BIR prepares VAT removal on system loss charge in power bills

MANILA, Philippines — The Bureau of Internal Revenue is preparing a revenue memorandum circular removing the value-added tax on the allowable system loss charge in electricity bills, following the directive of President Ferdinand R. Marcos Jr. to review and clarify tax rules that can provide immediate relief to consumers, Commissioner Charlito Martin R. Mendoza, the bureau chief, said in a statement on Wednesday.

The BIR will issue the circular 15 days from the publication of Energy Regulatory Commission (ERC) Resolution No. 26, Series of 2026, which classifies the system loss charge as a government-mandated pass-through cost. The ERC resolution was issued on Aug. 26 and officially published on Aug. 28.

Mendoza cited a remark made by Finance Secretary Frederick Go on the issue that reforms should deliver results that people could immediately feel.

Article continues after this advertisement

READ: Gatchalian: VAT on system loss can be removed without law

FEATURED STORIES

NEWSINFO

NEWSINFO

NEWSINFO

“When there is a clear basis under the law to provide tax relief, we should act on it. We are preparing the BIR issuance now so that after the required period has lapsed, we can immediately implement the VAT removal and pass the benefit on to electricity consumers,” Mendoza said.

Under the ERC resolution, the allowable system loss charge is treated as a cost recovered through electricity bills rather than income earned by generation companies, the National Grid Corporation of the Philippines (NGCP), and distribution utilities.

“In simple terms, consumers should not be paying VAT on electricity that never actually reaches their homes or businesses. A pass-through charge is a cost collected from consumers and passed on to the proper recipient. Removing VAT from that charge means a lower amount will be passed on to electricity consumers,” Mendoza said.

The forthcoming issuance builds on BIR Revenue Memorandum Circular l No. 60-2026, released in June, which clarified the tax treatment of government-mandated electricity charges.

Article continues after this advertisement

READ: ERC: Removing nontechnical system loss charges feasible

According to that June circular, the Lifeline Subsidy, Green Energy Auction Allowance, and other specified government-mandated charges are not subject to output VAT and related creditable withholding taxes.

Article continues after this advertisement

“We will continue reviewing our tax rules for areas where their proper application can provide practical relief to taxpayers. Where the law allows it, we want that relief to be clear, immediate, and felt by our people,” Mendoza said. /atm