EVAT on power takes effect as ERC okays guidelines

The impact of the expanded value-added tax (EVAT) on power rates will now be felt by consumers as the Energy Regulatory Commission (ERC) issued the implementing guidelines on the new tax measure.

In a press conference yesterday, ERC chairman Rodolfo Albano Jr. said due to the mitigating measures, however, the impact of EVAT on electricity rates would average between seven to eight percent instead of 10 percent.

For consumers with monthly consumption of between 50 to 100 kilowatthours (kwh), there will be an increase ranging from 23.15 centavos per kwh (P11.48 a month) to 41.53 centavos per kwh (P41.13 per month).

Based on the commission’s estimates, the impact of the EVAT hike to 12 percent by next year would be at around eight to nine percent.

The ERC issued Resolution 20 last Nov. 7 implementing Republic Act 9337 or the new Expanded Value Added Tax Law in the electricity sector. The resolution allows generation companies (GCs), the National Transmission Corp. (TransCo) and the distribution utilities (DUs) to impose the EVAT on electricity sales consistent with Revenue Memorandum Circular (RMC) 61-2005 issued by the Bureau of Internal Revenue (BIR).

"The electricity consumers can rest assure that the ERC has done an extensive review on the implementation measures of the EVAT affecting the electricity sector. Consumer protection is a paramount concern of the ERC," Albano said.

"It will also be comforting for consumers to know that the impact of this new tax measure will be less than eight percent as a result of the removal of the two-percent national franchise tax and that certain items are VAT zero-rated," the ERC chief added.

Albano said the new tax measure, which was made effective last Nov. 1, will be based on the gross receipts (GRs) on sales and services of electricity by generation, transmission, and distribution companies.

The GR, he said, shall be net of all discounts and gross of penalties but shall exclude the Energy Tax under Batas Pambansa 36, benefits to host communities, security deposit on metering machines (including interests provided that when applied to consumer’s liability, it shall be subject to VAT), and the universal charges imposed under the Electric Power Industry Reform Act (EPIRA).

There are several items considered as VAT zero-rated namely: sale of power or fuel generated through renewable sources of energy; and sale of electricity to enterprises registered with the Philippine Economic Zone Authority (PEZA) or the Subic Bay Metropolitan Authority (SBMA).

Transactions made on or before Oct. 31, 2005 but due for collection on or after Nov. 1, 2005 and billed by Nov. 30, 2005 are also considered to be VAT zero-rated.

Such transactions include: electricity sold, transmitted, and distributed; deferred charges such as generation rate adjustment mechanism (GRAM) and incremental currency exchange rate adjustment (ICERA). An inventory of the deferred charges must be submitted to the BIR by Nov. 30, 2005; and generation rate and foreign exchange adjustments to electricity sold on or before Oct. 31, 2005 although billed and collected thereafter.

The VAT collected by the DUs on generation, transmission, and system loss shall be remitted to the concerned GC and TransCo, who, in turn, will be responsible for the tax due to the BIR.

"The ERC would like to emphasize that the electricity providers will not earn out of the VAT transactions. This is a pass through charge that is revenue-neutral. The ERC will perform confirmatory process on VAT imposed by the generation, transmission, and distribution utilities" he said.

The ERC official also guarantees that penalties, including the corresponding VAT imposed on DUs by reason of their fault or negligence, shall not be passed on to consumers.

As this developed, Albano said the commission will decide on the GRAM application of the National Power Corp. (Napocor) before the year ends. Napocor seeks to cover under GRAM its P19 billion worth of deferred charges.

If the application of Napocor for GRAM is approved, consumers in Luzon will be charged with an additional rate of 45 centavos per kwh; 64 centavos per kwh for Visayas customers and 51 centavos per kwh in Mindanao.