Gov’t drops system loss VAT

The BIR just dropped the tax on electricity you never got.

Very good news! Also: why are you taxing us for electricity we never got?

Suppose you buy six mangoes. The seller gives you four mangoes because two mangoes vanished somewhere between the mango farm and the mango stand.

Seller: “You owe us for the two missing mangoes. Also, you owe VAT on the missing mangoes.”

You would stop buying mangoes from this person. You would possibly contact the authorities.

This is roughly what has been happening with electricity. Electricity travels through wires. Some reaches your house. Some doesn’t.

Where did it go? Off on various adventures. Heat in the wires. Lost through equipment. Sometimes electricity is stolen: jumpers, illegal connections, people becoming power entrepreneurs.

It’s called “system loss.” See your electric bill.

Under the rules, allowable system losses can be passed on to customers.

The government saw money changing hands. So, naturally, it charged 12-percent VAT.

Beautiful. You paid because electricity was lost. Then you paid VAT on the electricity you paid for that was lost.

A value-added tax is a tax on goods and services. What value was added? The goods never even reached you.

And what did the 12-percent accomplish? Did it make the wires better? Replace transformers? Stop electricity from disappearing? Catch the thieves?

No. The tax didn’t fix the thing it made more expensive. Why are we so much better at collecting for stolen electricity than stopping it from being stolen?

Imagine your bank gets robbed. They take P1 million. The bank can’t recover it, so everybody with a savings account gets a little piece of the robbery. Not the money, don’t get excited. The loss. “Sir, your share of the robbery is P800.”

Excuse me?

“Plus 12-percent VAT.”

Fantastic robbery. The robber gets the money. The bank gets help covering the loss. Government gets the tax. You begin to wonder whether the only person who handled this robbery incorrectly was you.

There is clearly a lot of untapped potential here. Water gets lost too. But nobody thinks to send you a separate bill for the missing cubic meters and put a VAT on the loss. Imagine the restraint.

Pipes leak. People steal it. Illegal connections. Very difficult life, water.

They even have a name for the stuff that disappears: non-revenue water. All these years leaking into the ground for free.

And now government will take the allowable electricity system-loss charge out of the VAT base.

Thank you! Very generous. What a deal. Getting nothing is now cheaper. Now that’s what we call reform.

The government expects to give up roughly P10 billion a year in revenue because of this change. Apparently there was serious money in electricity nobody received.

Ten billion. Happy?

But maybe we shouldn’t complain. We have amazing experience paying taxes for things we never received. Years of experience. Possibly world-class.

We even have flood control that disappeared before the flood did.

Maybe someday we’ll reach the next reform: Getting the things we paid for.