THE Bureau of Internal Revenue (BIR) has to remove the value-added tax (VAT) imposed on system loss charges, targeting the issuance of an implementing order by mid-September.
The Energy Regulatory Commission (ERC) has ruled that allowable system loss charges are not part of the gross sales of power firms for VAT purposes, which means a reduction in consumers’ electricity bills.
This still requires a corresponding BIR order, however.
“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,” Commissioner Charlito Martin Mendoza said.
The BIR said it would issue the revenue memorandum circular 15 days from the publication of the ERC’s VAT resolution.
President Ferdinand Marcos Jr. has called for the removal of system loss charges and the attendant VAT from power bills to lower the cost of electricity for consumers.
Under the existing regulatory framework, power firms are allowed to recover part of system losses — electricity generated but lost during delivery due to technical and other issues — from consumers.
With the ERC now treating the allowable system loss charge as a pass-through cost, the BIR said the charge should not be subject to VAT as part of income earned by power firms.
“In simple terms, consumers should not be paying VAT on electricity that never actually reaches their homes or businesses,” Mendoza said.
“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,” he added.
The BIR in June issued RMC 60-2026, clarifying the tax treatment of the lifeline subsidy, Green Energy Auction Allowance and other specified government-mandated charges.
It said that these government-mandated electricity charges were not subject to output VAT and related creditable withholding taxes.
“We will continue reviewing our tax rules for areas where their proper application can provide practical relief to taxpayers,” Mendoza said.
“Where the law allows it, we want that relief to be clear, immediate, and felt by our people,” he added.
Finance Secretary Frederick Go told reporters on Tuesday that the removal of the 12-percent VAT on system loss charges would cost the government some P10 billion annually.
