Manila: Electricity consumers may soon get relief from the value-added tax (VAT) imposed on allowable system loss charges without waiting for Congress to pass another tax measure, Senate President Sherwin Gatchalian said Thursday. Gatchalian stated that the impending Bureau of Internal Revenue (BIR) circular removing VAT from allowable system loss charges is already supported by Republic Act No. 11976, or the Ease of Paying Taxes (EOPT) Act.
According to Philippines News Agency, Gatchalian expressed that the impending issuance by the BIR of a circular removing VAT on allowable system loss charges is a welcome development, as it will help ease the financial burden of consumers facing high electricity bills. Under the EOPT Act, amounts collected for payment to third parties or as reimbursement on behalf of another that do not benefit the seller are excluded from 'gross sales' for VAT purposes.
The Energy Regulatory Commission (ERC) on August 26 approved Resolution No. 26, Series of 2026, declaring allowable system loss as a government-mandated pass-through cost rather than part of the gross sales of generation companies, the National Grid Corporation of the Philippines, and distribution utilities. The BIR subsequently announced that it would issue a revenue memorandum circular confirming the VAT removal after the required 15-day period following the publication of the ERC resolution.
Gatchalian stated that the administrative route validates his position that Congress does not need to enact a separate law solely to remove VAT from the allowable system loss component. He emphasized that new legislation is unnecessary for this purpose, as provided for under the Ease of Paying Taxes Act, which he sponsored and authored.
The BIR had previously issued Revenue Memorandum Circular No. 116-2024 implementing EOPT provisions for the power industry, which excludes certain generation and transmission pass-through charges from the gross sales of distribution utilities and electric cooperatives for VAT purposes. System loss refers to electricity lost as power travels through distribution networks before reaching consumers, with regulations allowing utilities to recover a prescribed portion of such losses through electricity bills.
While VAT on the allowable charge is set to disappear, Gatchalian said he would continue pursuing Senate Bill No. 2350, or the proposed System Loss Charge Abolition Act, which seeks to remove the system loss charge from consumers' bills. He emphasized the continued need to ease the burden on consumers and expressed his commitment to pushing the bill that will completely remove the system loss charge from electricity bills.
He further mentioned that the Senate would monitor distribution utilities and electric cooperatives to ensure the VAT removal is properly reflected in consumers' bills once implementation begins. Gatchalian stated the importance of overseeing the implementation process to ensure that the benefits of the VAT removal reach the consumers as planned.
