The Bureau of Internal Revenue has removed the 12% value-added tax on allowable system loss charges passed on to consumers through their electricity bills.
Under Revenue Memorandum Circular No. 97-2026, issued Monday, the BIR recognized allowable system loss charges within the cap set by the Energy Regulatory Commission as government-mandated pass-through costs. These charges are not considered part of gross sales for VAT purposes.
As a result, the allowable system loss portion will no longer be subject to output VAT and creditable withholding tax on VAT.
However, the BIR clarified that the exemption does not cover the entire electricity bill. Income tax and the corresponding creditable withholding tax also remain outside the exemption.
BIR Commissioner Charlito Martin Mendoza said consumers would directly benefit from the policy through lower charges because no VAT will be added to the allowable system loss portion of their electricity bills.
System loss refers to electricity lost between generation and delivery to end-users due to technical and non-technical factors.
The circular directs generation companies, the National Grid Corporation of the Philippines, distribution utilities and electric cooperatives to separately identify allowable system loss charges in billing statements or invoices. They must also ensure proper billing, accounting and reporting.
The new BIR circular takes effect immediately.
The policy follows President Ferdinand Marcos Jr.’s call during his State of the Nation Address to amend the Electric Power Industry Reform Act so system loss charges and their corresponding VAT would no longer be passed on to consumers.
