Electricity consumers may soon get some relief on their power bills after the Bureau of Internal Revenue (BIR) removed the 12% value-added tax (VAT) on allowable system loss charges.
Under Revenue Memorandum Circular 097-2026 issued Monday, September 14, the BIR said system loss charges within the limit approved by the Energy Regulatory Commission (ERC) will no longer be subject to VAT.
The BIR will treat the allowable system loss charge as a government-mandated pass-through cost.
What Consumers Can Expect
BIR Commissioner Charlito Martin Mendoza said the change will directly reduce the amount consumers pay once the new rules take effect.
“For consumers, the practical effect is straightforward: once the new rules become effective, VAT will no longer be imposed on the allowable system loss portion of the electricity bill,” Mendoza said.
“That means a lower amount will be passed on to consumers on covered billings and transactions,” he added.
System loss refers to electricity that is lost between the amount generated by power plants and the amount eventually delivered and billed to consumers. It may result from technical issues in the power system or non-technical factors, including electricity theft.
VAT Exemption Covers Only One Part of the Bill
The BIR clarified that the measure does not remove VAT from the entire electricity bill.
Only the allowable system loss component will be exempt, and utilities must separately identify this amount in customers’ billing statements.
“Every peso saved by consumers counts,” Mendoza said, describing the measure as part of broader efforts to reduce electricity costs.
He added that the BIR is implementing measures within its authority while Congress considers wider reforms involving electricity charges and taxes.
Follows Marcos’ Call for Power Reforms
The move follows President Ferdinand “Bongbong” Marcos Jr.’s call during his State of the Nation Address (SONA) for Congress to amend the Electric Power Industry Reform Act (EPIRA).
Marcos urged lawmakers to stop system loss charges, including the corresponding VAT, from being passed on to consumers.
The proposal has also raised concerns among power distributors. The Manila Electric Company (Meralco) has warned that changes to system loss charges could affect the operational and financial health of distribution utilities.
For now, the BIR measure provides targeted relief by removing VAT from the allowable system loss component while broader reforms remain under discussion.
