VAT Removal on System Losses to Cost Govt P10 Billion Annually

The Philippine government stands to lose about P10 billion annually from the removal of the 12% value-added tax (VAT) imposed on electricity system losses, Finance Secretary Frederick D. Go announced on Tuesday. "I think it's P10 billion. That's annually," Go told reporters on the sidelines of an event. He added that the Department of Finance (DoF) is awaiting a policy decision from the Energy Regulatory Commission (ERC) regarding the matter. On August 11, the ERC published a resolution proposing to scrap the 12% VAT on system losses from the gross receipts of generation companies (gencos), distribution utilities, and the grid operator. The regulator aims for system loss charges within the allowable cap to be identified as government-mandated charges, thereby exempting them from VAT. System losses are defined as the difference between the electricity delivered to a distribution system and the electricity supplied to end-users. The costs associated with these losses are typically borne by consumers. President Ferdinand R. Marcos, Jr. had previously called for the removal of the system loss charge and its corresponding VAT to ease the financial strain on consumers. The VAT on system losses was initially authorized by the National Internal Revenue Code of 1997, which was subsequently amended in 2005 through the Reformed Value-Added Tax Law. A 12% VAT is currently levied on the sales of electricity by generation, transmission, and distribution companies.