BIR scraps VAT on system loss charge
MANILA, Philippines — The Bureau of Internal Revenue (BIR) has formally removed the value-added tax (VAT) on the allowable system loss charge in electricity bills, a move seen to lower the amount passed on to consumers.
In its Revenue Memorandum Circular (RMC) 97-2026, the BIR recognizes the allowable system loss charge within the cap approved by the Energy Regulatory Commission (ERC) as a government-mandated charge excluded from gross sales for VAT purposes.
The BIR said the exclusion will apply prospectively in accordance with the effectivity of ERC Resolution 26, Series of 2026.
“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,” BIR Commissioner Charlito Martin Mendoza said.
The Philippines has the most expensive electricity rates among its Southeast Asian neighbors, according to the Department of Energy.
The circular said the charge will not be subject to output VAT and creditable withholding on VAT.
The exclusion, however, does not extend to income tax and the corresponding creditable withholding tax.
For VAT purposes, the BIR said allowable system loss charge must be separately identified in the billing statement, invoice or similar document.
Generation companies, the National Grid Corp. of the Philippines, distribution utilities, electric cooperatives and other affected taxpayers must also ensure proper billing, accounting, reporting and separate identification of the charge in accordance with applicable ERC rules and tax regulations.
Mendoza said that while the issuance may be just a fraction of a broader push to bring down electricity costs, it provides 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,” Mendoza said.
The issuance builds on the BIR’s earlier action on government-mandated electricity charges. Under RMC 60-2026, the agency had clarified the tax treatment of the Lifeline Subsidy, Green Energy Auction Allowance and other specified government-mandated charges.
Meanwhile, gasoline, diesel and kerosene prices are set to climb by as much as P5.68, P4.31 and P4.62 per liter, respectively, today, according to the Department of Energy, as the regional benchmark Dubai crude surged past $100 a barrel to hit $116 last week.
For the 30-day period ending Sept. 11, the average Dubai crude price stood at $99.41 per barrel, DOE-Oil Industry Management Bureau director Rino Abad said.
Energy Secretary Sharon Garin said the DOE had already informed the Department of Finance of the breaching of the Dubai crude price threshold.
“So that’s for them to decide whether to do suspension – total or no suspension, or partial suspension,” Garin said in a chance interview yesterday, referring to fuel excise tax.
Under Republic Act 12316, the President may suspend or reduce fuel excise taxes when the average price of Dubai crude exceeds $80 per barrel for a month.
Also on excise tax, Regasco is urging the DOE to recommend suspending the one imposed on diesel and gasoline and not just on liquefied petroleum gas or LPG.
Regasco president Arnel Ty said he had already written Garin about his proposal.
In an interview with radio dzMM, Ty said suspending excise taxes on three widely used energy products will provide much-needed relief for consumers.
“In our opinion and assessment, the problem is more serious now because we are going into the ‘ber months,’” Ty said. “And it looks like Iran and the United States are becoming more stubborn because there’s an upcoming election in November in America.”
A suspension of excise taxes would mean a P10 per liter cut on gasoline prices and P6 on diesel, while LPG prices would fall by P3 per kilogram. — Brix Lelis, EJ Macababbad
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