The Bureau of Internal Revenue is moving to eliminate the
12% value-added tax imposed on allowable system loss charges, a policy change
that could provide some relief to electricity consumers.
The planned tax adjustment follows an Energy Regulatory
Commission resolution that formally identifies system loss charges as a
government-mandated pass-through cost. Under the arrangement, the BIR is
preparing a Revenue Memorandum Circular that will operationalize the VAT
exemption once the required 15-day period following the resolution’s
publication has ended.
BIR Commissioner Charlito Martin Mendoza said the agency is
acting on the legal basis for the relief as pressure continues to mount for
measures that can reduce electricity costs.
The change targets a cost component tied to electricity that
is generated and purchased but does not reach customers because of losses
within the power distribution system. These losses can occur as electricity
moves through distribution infrastructure before reaching households and
businesses.
Removing VAT from this charge is expected to reduce the
amount ultimately reflected in consumers’ electricity bills. In practical
terms, the measure would remove a tax layer from a cost that utilities are
allowed to pass through to their customers.
The policy, however, will also have fiscal consequences.
Finance Secretary Frederick Go previously estimated that the government could
forgo roughly ₱10 billion in annual revenue once the VAT removal takes
effect.
The BIR said it is preparing the necessary issuance so implementation can begin promptly after the mandatory waiting period, potentially allowing the savings to reach electricity consumers sooner.
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