ERC eyes VAT removal in system loss charges

MANILA, Philippines — The Energy Regulatory Commission (ERC) plans to eliminate value-added tax (VAT) on electricity losses charged to consumers, which could save customers P6 billion.

In its draft resolution, ERC aims to exclude system loss charges from the gross receipts of generation firms, distribution utilities, and the grid operator.

Article continues after this advertisement

The regulator wants to classify these charges as government-mandated and not subject to VAT.

ERC Chair Francis Saturnino Juan said costs about P50 billion annually, and eliminating it from power bills would provide significant savings.

System loss is the gap between electricity transmitted and what is ultimately billed to customers.

In his recent State of the Nation Address, President Ferdinand Marcos Jr. urged the removal of system loss charges to ease the financial burden on Filipinos.

When asked about the ERC’s proposal regarding these charges, Juan affirmed that the commission would continue to respond to Marcos’ request.

Article continues after this advertisement

READ: DOE: Scrapping ‘system loss’ charge may take a year

“While awaiting the removal of SL (system loss), either through legislative or administrative fiat, we will continually be exposed to this VAT on SL. That is the objective, to completely remove VAT on SL. It is not to have any excuse for not completely removing SL from being charged to consumers,” he said in a message.

Article continues after this advertisement

“Imposing VAT on top of a charge for electricity that was never delivered to consumers is fundamentally at odds with the nature of VAT as a tax on the value of goods and services actually rendered,” Juan added in a separate statement.

Once the Bureau of Internal Revenue finalizes and backs the resolution, the VAT on system loss charges will immediately be removed.

Financially challenged coops

Antonio Mariano Almeda, National Electrification Administration (NEA) administrator, said electric cooperatives cannot absorb the costs of eliminating system losses from power bills.

“If they will be made to answer for technical systems losses, they will eventually not be able to pay their suppliers, the gencos and the WESM (Wholesale Electricity Spot Market)” he said.

Almeda added that if the government eliminates system losses, 89 out of 121 electric cooperatives would face financial losses.

The Philippine Rural Electric Cooperatives Association (Philreca) earlier expressed support for the removal of VAT on system loss charges. However, it warned that scrapping the fee altogether without a direct government subsidy could put electric cooperatives at risk of bankruptcy. /pai