BIR Removes VAT on Allowable System Loss Charges, Easing Burden on Electricity Consumers

The Bureau of Internal Revenue (BIR) has announced the removal of the 12% value-added tax (VAT) on allowable system loss charges imposed on electricity consumers. This move aims to alleviate the financial burden on households. Under Revenue Memorandum Circular 097-2026, issued on Monday, September 14, the BIR stated that allowable system loss charges, within the cap approved by the Energy Regulatory Commission (ERC), will no longer be subject to VAT. These charges will be treated as government-mandated pass-through costs. "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," said BIR Commissioner Charlito Martin Mendoza in a statement. "That means a lower amount will be passed on to consumers on covered billings and transactions." System loss refers to the discrepancy between the electricity generated by power plants and the amount consumed and billed to end-users. It represents the cost of electricity lost during transmission from plants to homes due to both "technical and non-technical" factors. However, the BIR circular does not eliminate VAT from the entire electricity bill. VAT will only be removed from the allowable system loss component, which must be separately itemized on customer billing statements. "Every peso saved by consumers counts. This may be one part of a broader effort to bring down electricity costs, but it is relief that can be implemented under existing law," Mendoza added. "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." President Ferdinand “Bongbong” Marcos Jr. had previously called on Congress in his State of the Nation Address (SONA) to amend the Electric Power Industry Reform Act (EPIRA) to prevent system loss charges and their associated VAT from being passed on to consumers. The Manila Electric Company (Meralco) has expressed concerns regarding the potential impact on the operational and financial health of power distribution utilities. The implementation of this measure will also need to consider its effects on the calculation of electricity rates. Source: GMA Money Philippines