THE Energy Regulatory Commission is moving to strip value-added tax from system loss charges to ease electricity costs for Filipinos, but not before public consultations are held and confirmation from the Bureau of Internal Revenue. This move follows after President Ferdinand R. Marcos Jr. vowed in his last State of the Nation Address that he will not allow consumers to pay for electricity they do not use.
PHOTOGRAPH courtesy of ERC
Power generators, the National Grid Corporation of the Philippines (NGCP), and distribution utilities may soon exclude system loss charges from their gross receipts for value-added tax purposes, under a proposal by the Energy Regulatory Commission (ERC) that could lower electricity bills.
The ERC said Tuesday it has proposed classifying the System Loss Charge as a government-mandated pass-through cost. By doing so, it will be excluded from the gross receipts of power generation entities, distribution utilities and the National Grid Corporation of the Philippines, effectively scrapping the VAT passed imposed on the Systems Loss Charge, and removing an additional cost currently shouldered by households and commercial electricity users.
Inconsistent
ERC chairperson and CEO Francis Saturnino C. Juan said imposing VAT on electricity that consumers do not actually receive is inconsistent with the nature of the tax.
“System loss is electricity that consumers pay for but never receive,” Juan said.
“Imposing VAT on top of a charge for electricity that was never delivered to consumers is fundamentally at odds with the nature of VAT as a tax on the value of goods and services actually rendered. This proposed Resolution addresses that and gives consumers the relief they rightly deserve.”
System loss refers to electricity that is generated and paid for but is lost during transmission and distribution before reaching consumers.
Under existing rules, consumers pay for the lost electricity and the VAT imposed on that charge.
The proposed resolution would amend provisions of ERC Resolution No. 20, Series of 2005, and ERC Resolution No. 14, Series of 2022, to reflect the regulator’s position on the tax treatment of system loss charges.
Concrete, immediate steps
“This is a concrete and immediate step as directed by the President toward making electricity more affordable,” Juan said. “Working within our existing regulatory authority and in close coordination with the BIR, we are seeking to remove a layer of taxation that consumers have been shouldering for far too long.”
Public consultation and Bir confirmation needed
The proposal has yet to clear the public consultation process and secure BIR confirmation before the VAT can be removed.
Public consultations on 25 August
The ERC will hold public consultations on the draft resolution on 25 August, with generation companies, distribution utilities, NGCP, consumer groups and the public invited to participate.
Stakeholders have until 18 August to submit written comments on the proposal to the commission.
