The Bureau of Internal Revenue (BIR) is preparing to remove the value-added tax (VAT) imposed on allowable system loss charges in electricity bills, a move aimed at reducing the amount consumers pay for power.

In a Wednesday statement, BIR Commissioner Charlito Martin R. Mendoza said the agency will issue a Revenue Memorandum Circular (RMC) clarifying the tax treatment of the charge in line with President Ferdinand R. Marcos Jr.’s directive to review tax rules that could provide immediate relief to consumers.

“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.

On 26 August 2026, the Energy Regulatory Commission (ERC) approved a resolution declaring the allowable system loss charge a government-mandated pass-through cost that should not form part of the VAT base. The VAT rate was previously set at 12 percent.

Under ERC Resolution No. 26, 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.

The BIR said it will issue the circular 15 days after the publication of ERC Resolution No. 26, Series of 2026, which classifies the system loss charge as a government-mandated pass-through cost.

“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 added.

The planned issuance follows an earlier BIR clarification on the tax treatment of government-mandated electricity charges.

Under RMC No. 60-2026, issued in June, the BIR clarified that the Lifeline Subsidy, Green Energy Auction Allowance, and other specified government-mandated charges are not subject to output VAT and related creditable withholding taxes.

Mendoza said the bureau would continue reviewing tax rules to identify provisions where their proper application could provide practical relief to taxpayers.