DAVAO CITY (September 2)— Electricity consumers could soon see a lower amount on their power bills as the Bureau of Internal Revenue (BIR) moves to remove the 12 percent value-added tax (VAT) on allowable system loss charges.
BIR Commissioner Charlito Martin R. Mendoza said Wednesday that the bureau is preparing a revenue memorandum circular to implement the tax relief, following President Ferdinand R. Marcos Jr.’s directive to review tax rules that could provide immediate relief to consumers.
In simple terms, consumers may no longer have to pay VAT on the portion of electricity that is lost before it reaches their homes or businesses.
The move follows Energy Regulatory Commission (ERC) Resolution No. 26, Series of 2026, which classifies the allowable system loss charge as a government-mandated pass-through cost.
The resolution was issued on Aug. 26 and published on Aug. 28. The BIR said it will issue its circular 15 days after the ERC resolution’s publication, paving the way for the VAT removal.
Mendoza said the goal is to make the tax relief something consumers can actually feel in their monthly bills.
“When there is a clear basis under the law to provide tax relief, we should act on it,” Mendoza said.
He added that the BIR is preparing the issuance so that the VAT removal can be implemented immediately after the required period.
What is a system loss charge?
The system loss charge is an amount included in electricity bills to cover electricity lost during transmission and distribution through the power system.
Under the ERC resolution, the allowable system loss charge is considered a cost recovered through consumers’ electricity bills—not income earned by power companies, NGCP, or distribution utilities.
Mendoza explained it more simply: consumers should not be paying VAT on electricity that never actually reaches their homes or businesses.
Because the charge is merely collected from consumers and passed on to the appropriate recipient, removing VAT from it should reduce the amount ultimately charged to consumers.
The forthcoming BIR issuance builds on Revenue Memorandum Circular No. 60-2026, issued in June, which clarified the tax treatment of government-mandated electricity charges.
That circular stated that the Lifeline Subsidy, Green Energy Auction Allowance, and other specified government-mandated charges are not subject to output VAT and related creditable withholding taxes.
Mendoza said the BIR will continue reviewing tax rules to identify areas where proper application of the law can provide practical relief to taxpayers.
“Where the law allows it, we want that relief to be clear, immediate, and felt by our people,” he said.-ezc
