The Bureau of Internal Revenue (BIR) is preparing to eliminate the Value-Added Tax (VAT) currently levied on allowable system loss charges in electricity bills, following a fresh regulatory directive classifying the charge as a pass-through cost.
The tax bureau stated on Wednesday, September 2, that it will issue a Revenue Memorandum Circular 15 days after the official publication of Energy Regulatory Commission (ERC) Resolution No. 26, Series of 2026. The ERC issuance designates allowable system loss as a government-mandated pass-through expense rather than taxable revenue generated by energy firms.
BIR Commissioner Charlito Martin Mendoza explained that the agency’s action reflects instructions from Finance Secretary Frederick Go to implement practical administrative tax adjustments that directly benefit the public.
“As Finance Secretary Frederick Go has consistently guided us, our reforms should deliver results that people can immediately feel. When there is a clear basis under the law to provide tax relief, we should act on it,” Mendoza stated.
“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,” he added.
The tax relief program aligns with directives from President Ferdinand Marcos Jr. to reexamine existing tax provisions and clarify rules that can offer immediate economic relief to power consumers.
Under ERC Resolution No. 26, Series of 2026, the allowable system loss fee is categorized as a recoverable expense passed along through monthly power statements, rather than gross income earned by generation companies, the National Grid Corporation of the Philippines (NGCP), or distribution utilities.
Mendoza stressed that power customers should not pay tax on electricity that never reaches their premises, noting that removing the VAT will effectively lower overall electricity bill amounts.
The upcoming circular follows Revenue Memorandum Circular No. 60-2026, issued by the bureau in June, which exempted government-mandated components such as the Lifeline Subsidy and the Green Energy Auction Allowance from output VAT and related creditable withholding taxes.