VAT Relief on System Loss Charges Not Enough; Business Groups Urge Grid Upgrades, Faster Permits

BUSINESS GROUPS welcomed the removal of the value-added tax (VAT) on system loss charges but stated that this alone will not address the root cause of high power costs, urging the government to improve grid reliability and expedite the permitting process for new power plants. Donald Patrick L. Lim, president of the Management Association of the Philippines (MAP), said via Viber that Revenue Memorandum Circular No. 97-2026, issued on September 14, clarified that allowable system loss charges within the cap approved by the Energy Regulatory Commission (ERC) are not subject to the 12% VAT. "We welcome the removal of VAT on allowable system loss charges, but this alone will not address the bigger problem of high power costs," he said. Mr. Lim pointed out that even with the relief to power users, many businesses still suffer from unstable power supply, which disrupts productivity and raises operating costs. "The issue is not just affordability but also reliability," he emphasized. Citing feedback from Cebu-based businessmen, Mr. Lim mentioned that firms in some provinces have been afflicted by rotating brownouts in recent months. "We urgently need more generation capacity, a more reliable grid, greater competition, and faster investments in renewables and energy storage," he urged. "Power is a basic requirement for business, and we cannot expect Philippine companies to be competitive if electricity remains both expensive and unreliable." Edgar O. Chua, chairman of the Makati Business Club (MBC), also said that reforms in the permit process and the electric cooperative industry need to be given priority to further decrease power costs. "There are still many other reforms needed to lower power costs," he said via Viber. Mr. Chua called for the streamlining of the permit process for new generation plants, as well as the professionalization and depoliticization of the selection of directors and officers of electric cooperatives. He also believes that building more power generation plants to reduce Wholesale Electricity Spot Market (WESM) costs, especially during yellow and red alerts, would provide relief to businesses. The Philippines has some of the most expensive electricity rates in Southeast Asia. The Department of Energy estimates an average power price in June of P12.43 per kilowatt-hour (kWh), surpassing Singapore’s average rate by P0.09 per kWh. Business groups have long pushed for reforms to lower power costs, noting that high electricity rates continue to squeeze their operating margins, drag down productivity, and dampen competitiveness. Government estimates indicate that removing the VAT on system loss charges could generate approximately P6 billion in annual savings for electricity consumers.