VAT on systems loss charge removed from electricity bills

MANILA – The Bureau of Internal Revenue (BIR) issued a memorandum circular on Monday, removing the value-added tax (VAT) on the allowable system loss charge within the cap approved by the Energy Regulatory Commission (ERC).

Memorandum Circular No. 97-2026 circularizes ERC Resolution No. 26 and formally recognizes the allowable system loss charge within the ERC-approved cap as a government-mandated charge excluded from gross sales for VAT purposes.

The BIR said it is therefore not subject to output VAT and creditable withholding on VAT.

The exclusion, however, does not extend to income tax and the corresponding creditable withholding tax.

The BIR said the removal of the VAT on system is in line with President Ferdinand R. Marcos Jr.’s directive to pursue measures that can provide practical relief to consumers.

“Every peso saved by consumers counts. This may be one part of a broader effort to bring down electricity costs, but it is relief that can be implemented under existing law. While Congress continues to consider wider reforms on electricity charges and taxes, the BIR is acting on the measures within its authority that can reduce the burden on consumers,” BIR Commissioner Charlito Mendoza said in a statement.

For VAT purposes, the allowable system loss charge must be separately identified in the billing statement, invoice, or similar document.

The circular said all concerned generation companies, the National Grid Corporation of the Philippines, distribution utilities, electric cooperatives and other affected taxpayers shall ensure the proper billing, accounting, reporting, and separate identification of the charge in accordance with applicable ERC rules and tax regulations.

The BIR’s circular will take effect immediately.

“For consumers, the practical effect is straightforward: once the new rules become effective, VAT will no longer be imposed on the allowable system loss portion of the electricity bill.

That means a lower amount will be passed on to consumers on covered billings and transactions,” Mendoza said.

“President Ferdinand R. Marcos Jr. and Finance Secretary Frederick Go have consistently emphasized that our reforms should translate into benefits that people can actually feel. This is the kind of reform we want to keep pursuing at the BIR: focused, lawful, and practical. No single measure will solve the entire cost of electricity, but where the tax rules allow us to reduce what consumers have to pay, we at the BIR will act.” (PNA)