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The party also argued the move would benefit shops, hotels, restaurants and the wider tourism industry.
It pointed to research by the Centre for Economics and Business Research (Cebr), which suggested fully restoring tax-free shopping for tourists could attract up to 2.35 million extra visitors and generate £4.1bn in extra spending.
The report from earlier this month also estimated that for every £1 of VAT refunded, this could generate £1.54 in other taxes.
Badenoch said: "We have iconic retailers, inventive designers and brilliant manufacturers, but they are being let down by a tax policy that is chasing their customers away.
"Holidaymakers are choosing rival cities in other countries for the simple reason that it saves them money."
Businesses have long called for tax-free shopping for tourists to be reintroduced, arguing they are at a disadvantage to other European countries.
EU countries offer VAT refunds for non-EU visitors, while other European countries such as Switzerland have similar schemes.
Helen Dickinson, chief executive at the British Retail Consortium, said: "Introducing a modern tax-free shopping scheme would help attract more international spending to the UK, supporting high streets, jobs and investment in towns and cities across the country.
"Done properly, it would boost economic growth and deliver a net benefit to the Exchequer."
However, a Labour spokesperson said: "Kemi Badenoch used to say tax-free shopping was a costly giveaway and now she's trying to sell it as an economic miracle.
"If they really think it's such a great idea, they should explain why they scrapped it in the first place and how they'd pay for bringing it back."
