VAT relief seen on power bills

Electricity consumers may soon see some relief in their power bills as the Bureau of Internal Revenue (BIR) moves to remove value-added tax (VAT) on allowable system loss charges without the need for a new law from Congress.

Senate President Sherwin Gatchalian said the planned BIR issuance is already supported by Republic Act No. 11976, or the Ease of Paying Taxes (EOPT) Act.

“The impending issuance by the BIR of a circular removing VAT on allowable system loss charges is a welcome development, as this will help ease the financial burden of consumers facing high electricity bills,” Gatchalian said in a statement.

Under the EOPT Act, amounts collected for payment to third parties or as reimbursement on behalf of another party that does not benefit the seller are excluded from “gross sales” for VAT purposes.

The Energy Regulatory Commission (ERC) on Aug. 26 approved Resolution No. 26, Series of 2026, classifying 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.

Following the ERC action, the BIR said it would issue a revenue memorandum circular confirming the VAT removal after the required 15-day period following publication of the resolution.

Gatchalian said the administrative action supports his position that Congress does not need to pass a separate law specifically removing VAT from the allowable system loss component.

“As I have previously maintained, new legislation is no longer needed for such purpose, as provided for under the Ease of Paying Taxes Act, which I sponsored and authored,” he said.

The BIR had earlier issued Revenue Memorandum Circular No. 116-2024 implementing EOPT provisions for the power industry. The circular 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. Regulations allow utilities to recover a prescribed portion of these losses through electricity bills.

While the VAT on allowable system loss charges is expected to be removed, Gatchalian said he would continue pursuing Senate Bill No. 2350, or the proposed System Loss Charge Abolition Act.

The measure seeks to completely remove the system loss charge from consumers’ electricity bills.

“Para lalo pang maibsan ang pasanin ng consumers, patuloy nating isusulong ang panukalang batas na tuluyang mag-aalis ng system loss charge sa singil sa kuryente (To further ease the burden of consumers, we will continue pushing the bill that will completely remove the system loss charge from electricity bills),” Gatchalian said.

Gatchalian also said the Senate would monitor distribution utilities and electric cooperatives to ensure that the VAT removal is properly reflected in consumers’ bills once implementation begins.

“Susubaybayan din natin ang distribution utilities at electric cooperatives sa pagpapatupad ng VAT removal sa system loss charges, na magsisimula sa kalagitnaan ng buwan (We will also monitor distribution utilities and electric cooperatives in implementing the VAT removal on system loss charges, which will begin in the middle of the month),” he said.