were collected. The government doesn't work like a private corporation; its ultimate goal is to increase the total benefit in the country, not to maximize its own revenues. In principle they can levy whatever tax they want on tourists, but that would likely have a negative net effect: the tourists always get to vote with their feet!
    – xuq01
    Jun 27, 2018 at 19:52
  • Not only that, but the government can still collect taxes in other forms (e.g. if not sales tax on the item, perhaps via income tax of the seller). The main benefit is that it's an influx of spending into the economy. Say the seller earns $100 on a hypothetical sale, he spends $80 on at the grocery store, the grocery store owner earns $80 and spends that somewhere else, and so on. See: the multiplier effect. I.e. that $100 in spending has a much larger boost to the economy because of the "recycling" of money.
    – C. Helling
    Jun 27, 2018 at 21:33

2 Answers 2

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Because selling stuff to people who are going to take it overseas can be considered as "exports".

Imagine that I am an international traveller at the USA and I see a fancy laptop:

  • Situation A: I buy it and take it home.

  • Situation B: I wait until I get home to buy the laptop.

In case A, even without sales tax, you get some of my money. You get the profit to the detail seller of my laptop, the profit of the distributor of the laptop, the (proportional part of) the salary of the employee and other costs, the fact that those employees have a work instead of being unemployed... and the USA/local government gets money out of taxing all of that.

In case B, most of the money I spend is contributing to some other country's economy. If the laptop is produced at the USA, part of what I spend will (probably) be back to the USA, but it would just be a fraction of what would be in case B.

So, some locations allow foreign travellers to recover sales tax money, in order to encourage this behavior. Note that the target audience are:

  • international travellers who are leaving the country soon, which means that they will have the option of buying the same item elsewhere,

  • who take the item home with them (they are not reselling it underhand to local consumers, so they are not a competition to your stores),

  • foreigners, who are less likely in general to buy these items unless enticed (dealing with warranties is more complicated, for example).

In fact, this is just an extension of the concept of duty-free shops at airports, with a somewhat more complicated schema because control is more difficult (at the airport I can give proof that I am just about to leave the country, at a normal shop I will not have a boarding card with me and I could still resell the laptop locally).

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    In addition to SJuan76's answer, such reduced taxation also encourages tourism.
    – user9790
    Jun 27, 2018 at 19:43
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Value added taxes (like the VAT in Europe, or the GST in Canada) are incremental consumption taxes. At each stage of processing, the value added by the processing is taxed (in actuality, the producer or provider collects a tax on the full value, and then remits the tax he/she collected, after deducting the tax paid on the inputs).

The final consumer doesn't sell the good or service, and so ends up paying the full tax.

Consider the case of where I manufacture a widget and sell it for $10. I paid $6 for the stuff I use to make it. If the tax rate is 10%, then I've paid $0.60 tax on those inputs. If I sell it inside the country, I'll collect a dollar tax, deduct the $0.60 tax that I paid on the inputs and remit $0.40 tax on the $4.00 value that I added to that widget.

Nearly all of these taxes do not apply for exports - they are considered "zero-rated" for taxing. If I sell the widget outside the country, I collect $0.00 tax, but I can still deduct the $0.60 tax that I paid (if I only manufacture for export, then I only get tax refunds).

When a visitor buys something to take home, it's the same as an export. So the consumer gets to play the same "claim the tax paid" trick as a manufacturer who exports something.

VAT/GSTs are somewhat like backwards tariffs. Rather than taxing inputs (as tariffs do), they provide tax relief for exports. Most other export incentives are disallowed by the WTO, but these taxes are considered OK.

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