MANILA, Philippines — The Energy Regulatory Commission (ERC) is moving to scrap the value-added tax (VAT) on system loss charges, with consumers estimated to save around P6 billion annually.
Under a draft resolution, the ERC is proposing to exclude system loss charges from the taxable gross receipts of generation companies (gencos) and the National Grid Corp. of the Philippines (NGCP).
The proposal will require distribution utilities to separately identify the system loss charge on consumers’ bills as a government-mandated pass-through cost not subject to VAT.
Once finalized and confirmed by the Bureau of Internal Revenue (BIR), the move will effectively remove the 12 percent VAT on system loss charges, delivering immediate relief to households and businesses nationwide.
“The exclusion of the allowable system loss charge from the VAT base of gencos and NGCP will directly reduce the cost of electricity charged to consumers,” the ERC said, citing its mandate to ensure access to affordable power.
System loss refers to electricity that has been generated and paid for but is lost during transmission and distribution to end-users. The cost is currently recovered through a separate line item on consumers’ power bills.
With system loss charges estimated at around P50 billion annually, ERC chairman and CEO Francis Saturnino Juan said removing the corresponding VAT could save consumers roughly P6 billion.
Juan, however, noted that the proposal still needs the BIR’s acceptance of the ERC’s characterization of system loss charges as a government-mandated pass-through cost.
Implementation will also depend on the BIR issuing its own rules to operationalize the proposed VAT removal.
“Imposing VAT on top of a charge for electricity that was never delivered to consumers is fundamentally at odds with the nature of VAT as a tax on the value of goods and services actually rendered,” Juan said.
For an average Metro Manila household consuming 200 kilowatt-hours, system loss charges amounted to P0.8751 per kWh in July.
“Removing the VAT corresponding to that system loss charge alone would translate to approximately P21 in potential savings for that household,” Garin told a media briefing yesterday.
“It may be one component of the electricity bill, but it reflects a larger principle: consumers should not be made to shoulder costs that can and should be addressed through greater efficiency and accountability,” she added.
This follows President Marcos’ directive during his State of the Nation Address last month to eliminate electricity charges that do not reflect actual services rendered to consumers.
The National Electrification Administration (NEA), meanwhile, said 89 of the country’s 121 electric cooperatives could face financial losses if they are required to absorb the cost of removing system loss charges from power bills.
“If they are made to answer for technical systems losses, they will eventually not be able to pay their suppliers,” NEA administrator Antonio Mariano Almeda said. “The continuing partial payments will eventually lead to indebtedness without source of repayment.”