The Bureau of Internal Revenue (BIR) will remove the Value-Added Tax (VAT) on the allowable system loss charge on electricity within the cap approved by the Energy Regulatory Commission (ERC).
BIR Commissioner Charlito Martin R. Mendoza issued Revenue Memorandum Circular No. 97-2026 on Sept. 14, which recognizes the system loss charge as government-mandated pass-through cost that will not be included in gross sales for VAT.
According to Mendoza, the move may reduce the amount passed on to consumers in their electricity bill.
The allowable system loss charge must be shown separately in the billing statement, invoice or similar document so it will not be included in the output VAT.
BIR clarified that VAT exemption is only for allowable system loss charge and will not include income tax and corresponding creditable withholding tax.
The new policy will be implemented prospectively in accordance with effectivity of ERC Resolution No. 26, Series of 2026, and will include generation companies, NGCP, distribution utilities, electric cooperatives and other affected taxpayers.