Manila: The government is not considering introducing a new tax to compensate for the estimated PHP10 billion in annual revenue losses resulting from the removal of the value-added tax (VAT) on allowable electricity system-loss charges, Malacanang disclosed.

According to Philippines News Agency, Palace Press Officer Claire Castro stated that the government plans to rely on tax administration and existing revenue reforms to mitigate the potential reduction in VAT collections. Castro clarified during a Palace briefing that imposing additional taxes is not currently a government concern.

The Bureau of Internal Revenue (BIR) recently issued Memorandum Circular No. 97-2026, which recognizes the allowable system-loss charge within the Energy Regulatory Commission (ERC)-approved cap as a government-mandated charge excluded from gross sales for VAT purposes. Consequently, this charge is not subject to output VAT or creditable withholding tax on VAT, although it remains applicable to income tax and the corresponding creditable withholding tax.

Castro acknowledged that the policy might lead to a reduction of PHP10 billion annually in VAT collections but assured that the government has alternative methods to generate revenue. These methods include effective tax administration and collection, VAT reforms on digital services, and the implementation of the CREATE MORE law.

The Palace emphasized that this policy aims to provide relief to consumers by removing VAT on the allowable system-loss charge, which can contribute to electricity costs. Additionally, revenue reforms could encourage investments and generate additional tax collections.

Meanwhile, Castro mentioned that President Ferdinand R. Marcos Jr. supports the removal of the system-loss charge itself, which would necessitate amendments to the Electric Power Industry Reform Act (EPIRA). Lawmakers have already conducted hearings to evaluate which charges should be removed, retained, or corrected, taking into account the President's stance on the matter.