BIR removes VAT on system loss charge in electricity bills
The Bureau of Internal Revenue has removed the Value-Added Tax on the allowable system loss charge in electricity bills, following the Energy Regulatory Commission's approval of the charge.
Under Revenue Memorandum Circular No. 97-2026, the system loss charge will be recognized as a government-mandated pass-through cost excluded from VAT purposes, potentially lowering the amount passed on to consumers through their electricity bills.
"Every peso saved by consumers counts," BIR Commissioner Charlito Martin R. Mendoza said. "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."
The system loss charge covers the electricity lost as power travels from generation facilities to consumers. It's computed based on a customer’s kilowatt-hour consumption and accounts for about 5% of a typical Meralco bill.
For the tax treatment to apply, 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, distribution utilities, electric cooperatives, and other affected taxpayers must also comply with applicable ERC rules and tax regulations.
The BIR clarified that the exclusion applies specifically to VAT and does not extend to income tax and the corresponding creditable withholding tax.
The new circular builds on RMC No. 60-2026, which previously clarified the tax treatment of the Lifeline Subsidy, Green Energy Auction Allowance, and other specified government-mandated electricity charges.
Mendoza said the latest measure is part of the BIR's broader effort to pursue reforms that can provide practical relief to 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.
In his 2026 State of the Nation Address, President Ferdinand Marcos Jr. called for the removal of the system loss charge from consumers' electricity bills.
"Hindi naman kasalanan ng consumer kung bakit nagkaroon ng system loos, kaya hindi naman tama na kailangan sila pa ang pagbabayarin dito," he said.
