The Bureau of Internal Revenue (BIR) has removed the value-added tax (VAT) on the allowable system loss charge within the cap set by the Energy Regulatory Commission (ERC), a move that lowers the amount consumers pay on their electricity bills.
Memorandum Circular No. 97-2026, issued Monday, circularizes ERC Resolution No. 26 and classifies 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 the charge is no longer subject to output VAT or creditable withholding tax on VAT. The exclusion does not cover income tax or the corresponding creditable withholding tax, which continue to apply.
System loss refers to electricity that is generated but not billed to end users, due to technical losses in transmission and distribution or to non-technical factors such as theft and metering errors. The ERC sets a cap on how much of this loss distribution utilities and cooperatives may pass on to consumers through their bills.
The BIR said the circular carries out President Ferdinand R. Marcos Jr.’s directive to pursue measures that provide practical relief to consumers on electricity costs.
“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.
For VAT purposes, the allowable system loss charge must appear as a separate line item in the billing statement, invoice, or similar document. Generation companies, the National Grid Corporation of the Philippines, distribution utilities, electric cooperatives, and other affected taxpayers are required to ensure proper billing, accounting, and reporting of the charge, and to keep it separately identified in accordance with ERC rules and tax regulations.
The circular took effect immediately upon issuance.
“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.”
The removal applies to the system loss component of electricity bills nationwide. Congress separately continues to deliberate broader legislative reforms on electricity charges and taxation.
