Manila: A PHP20 reduction in power consumers' bills is expected following the removal of the value-added tax (VAT) on system loss, Energy Secretary Sharon Garin announced Tuesday. On Monday, the Bureau of Internal Revenue (BIR) issued Memorandum Circular No. 97-2026, removing the allowable system loss charge from government-mandated collections under gross sales for VAT purposes, based on the cap approved by the Energy Regulatory Commission (ERC). The circular, however, does not affect income tax and the corresponding creditable withholding tax.

According to Philippines News Agency, the Department of Energy (DOE) welcomes the BIR's decision, despite it being under the Department of Finance. Energy Secretary Garin emphasized that this is part of a whole-of-government approach. System loss charges are collected by distribution utilities to cover technical and non-technical losses, such as pilferage and system-related factors. Garin explained that BIR can only remove the excise tax on system losses.

The removal of system loss charges would be managed by EPIRA, the ERC, and potentially the NEA or DOE. Garin stated that efforts are underway to gradually reduce system losses to zero, ensuring that electric cooperatives are not financially strained. The gradual approach aims to prevent an abrupt financial burden on cooperatives that could threaten their viability.

Removal of the VAT on system loss aligns with the Marcos administration's goal to reduce electricity costs for consumers. While the BIR's decision may reduce government revenues by approximately PHP10 billion annually, Malacanang declared on Tuesday that there is no plan to introduce new taxes to compensate for this loss.