The Bureau of Internal Revenue (BIR) has removed the Value-Added Tax (VAT) on the allowable system loss charge within the cap approved by the Energy Regulatory Commission (ERC), a move expected to reduce electricity costs for consumers.
The BIR, under Commissioner Charlito Martin R. Mendoza, issued Revenue Memorandum Circular No. 97-2026 on September 14, formally recognizing the allowable system loss charge as a government-mandated pass-through cost that is excluded from gross sales for VAT purposes.
According to BIR, the exclusion will apply prospectively in accordance with the effectivity of ERC Resolution No. 26, Series of 2026.
“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,” Mendoza said.
He added that the change means a lower amount will be passed on to consumers on covered billings and transactions.
Mendoza said the issuance fulfills the BIR’s earlier commitment to act once the necessary regulatory basis was in place, in line with President Ferdinand R. Marcos Jr.’s directive to pursue measures that can provide relief to consumers.
“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,” Commissioner 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.
Under RMC No. 97-2026, the allowable system loss charge within the ERC-approved cap will not be subject to output VAT and creditable withholding on VAT.
However, the exclusion does not apply to income tax and the corresponding creditable withholding tax.
For VAT purposes, the allowable system loss charge must be separately identified in the billing statement, invoice, or similar document.
Generation companies, the National Grid Corporation of the Philippines (NGCP), distribution utilities, electric cooperatives, and other affected taxpayers are also required to ensure proper billing, accounting, reporting, and separate identification of the charge in accordance with ERC rules and tax regulations.
The BIR said the new issuance builds on its earlier action under Revenue Memorandum Circular No. 60-2026, which clarified the tax treatment of the Lifeline Subsidy, Green Energy Auction Allowance, and other specified government-mandated electricity charges.
Mendoza said the BIR would continue pursuing measures within its authority that could help reduce the burden of electricity costs on consumers.
“No single measure will solve the entire cost of electricity, but where the tax rules allow us to reduce what consumers have to pay, we at the BIR will act,” he said.
