VAT-free power fee may cost gov’t P10B

MANILA, Philippines — The government could lose an estimated P10 billion annually from the planned removal of the 12-percent value-added tax (VAT) on electricity system loss charges, the Department of Finance (DOF) said. Speaking to reporters on the sidelines of an event, Finance Secretary Frederick Go confirmed the estimated revenue loss, saying the Bureau of Internal Revenue (BIR) is still studying the full impact of the proposed measure. He said the removal of VAT on electricity system loss charges would benefit consumers by reducing their monthly bills. "The intention is to lower the cost of electricity for our consumers," Go said. The proposed measure, which is still pending in Congress, seeks to exempt electricity system loss charges from VAT. Electricity system loss refers to the difference between the amount of electricity generated and the amount delivered to consumers. This loss can be attributed to various factors, including technical losses in transmission and distribution lines, as well as non-technical losses such as pilferage. Power distributors, such as Manila Electric Co. (Meralco), pass on these system loss charges to consumers as part of their monthly electricity bills. The DOF's estimate of P10 billion in foregone revenue is based on the current amount of system loss charges collected and the prevailing VAT rate. While the measure is expected to provide some relief to consumers, it also raises concerns about its impact on government revenue, particularly at a time when the government is seeking to finance various development projects and social programs. Officials said they are exploring ways to mitigate the revenue loss, such as by increasing other tax revenues or by implementing cost-saving measures. However, critics argue that the government should prioritize fiscal discipline and avoid measures that could lead to significant revenue shortfalls. The proposed VAT exemption on electricity system loss charges is part of a broader effort by the government to address the high cost of electricity in the Philippines, which is among the highest in Southeast Asia. Other measures being considered include reforms in the power sector to improve efficiency and reduce generation costs. "We are committed to ensuring that electricity remains affordable and accessible to all Filipinos," Go said. He added that the DOF would continue to work closely with Congress and other relevant agencies to ensure that the proposed measure is implemented in a way that benefits consumers without compromising the government's fiscal position. The Philippines has been struggling with high electricity prices for years, driven by a combination of factors including fuel costs, generation charges, transmission fees, and taxes. In 2022, the average retail electricity rate in the Philippines was P11.46 per kilowatt-hour (kWh), according to the Energy Regulatory Commission (ERC). This is significantly higher than the average rates in other Southeast Asian countries. For example, the average retail electricity rate in Malaysia was P4.50 per kWh, while in Thailand it was P5.20 per kWh. High electricity prices have been a major concern for businesses and households alike, impacting competitiveness and household budgets. The government has been implementing various measures to address the issue, including subsidies for lifeline consumers and efforts to promote renewable energy. However, experts say that more comprehensive reforms are needed to bring down electricity prices in the long term. These reforms could include improving the efficiency of the power sector, promoting competition among power generators, and ensuring that the regulatory framework is conducive to investment and innovation. "We need to ensure that the Philippines has a reliable, affordable, and sustainable energy sector," Go said. He added that the government would continue to explore all options to achieve this goal, including the proposed VAT exemption on electricity system loss charges. The proposed VAT exemption is expected to be debated further in Congress, with lawmakers weighing the potential benefits to consumers against the fiscal implications for the government.