Electricity consumers are set to get some relief from their power bills after the Bureau of Internal Revenue (BIR) removed the Value-Added Tax (VAT) on the allowable system loss charge within the cap approved by the Energy Regulatory Commission (ERC).

The BIR, through Revenue Memorandum Circular No. 97-2026 issued 14 September 2026, recognized the allowable system loss charge as a government-mandated pass-through cost that is excluded from gross sales for VAT purposes.

The new tax treatment will apply prospectively based on the effectivity of ERC Resolution No. 26, Series of 2026.

“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 Martin R. Mendoza said.

Under the circular, the allowable system loss charge within the ERC-approved cap will not be subject to output VAT and creditable withholding on VAT. However, the exclusion applies only to VAT and does not cover income tax and its corresponding creditable withholding tax.

The charge must be separately identified in billing statements, invoices or similar documents for VAT purposes.

Generation companies, the National Grid Corporation of the Philippines (NGCP), distribution utilities, electric cooperatives and other affected taxpayers are required to follow the applicable ERC and tax rules in billing, accounting and reporting the charge.

Mendoza said the measure fulfills the BIR’s commitment to implement tax relief within its authority while broader reforms on electricity costs remain under consideration.

“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,” he said.

The latest issuance follows RMC No. 60-2026, which clarified the tax treatment of other government-mandated electricity charges, including the Lifeline Subsidy and Green Energy Auction Allowance.