ELECTRICITY consumers will no longer pay the 12% value‑added tax on allowable system loss charges, following a new tax ruling that classifies the fee as a government‑mandated pass‑through cost rather than part of power companies’ gross sales.
In Revenue Memorandum Circular No. 97‑2026 issued Monday, September 14, the Bureau of Internal Revenue (BIR) confirmed that allowable system loss falls outside the VAT base of generation firms, the National Grid Corporation of the Philippines, and distribution utilities. The circular aligns with an earlier Energy Regulatory Commission (ERC) resolution declaring the same tax treatment, effective prospectively once formally published.
BIR Commissioner Charlito Martin Mendoza emphasized that every peso saved helps ease the public’s electricity cost burden. “This may be one part of a broader effort to bring down electricity costs, but it is a relief that can be implemented under existing law,” Mendoza stated. Importantly, the new guidance does not remove the system loss charge itself — consumers will still pay the portion of losses that utilities are permitted to recover under ERC limits — but the additional 12% VAT previously levied on that line item will be dropped. VAT will continue to apply to all other taxable components of the bill, such as generation, transmission, and distribution charges.
The measure delivers partial relief falling short of President Ferdinand Marcos Jr.’s broader call in his July State of the Nation Address to scrap the entire system loss charge from consumer bills, including the VAT. Marcos had argued that consumers should not bear costs for losses beyond their control, urging Congress to amend the Electric Power Industry Reform Act (EPIRA) to bar the practice entirely. While the BIR ruling removes the tax layer, eliminating the underlying system loss charge itself will require legislative or regulatory reform beyond what the tax bureau can implement.
System loss refers to electricity lost in transmission and distribution — from natural technical dissipation to theft and illegal connections — and is capped by the ERC at levels that utilities may recover; any excess must be absorbed by the provider. Under the new policy, consumers keep paying the allowable loss amount but save the VAT portion, marking a tangible reduction in monthly bills even as the push for full elimination of the charge continues through the legislative process.
metrosundaily
