Senator Mark Villar seeks to remove VAT on electricity system loss charges

Senator Mark A. Villar has introduced legislation seeking to exempt electricity system loss charges from the 12% Value-Added Tax (VAT), arguing that consumers should not be taxed on power they never actually consumed.

Under Senate Bill No. 2392, Section 109 of the National Internal Revenue Code would be amended to remove VAT from system loss charges levied by distribution utilities and electric cooperatives. The proposed exemption covers both technical and non-technical losses recoverable under Energy Regulatory Commission (ERC) guidelines pursuant to the Electric Power Industry Reform Act (EPIRA) of 2001.

“Simple lang ang prinsipyo natin: kung hindi naman nakonsumo ng consumer ang kuryente, hindi siya dapat singilin ng buwis para rito. Mataas na nga ang binabayaran ng ating mga kababayan sa kuryente, may system loss pa na hindi naman nila kasalanan. Kaya dapat nating alisin agad ang mga dagdag na singil na maaari namang bawasan,” Villar said.

(Our principle is simple: if a consumer did not consume the electricity, they should not be taxed for it. Filipinos are already paying high electricity rates, on top of system losses that are not their fault. We must immediately remove unnecessary added charges where possible.)

System loss refers to electricity wasted or unbilled before reaching the end-user. It falls into two main categories:

• Technical losses: Power dissipated naturally as heat while traveling through transmission lines, transformers, and distribution equipment.

• Non-technical losses: Electricity lost through pilferage (theft), meter tampering, unmetered consumption, or billing errors.

Current regulatory frameworks allow utilities to pass a portion of these allowable losses onto consumers, typically accounting for 5% to 6% of an average electricity bill, according to the bill’s explanatory note.

The ERC has similarly supported removing VAT on system loss charges, maintaining that value-added taxation should apply solely to power actually utilized by end-users.

The legislative push arrives as the Philippines continues to grapple with high energy expenses. Citing regional data as of June 2026, Villar noted that the country maintains some of the highest electricity rates in ASEAN and across Asia.

“Hindi makatarungan na ang consumer na nga ang sumasagot sa system loss, papatawan pa ito ng VAT. We have to make electricity charges fairer and ensure that every peso paid by Filipino families corresponds as much as possible to the electricity and services they actually receive,” Villar emphasized.

Villar added that even modest per-kilowatt-hour reductions aggregate into substantial relief across millions of households, directly easing financial pressure on low- and middle-income families.

“Sa bawat bawas sa singil sa kuryente, may dagdag na puwedeng ilaan ang pamilya para sa pagkain, pamasahe, gamot, at edukasyon. This is a practical reform that can translate directly into savings for our consumers,” he said.

-Paraluman News