Consumers are set to see a slight reduction in their power bills after the Bureau of Internal Revenue (BIR) officially exempted the allowable system loss charge from the 12% value-added tax (VAT).
Under Memorandum Circular No. 97-2026 issued Monday, the tax bureau circularized Energy Regulatory Commission (ERC) Resolution No. 26, officially classifying the ERC-capped system loss charge as a government-mandated fee. Because it is excluded from gross sales, the charge will no longer be subject to output VAT or creditable withholding VAT.
However, the BIR clarified that the exemption does not apply to income tax or its corresponding creditable withholding tax.
BIR Commissioner Charlito Mendoza explained that the policy adjustment directly aligns with President Ferdinand Marcos Jr.’s directive to ease financial pressures on Filipino households.
“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. While Congress continues to consider wider reforms on electricity charges and taxes, the BIR is acting on the measures within its authority that can reduce the burden on consumers,” Mendoza stated.
To enforce the ruling, generation companies, the National Grid Corporation of the Philippines (NGCP), distribution utilities, and electric cooperatives must explicitly itemize and separately identify the allowable system loss charge on billing statements and invoices.
The circular takes effect immediately.
“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,” Mendoza added.
“President Ferdinand R. Marcos Jr. and Finance Secretary Frederick Go have consistently emphasized that our reforms should translate into benefits that people can actually feel. This is the kind of reform we want to keep pursuing at the BIR: focused, lawful, and practical. No single measure will solve the entire cost of electricity, but where the tax rules allow us to reduce what consumers have to pay, we at the BIR will act.”