THE Bureau of Internal Revenue (BIR) has formally removed the Value-Added Tax (VAT) on allowable system loss charges, offering direct financial relief to electricity consumers across the country.
Under Revenue Memorandum Circular (RMC) No. 97-2026, issued on September 14, 2026, the BIR recognized the system loss charge within the cap mandated by the Energy Regulatory Commission (ERC) as a government-mandated pass-through cost.
Consequently, the allowable charge will be excluded from gross sales for VAT purposes, making it exempt from output VAT and creditable withholding on VAT.
The exclusion applies prospectively, aligning with the effectivity of ERC Resolution No. 26, Series of 2026.
However, the exemption does not extend to income tax or its corresponding creditable withholding tax.
BIR Commissioner Charlito Martin R. Mendoza emphasized that the initiative responds to President Ferdinand R. Marcos Jr.’s directive to provide immediate, practical relief to households amidst ongoing broader energy cost reforms in Congress.
“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 stated, highlighting that the bureau acted promptly once the ERC provided the requisite regulatory basis.
For consumers, the change will directly translate into reduced power bills once the rules take effect, as distribution utilities will no longer add VAT to the allowable system loss portion.
To ensure transparency, power providers—including generation companies, the National Grid Corporation of the Philippines (NGCP), distribution utilities, and electric cooperatives—are required to itemize the allowable system loss charge separately on billing statements and invoices.
Affected taxpayers must also maintain strict compliance with billing, accounting, and reporting rules set by both the ERC and the BIR.
This circular builds upon RMC No. 60-2026, which previously clarified tax exclusions for other government-mandated charges like the Lifeline Subsidy and the Green Energy Auction Allowance.
Finance Secretary Frederick Go and Commissioner Mendoza reaffirmed their commitment to delivering practical tax administration reforms that ease daily living expenses for Filipinos.