VAT Relief on System Loss Charges Welcomed, But Grid Upgrades, Faster Permits Still Needed — Business Groups

BUSINESS GROUPS have welcomed the removal of the 12% value-added tax (VAT) on system loss charges, a component of electricity bills, but are urging the government to address fundamental issues such as improving grid reliability and fast-tracking the permitting process for new power plants to further reduce electricity costs. Revenue Memorandum Circular No. 97-2026, issued on September 14, clarified that allowable system loss charges, capped by the Energy Regulatory Commission (ERC), are exempt from VAT. This move is expected to provide some relief to electricity consumers. However, Donald Patrick L. Lim, President of the Management Association of the Philippines (MAP), stated via Viber, “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 highlighted that many businesses continue to suffer from unstable power supply, which disrupts productivity and increases operating expenses. “The issue is not just affordability but also reliability,” Mr. Lim emphasized. He cited feedback from businessmen in Cebu, where firms have been afflicted by rotating brownouts in recent months, impacting their operations. Mr. Lim stressed the urgent need for more generation capacity, a more reliable grid, greater competition, and accelerated investments in renewables and energy storage. Edgar O. Chua, Chairman of the Makati Business Club (MBC), also called for reforms in the permit process and the electric cooperative industry to be prioritized for further cost reductions. He stated via Viber, “There are still many other reforms needed to lower power costs.” Mr. Chua advocated for streamlining the permit process for new generation plants and professionalizing and depoliticizing the selection of directors and officers of electric cooperatives. He also suggested that building more power generation plants to reduce Wholesale Electricity Spot Market (WESM) costs, especially during yellow and red alerts, would provide significant relief to businesses. The Philippines has among the highest electricity rates in Southeast Asia. The Department of Energy estimates the average power price in June to be P12.43 per kilowatt-hour (kWh), slightly higher than Singapore's average rate. Business groups have long argued that high electricity rates squeeze operating margins, drag down productivity, and dampen competitiveness. While the government estimates that removing the VAT on system loss charges could generate approximately P6 billion in annual savings for electricity consumers, the business sector insists on more comprehensive infrastructure development and regulatory reforms. Information Source: BusinessWorld Economy