Consumers will no longer pay value-added tax on the allowable system loss component of their electricity bills once new regulatory rules take effect, the Bureau of Internal Revenue said.
The BIR issued Revenue Memorandum Circular No. 97-2026 on Sept. 14, recognizing electricity system loss charges within the cap approved by the Energy Regulatory Commission as government mandated pass-through costs excluded from gross sales for VAT purposes.
The measure implements President Ferdinand Marcos Jr.’s directive to provide practical relief to consumers and follows instructions from Finance Secretary Frederick Go.
BIR Commissioner Charlito Martin R. Mendoza said the agency acted after the regulatory framework for the system loss charge was finalized.
“Every peso saved by consumers counts,” Mendoza said. “This may be one part of a broader effort to bring down electricity costs, but it is relief that can be implemented under existing law. While Congress continues to consider wider reforms on electricity charges and taxes, the BIR is acting on the measures within its authority that can reduce the burden on consumers.”
The VAT exclusion will take effect only for electricity billings issued after ERC Resolution No. 26, Series of 2026, takes effect. It will not apply retroactively to system loss charges already billed.
The covered system loss charge will be excluded from both output VAT and creditable withholding tax on VAT.
Separate billing required
To qualify for the VAT exclusion, electricity industry participants must separately identify the allowable system loss charge in their billing documents.
The requirement covers generation companies, the National Grid Corporation of the Philippines, distribution utilities and electric cooperatives.
These entities must indicate the covered charge separately on billing statements, invoices or equivalent documents while complying with ERC regulations and applicable tax accounting rules.
The BIR clarified that the relief is limited to VAT on the allowable system loss component.
It does not cover income tax or the corresponding creditable withholding tax.
System loss charges represent electricity losses incurred in delivering power through the electricity system. The ERC sets the allowable level that can be passed on to consumers.
The BIR said the circular builds on earlier measures intended to remove VAT from other government mandated electricity charges.
Under Revenue Memorandum Circular No. 60-2026, the bureau previously clarified VAT exclusions involving charges such as the Lifeline Subsidy and the Green Energy Auction Allowance.
Mendoza said administrative tax measures alone cannot address the broader issue of electricity costs but stressed that the BIR would continue implementing measures within its authority to reduce household expenses where allowed by law.
The VAT relief on allowable system loss charges will therefore depend on the effectivity of the corresponding ERC resolution and compliance with the billing and documentation requirements.
Pgoto courtesy of Philippine News Agency
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