ERC fast-tracking reso to remove 12% VAT on system loss charges

The Energy Regulatory Commission (ERC) is fast-tracking the issuance of an administrative resolution scrapping the 12% value-added tax (VAT) on electricity system loss charges.

Last week, the ERC announced a draft resolution amending pertinent provisions of ERC Resolution No. 20, series of 2005, and ERC Resolution No. 14, series of 2022 to declare system loss charge as a government-mandated pass-through cost “that should not form part of the gross receipts of Generation Companies (GCs), the National Grid Corporation of the Philippines (NGCP), and Distribution Utilities (DUs) for the purposes of the 12% Value-Added Tax (VAT) under the National Internal Revenue Code (NIRC) of 1997, as amended.”

At a joint hearing of the Senate committees on energy and public services on Thursday, ERC chairman Francis Saturnino Juan said the agency will follow the due process on the adoption of rules.

“So isasagawa namin ang naitakdang public consultation on August 25… and August 26 din po ilalabas namin ang resolution [So we will conduct the scheduled public consultation on August 25… and on August 26 we will be releasing the resolution],” Juan said.

The ERC chief said the approved resolution shall take effect 15 days after publication alongside the release of a counterpart Revenue Memorandum Circular (RMC) from the Bureau of Internal Revenue (BIR).

The power industry regulator earlier said that the VAT on system loss has long been identified as a charge that consumers pay on electricity that was never actually delivered to them.

System loss refers to electricity that is generated and paid for but is physically dissipated or lost in the course of transmission and distribution before it ever reaches consumers.

EXPLAINER: What is system loss and why is it included in your electricity bill?

Under existing rules, consumers are charged for this lost electricity, and on top of that, they are also made to pay VAT on the charge.

During the hearing, the ERC chief said that once the resolution and RMC are effective, the removal of VAT on system loss charges could be implemented as early as the September billing round.

However, Juan said that electric cooperatives and distribution utilities might ask for more time to adjust their billing softwares to reflect the removal of VAT on system loss charges.

The ERC earlier estimated that removing the 12% VAT on system loss charges could result in aggregate savings of P6 billion annually for electricity consumers nationwide.

The power industry regulator had said that it proposed draft resolution “directly responds to and gives flesh to the directive of President Ferdinand "Bongbong" Marcos Jr. in his State of the Nation Address (SONA), calling for the reduction of electricity costs and the elimination of charges that do not reflect actual services rendered to consumers.” — BM, GMA News