BIR removes VAT on allowable system loss charge

Electricity consumers could see some relief on their power bills after the Bureau of Internal Revenue (BIR) removed the 12% value-added tax (VAT) on the allowable system loss charges imposed by power utilities on their customers.

Under Revenue Memorandum Circular 097-2026, issued Monday, September 14, the BIR said the allowable system loss charge within the Energy Regulatory Commission-approved cap will no longer be subject to VAT, as it will be treated as a government-mandated pass-through cost.

“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,” BIR Commissioner Charlito Martin Mendoza said in a statement.

“That means a lower amount will be passed on to consumers on covered billings and transactions,” he added.

System loss refers to the difference between the electricity generated by power plants and the electricity consumed by and billed to end-users. Simply put, it is the cost of the electricity lost as it travels from plants to homes due to both “technical and non-technical” factors.

READ: What is system loss?

The BIR circular, however, does not remove VAT from the entire electricity bill. Instead, VAT will no longer be imposed on the allowable system loss component, which must be separately identified in customers’ billing statements.

“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,” Mendoza said.

“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,” he added.

President Ferdinand “Bongbong” Marcos Jr., in his State of the Nation Address (SONA), called on Congress to amend the Electric Power Industry Reform Act (EPIRA) to put a stop to system loss charges, including an accompanying value-added tax (VAT), from being passed on to consumers.

The Manila Electric Company (Meralco) has since raised its concerns, noting the potential impact on power distribution utilities’ operational and financial health. —AOL, GMA News