THE Bureau of Internal Revenue (BIR) said it removed the value-added tax (VAT) charge on system losses from power bills.
The BIR issued Revenue Memorandum Circular (RMC) No. 97-2026 on Monday, identifying the allowable system loss charge as a government-mandated pass-through cost that does not form part of the gross sales of generation companies, the National Grid Corp. of the Philippines (NGCP) and distribution utilities for VAT purposes.
“For consumers, the practical effect is straightforward: once the new rules become effective, VAT will no longer be imposed on the allowable system loss portion of the electricity bill,” BIR Commissioner Charlito Martin R. Mendoza said in a statement on Monday.
“That means a lower amount will be passed on to consumers on covered billings and transactions,” he added.
The system loss charge must be separately identified in the billing statement, invoice or similar document to qualify for the VAT exclusion.
The BIR said the exclusion also means the allowable system loss charge will not be subject to output VAT and creditable withholding on VAT. However, the exemption does not extend to income tax and the corresponding creditable withholding tax.
Generation companies, the NGCP, distribution utilities and electric cooperatives were directed to ensure the proper billing, accounting, reporting and separate identification of the allowable system loss charge.
“Every peso saved by consumers counts. 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,” Mr. Mendoza said.
“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,” he added.
The BIR circular takes effect immediately, but the VAT treatment will be applied prospectively in accordance with the effectivity provisions of the Energy Regulatory Commission (ERC) Resolution No. 26, Series of 2026.
The ERC resolution, issued on Aug. 26, provides that the new VAT treatment will take effect 15 days after its publication in a newspaper of general circulation, but not earlier than the effectivity of the BIR’s confirmatory issuance. It will apply only to billings, collections, remittances and related transactions occurring after the resolution takes effect.
Distribution utilities will have 60 days from the resolution’s effectivity to adjust their billing formats and separately reflect the system loss charge as a government-mandated charge not subject to VAT.
The RMC builds on earlier BIR action on government-mandated electricity charges when it clarified the tax treatment of the Lifeline Subsidy, Green Energy Auction Allowance, and other specified government-mandated charges. — Justine Irish D. Tabile
