Energy sector seeks measures to soften impact of 12% VAT

The public and private proponents of the energy sector are continuously exploring ways to mitigate the impact of the imposition of the 12 percent expanded value-added tax (EVAT) on power and petroleum products, Energy Secretary Raphael P.M. Lotilla said.

Lotilla said he would be talking with the officials of the Energy Regulatory Commission, the National Power Corp. (Napocor) and the Manila Electric Co. (Meralco) to cushion the impact of the increase in EVAT from 10 percent to 12 percent "in terms of the dispatch mix".

"I will ask my staff, together with Meralco and Napocor, to validate the order of ERC on the dispatch protocol and see whatever excerpt that we could modify to give the consumers the best price," Lotilla said.

He said they would look into the possibility of utilizing more hydro power plants of Napocor with the abundance of rainfall at this time of the year.

But the energy chief believed that the impact on power rates will only be 1.8 percent instead of two percent.

On the rise of EVAT on petroleum products, Lotilla said "We will see and discuss some measures with economic managers. We will be looking at the rules on ethanol importation."

For its part, the ERC has assured electricity consumers that appropriate mitigating measures will be put in place to cushion the impact of the EVAT.

In Resolution No. 20 dated Nov. 7, 2005, the ERC approved the guidelines to implement Republic Act No. 9337 or the new EVAT law in the electricity sector.

The said resolution allows generation companies (GCs), the National Transmission Corp. (TransCo) and the distribution utilities (DUs) to impose the VAT on electricity sales consistent with Revenue Memorandum Circular (RMC) No. 61-2005 issued by the Bureau of Internal Revenue (BIR).

The new tax measure’s implementation is based on gross receipts on sales and services of electricity by the generation, transmission and distribution companies.

Excluded from the gross receipts are universal charge, benefits to host communities, and other taxes imposed under the Electric Power Industry Reform Act (EPIRA).

On the other hand, the sale of power or fuel generated through renewable sources of energy such as biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels are transactions subject to zero percent VAT rate.

The abolition of the two percent national franchise tax will also cushion the impact of the 10 percent VAT rate.

These, coupled with existing pricing policy for marginalized consumers known as lifeline rates, will help mitigate the impact of the EVAT.

The ERC also assured electricity consumers that penalties including the corresponding VAT imposed on DUs by reason of their fault or negligence shall not passed on to them.

"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," it said.