EARLIER this week, Quezon City 4th District Rep. Jesus “Bong” Suntay announced that he had filed House Bill (HB) 10160, dubbed the Electricity VAT Relief Act, which would abolish the value-added tax (VAT) on electricity sales to all end-users, including residential, agricultural, commercial and industrial consumers. This is not the first time such a bill has been introduced, and there are currently at least two other similar ones in the legislative pipeline, one each in the House of Representatives and Senate, but Suntay’s measure is the most comprehensive.
Coming as it does at a time when steadily climbing energy costs are a particularly sharp pain point for Filipino businesses and consumers, any measure to provide relief should be given the highest priority. In terms of quick and meaningful action toward that end, HB 10160 and its related measures are not even low-hanging fruit for the government; they are fruit that has already fallen off the tree and are just waiting to be picked up.
HB 10160, which appears to be an updated version of a similar measure introduced by then-party-list representative Erwin Tulfo and the ACT-CIS Party-list during the 18th Congress, is relatively simple. It proposes that the VAT currently applied to electric bills be removed, and that electricity distributors reflect the savings from this on their customers’ monthly bills.
The latter directive seems like window-dressing that could probably be dropped, as the savings from elimination of the VAT would be immediately obvious to most customers without the need to impose an additional, tedious administrative step on distributors. VAT typically accounts for about 8.5 to 9 percent of a monthly electric bill, so for a Meralco customer who consumed about 300 kilowatt-hours this month, the savings would be nearly P400.
Currently, VAT is only applied to the generation charge, transmission charge, distribution charge and the system loss charge line items on a customer bill; there are other government-imposed taxes and charges, but HB 10160 and the other bills currently on file do not address those. Only the distribution charge is subject to the full 12-percent VAT rate; the generation, transmission and system loss charges are taxed at 10.05 percent, 10.29 percent and 10.08 percent, respectively.
DOF likely objection
The major objection to the removal of the VAT from electricity bills would come from the government, of course, as doing so would reduce government tax revenues by an estimated P120 billion to P155 billion annually. So far, the Department of Finance (DOF) has not weighed in on the VAT-removal proposal — perhaps counting on it to die on the legislative vine, as previous proposals have — but we would not expect it to endorse it.
That implied objection is probably why none of the electricity rate relief bills have yet been given the “priority legislation” designation, but two other pending measures may offer an easy compromise, though they would not go as far as HB 10160 in providing actual savings to consumers. In March, Murang Kuryente Party-list Rep. Arthur Yap filed HB 8415, which would remove the VAT applied to the system loss charge; at the same time, Yap filed a resolution calling for a congressional inquiry into the various pass-through and add-on charges applied to electric bills. In May, Sen. Risa Hontiveros filed a similar measure, Senate Bill 2076, seeking to amend the 1997 National Internal Revenue Code to abolish the VAT on system loss charges.
Even if the DOF were to object to the potential loss of tax revenue from this billing line item — which would amount to P670 million to P840 million, by our calculations — it would be well-advised to keep its dissent to itself, as charging VAT on system loss is both logically and legally unsupportable. A “loss” cannot be defined as something of value, and thus cannot be subjected to a “value-added” tax; that no one has challenged this in the courts yet is somewhat surprising, but perhaps pointing out this elementary flaw in the government’s thinking will encourage someone to do so.
The mere fact that consumers are charged for a certain amount of electricity that they did not use, due to losses from system inefficiencies, theft by others or simple physics, already is infuriating to consumers; taxing that charge simply adds insult to injury. Removing the VAT on system loss charges would be an almost inconsequential bit of economic relief — about P26 on our example bill above — but it would be a welcome indicator of government sensitivity toward consumer concerns.
