The Energy Regulatory Commission (ERC) has introduced a proposal to eliminate the 12% value-added tax (VAT) on system loss charges, aiming to reduce electricity costs for consumers. If approved, the measure is expected to yield approximately P6 billion in savings.
Clarifying System Loss Charges
Under the draft resolution, the ERC intends to classify the system loss charge as a government-mandated expense, thus exempting it from VAT. This charge reflects the difference between electricity supplied to utilities and what actually reaches consumers.
The exclusion of the allowable system loss charge from the VAT base of gencos and NGCP will directly reduce the cost of electricity charged to consumers.
Francis Saturnino C. Juan, ERC Chairman and CEO
- The system loss charge is currently included in electricity bills.
- The proposal aligns with President Ferdinand R. Marcos, Jr.'s call for VAT removal on unutilized electricity.
Historically, VAT on system losses was permitted under the National Internal Revenue Code of 1997 and later modified in 2005. The ERC's latest move is seen as a response to ongoing consumer complaints about high electricity costs.
ERC Chairman Juan emphasized that taxing a charge for electricity not delivered contradicts the purpose of VAT. The potential financial impact on distribution utilities and electric cooperatives is a concern, as some may struggle to absorb these changes.
Antonio Mariano C. Almeda from the National Electrification Administration warned that many electric cooperatives could face significant losses if the system loss charge is removed. He noted that 89 out of 121 cooperatives would be adversely affected.
Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., described the proposal as a sensible reform that could provide immediate relief to consumers and promote fair pricing in the electricity market.