ERC seeks removal of 12% VAT on system loss charges

The Energy Regulatory Commission (ERC) is proposing to scrap the 12% value-added tax (VAT) dues on system loss charges as part of measures to ease the financial burden of Filipino electricity consumers.

In a statement on Tuesday, the ERC said it proposed a draft resolution amending pertinent provisions of ERC Resolution No. 20, series of 2005, and ERC Resolution No. 14, series of 2022, “to align the existing regulatory framework with this policy position.”

The draft proposed resolution, in particular, aims 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.”

The ERC said the draft resolution, once finalized and confirmed by the Bureau of Internal Revenue (BIR), “will effectively remove the VAT on the system loss charge.”

The power industry regulator said the proposed draft resolution “directly responds to and gives flesh to the directive of President Ferdinand 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.”

The agency said 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.

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.

The ERC said its proposed resolution “puts an end to this layered burden.”

“System loss is electricity that consumers pay for but never receive,” said ERC Chairperson and CEO Francis Saturnino Juan.

“Imposing VAT on top of a charge for electricity that was never delivered to consumers is fundamentally at odds with the nature of VAT as a tax on the value of goods and services actually rendered. This proposed Resolution addresses that and gives consumers the relief they rightly deserve. This is a concrete and immediate step as directed by the President toward making electricity more affordable,” said Juan.

“Working within our existing regulatory authority and in close coordination with the BIR, we are seeking to remove a layer of taxation that consumers have been shouldering for far too long,” added the ERC chief.

The ERC said it will conduct public consultations on the proposed resolution on August 25, 2026.

The agency said stakeholders, including generation companies, distribution utilities, NGCP, consumer groups, and the general public, are encouraged to attend and actively participate in the consultations.

The ERC added that written comments on the proposed resolution may be submitted to the commission on or before August 18, 2026, adding that it may be sent to the ERC through its official address or email.

“We invite all stakeholders to participate in the public consultation process,” said Juan.

At a press conference, the ERC chief said the resolution could be finalized by the first week of September, with the BIR expected to issue its corresponding guidance around the same time.

Juan added that removing the 12% VAT on system loss charges could result in aggregate savings of P6 billion annually for electricity consumers nationwide. —AOL/VBL, GMA News