Manila: The Bureau of Internal Revenue (BIR) issued a memorandum circular on Monday, removing the value-added tax (VAT) on the allowable system loss charge within the cap approved by the Energy Regulatory Commission (ERC).
According to Philippines News Agency, Memorandum Circular No. 97-2026 circularizes ERC Resolution No. 26 and formally recognizes the allowable system loss charge within the ERC-approved cap as a government-mandated charge excluded from gross sales for VAT purposes. The BIR stated that it is therefore not subject to output VAT and creditable withholding on VAT.
The exclusion, however, does not extend to income tax and the corresponding creditable withholding tax. The BIR emphasized that the removal of the VAT on the system is in line with President Ferdinand R. Marcos Jr.'s directive to pursue measures that can provide practical relief to consumers. BIR Commissioner Charlito Mendoza noted that every peso saved by consumers counts and highlighted the broader effort to reduce electricity costs.
For VAT purposes, the allowable system loss charge must be separately identified in the billing statement, invoice, or similar document. The circular mandates all concerned generation companies, the National Grid Corporation of the Philippines, distribution utilities, electric cooperatives, and other affected taxpayers to ensure proper billing, accounting, reporting, and separate identification of the charge in accordance with applicable ERC rules and tax regulations.
The BIR's circular will take effect immediately. Mendoza explained that for consumers, the practical effect is straightforward: VAT will no longer be imposed on the allowable system loss portion of the electricity bill, resulting in a lower amount passed on to consumers on covered billings and transactions.
President Ferdinand R. Marcos Jr. and Finance Secretary Frederick Go have consistently advocated for reforms that translate into tangible benefits for the public. Mendoza affirmed that this reform is focused, lawful, and practical, aiming to reduce what consumers have to pay where tax rules permit.
