‘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. That means a lower amount will be passed on to consumers on covered billings and transactions.’ — BIR Commissioner Charlito Mendoza
The Bureau of Internal Revenue (BIR), under Commissioner Charlito Martin R. Mendoza, has issued Revenue Memorandum Circular No. 97-2026 removing the Value-Added Tax (VAT) on the allowable system loss charge within the cap approved by the Energy Regulatory Commission (ERC).
Issued on 14 September 2026, the Circular recognizes the charge as a government-mandated pass-through cost excluded from gross sales for VAT purposes, with the exclusion to apply prospectively in accordance with the effectivity of ERC Resolution No. 26, Series of 2026.
Earlier commitment
Commissioner Mendoza said the issuance delivers on the BIR’s earlier commitment to act once the necessary regulatory basis was in place, in line with President Ferdinand R. Marcos Jr.’s directive to pursue measures that can provide practical relief to consumers.
“Every peso saved by consumers counts. This may be one part of a broader effort to bring down electricity costs, but it is relief that can be implemented under existing law. While Congress continues to consider wider reforms on electricity charges and taxes, the BIR is acting on the measures within its authority that can reduce the burden on consumers,” Commissioner Mendoza said.
RMC No. 97-2026 circularizes ERC Resolution No. 26, Series of 2026 and formally recognizes the allowable system loss charge within the ERC-approved cap as a government-mandated charge excluded from gross sales for VAT purposes. It is therefore not subject to output VAT and creditable withholding on VAT. The exclusion does not extend to income tax and the corresponding creditable withholding tax.
For VAT purposes, the allowable system loss charge must be separately identified in the billing statement, invoice, or similar document.
Generation companies, the National Grid Corporation of the Philippines, distribution utilities, electric cooperatives and other affected taxpayers must also ensure proper billing, accounting, reporting and separate identification of the charge in accordance with applicable ERC rules and tax regulations.
Practical effect is straightforward
“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. That means a lower amount will be passed on to consumers on covered billings and transactions,” Commissioner Mendoza said.
The issuance builds on earlier BIR action on government-mandated electricity charges. Under RMC No. 60-2026, the BIR had already clarified the tax treatment of the Lifeline Subsidy, Green Energy Auction Allowance, and other specified government-mandated charges. RMC No. 97-2026 continues this approach by extending the VAT treatment to the allowable system loss charge.
“President Ferdinand R. Marcos Jr and Finance Secretary Frederick Go have consistently emphasized that our reforms should translate into benefits that people can actually feel. This is the kind of reform we want to keep pursuing at the BIR: focused, lawful, and practical. No single measure will solve the entire cost of electricity, but where the tax rules allow us to reduce what consumers have to pay, we at the BIR will act,” Commissioner Mendoza said.
