The Bureau of Internal Revenue (BIR) is preparing to remove the Value-Added Tax (VAT) on the allowable system loss charge in electricity bills, Commission Charlito Martin Mendoza announced.

In a press release on Wednesday, September 2, the agency said it will issue a Revenue Memorandum Circular after the lapse of 15 days from the publication of the Energy Regulatory Commission’s (ERC) Resolution No. 26, Series of 2026, classifying the system loss charge as a government-mandated pass-through cost.

“As Finance Secretary Frederick Go has consistently guided us, our reforms should deliver results that people can immediately feel. When there is a clear basis under the law to provide tax relief, we should act on it,” Mendoza stated. “We are preparing the BIR issuance now so that after the required period has lapsed, we can immediately implement the VAT removal and pass the benefit on to electricity consumers.”

This is aligned with President Ferdinand Marcos Jr.’s directive to review and clarify the tax rules that can provide immediate relief to customers.

Under ERC Resolution No. 26, Series of 2026, the allowable system loss charge is treated as a cost recovered through electricity bills rather than income earned by generation companies, the National Grid Corporation of the Philippines (NGCP), and distribution utilities, the BIR said in a press release.

Mendoza emphasized that consumers should not have to pay VAT on electricity that “never actually reaches their homes or businesses.” Moreover, he said that removing VAT from the said charge would lower the amount electricity consumers would pay.

According to the BIR, the Lifeline Subsidy, Green Energy Auction Allowance, and other specified government-mandated charges are not subject to output VAT and related creditable withholding taxes, under RMC No. 60-2026 released in June.