The Bureau of Internal Revenue (BIR) has announced the removal of the value-added tax (VAT) on system loss charges in power bills, a change that aims to ease the financial burden on consumers.
This decision was formalized in Revenue Memorandum Circular (RMC) No. 97-2026, issued on Monday. The BIR clarified that the allowable system loss charge is a government-mandated cost and does not contribute to the gross sales of generation companies, the National Grid Corp. of the Philippines (NGCP), or 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.
Charlito Martin R. Mendoza, BIR Commissioner
According to BIR Commissioner Charlito Martin R. Mendoza, this change is expected to lead to lower electricity bills. "That means a lower amount will be passed on to consumers on covered billings and transactions," he stated.
- System loss charges must be clearly identified in billing statements to qualify for the VAT exemption.
- The BIR's decision is part of broader efforts to reduce electricity costs for consumers.
While this exemption applies to the system loss charge, it does not extend to income tax or creditable withholding tax. Generation companies and utilities are required to ensure proper billing practices to comply with this new regulation.
The BIR's circular will take effect immediately, with the VAT treatment applied prospectively based on the Energy Regulatory Commission (ERC) Resolution No. 26, Series of 2026. This resolution states that the new VAT treatment will be effective 15 days after its publication.
Distribution utilities have a timeline of 60 days to adjust their billing formats to reflect this change.
This latest move builds on previous BIR actions related to government-mandated electricity charges, which include clarifications on the tax treatment of various subsidies and allowances.