VAT removal on system loss charges may cut power bills by at least P20 monthly – DOE

ASM, Philippine Canadian Inquirer
September 16, 2026

Electricity consumers may see a small reduction in their monthly bills following the removal of value-added tax (VAT) on allowable system loss charges, with the Department of Energy estimating savings of at least P20 for an average household.

Energy Secretary Sharon Garin said the adjustment is part of government efforts to bring down electricity costs for consumers.

The Bureau of Internal Revenue issued Revenue Memorandum Circular No. 97-2026 on September 14, formally excluding the allowable system loss charge within the Energy Regulatory Commission-approved cap from gross sales for VAT purposes.

This means the allowable system loss component will no longer be subject to output VAT, provided that it is separately identified in electricity bills or invoices. The exemption does not extend to income tax and the corresponding creditable withholding tax.

System loss refers to electricity lost while power is being delivered through the transmission and distribution network. It can result from technical factors such as equipment and line losses, as well as allowable non-technical losses such as electricity theft. Distribution utilities and electric cooperatives are permitted to recover system losses from consumers only within limits set by the ERC.

The VAT removal, however, does not eliminate the system loss charge itself.

Garin said the government is also working toward gradually reducing system losses, with the longer-term goal of bringing them down further without putting electric cooperatives at risk financially.

She said an abrupt removal could force some cooperatives to immediately absorb the costs and potentially affect their financial viability.

The BIR circular took effect immediately and applies prospectively to covered billings and transactions.