Philippines to Remove VAT on System Loss Charges by September

MANILA, Philippines — The Bureau of Internal Revenue (BIR) eyes the issuance of a circular removing value-added tax (VAT) on the allowable system loss charge in electricity bills by mid-September. In a statement on Wednesday, the BIR said it was preparing the revenue memorandum circular following Resolution No. 26 from the Energy Regulatory Commission (ERC). READ: Gatchalian: VAT on system loss can already be removed without law The ERC’s resolution officially declared the system loss charge a government-mandated pass-through cost that would no longer form part of the gross sales of generation companies, the National Grid Corp. of the Philippines and distribution utilities. On the other hand, the BIR’s circular is expected to be published after the lapse of the 15-day period following the publication of the ERC resolution on Aug. 28, placing the target release around Sept. 12. BIR officials said there is no specific release date yet, as the issuance must still undergo approval, but the agency is aiming for a mid-September rollout. “In simple terms, consumers should not be paying VAT on electricity that never actually reaches their homes or businesses. A pass-through charge is a cost collected from consumers and passed on to the proper recipient,” BIR Commissioner Charlie Mendoza said. “When there is a clear basis under the law to provide tax relief, we should act on it. We are preparing the BIR issuance now so that after the required period has lapsed, we can immediately implement the VAT removal and pass the benefit on to electricity consumers,” he added. The resolution came more than a month after President Marcos, in his State of thejon Address, had called for the removal of system loss charges in electricity bills to ease the financial burden on Filipinos. READ: ERC: Removing nontechnical system loss charges from power bills feasible System losses refer to electricity that is generated but lost during transmission and distribution. Power firms recover the cost of these losses from consumers through the system loss charge. Once the BIR confirms the new policy, distribution utilities will have 60 days to modify their billing formats to reflect that the system loss charge is no longer subject to VAT. The system loss charge will then be added to the list of government-mandated charges not subject to output VAT and related creditable withholding taxes, including the Lifeline Subsidy and the Green Energy Auction Allowance. Estimates from the Department of Finance showed that the government could lose about P10 billion in revenues annually once the policy takes effect. INQ