Scrapping VAT on power sector to affect social services

MANILA, Philippines - Scrapping the value added tax (VAT) on the power industry would be detrimental to the government’s social services even as this may reduce electricity cost, the country’s taxman said.

Bureau of Internal Revenue (BIR) Commissioner Kim Henares said government stands to lose P30 billion yearly if Congress removes the12 percent VAT on power.

“They (the public) will have to accept that we will lose P30 billion which is used to fund many government services,” Henares said on Friday.

She also said BIR has no power to scrap the VAT but Congress.

“The BIR merely implements the law. It’s up to the lawmakers to amend it,” she said, referring to the Republic Act 7716 or the Expanded Value Added Tax Law.

She said it was up to the Department of Finance (DOF) to decide on whether or not it would push for amendments in the law.

Energy Secretary Carlos Jericho Petilla, for his part, said the Energy department is open to various ways on how to reduce power costs but agreed that it was indeed up to the Finance department to study the tax component in the country’s power costs.

Last week, the House Committee on Ways and Means proposed to scrap the 12-percent VAT on the power industry and replace it with a fixed tax scheme to keep power costs manageable.

Committee chairman and Marikina City (2nd district) Rep. Romero Quimbo said the government should revisit the imposition of VAT on the power industry, to bring down power costs.

His proposal comes on the back of an ongoing dispute on high power rates after the Supreme Court imposed a 60-day temporary restraining order (TRO) on the record increase of P3.44 per kilowatt-hour in the December generation charge of Manila Electric Co. (Meralco), the country’s biggest power distributor.

In effect, Meralco has been constrained to collect just P5.67 per kWh in generation charge – the cost of power purchased by Meralco from power producers and which accounts for 65 percent of consumers’ monthly electricity bill – for December.

The TRO remains in effect and the issue has yet to be resolved. The high court has set oral arguments on the petition filed by militant groups against Meralco on Tuesday.