Electricity bills get a small break as system loss charges go VAT-free

The issuance aligns with previous tax exemptions granted to mandatory pass-through fees, such as the Lifeline Subsidy and Green Energy Auction Allowance.

Electricity bills are getting a small break, with allowable system loss charges now free from VAT.

The Bureau of Internal Revenue (BIR) has issued Revenue Memorandum Circular No. 97-2026, formally removing VAT from the allowable system loss charge approved by the Energy Regulatory Commission (ERC).

The change means households and businesses will no longer pay the 12% VAT on this portion of their electricity bills. The actual savings will vary depending on the utility, electricity consumption and system loss charge for the month.

For a household consuming 200 kWh, using Meralco’s August system loss charge of ₱0.9218 per kWh as an illustration, the system loss component would amount to about ₱184. Removing the 12% VAT from that amount would mean roughly ₱22 less on the monthly bill.

That may not dramatically change a household’s electricity expenses, but the savings can add up for businesses and other heavy electricity users that face much larger monthly power bills.

The new treatment applies prospectively based on the effectivity of ERC Resolution No. 26, Series of 2026, which classified the allowable system loss charge within the ERC-approved cap as a government-mandated pass-through cost.

The BIR clarified that the change applies to VAT only. Income tax and the corresponding creditable withholding tax will continue to apply.

Generation companies, NGCP, distribution utilities, electric cooperatives and other affected taxpayers must separately identify the allowable system loss charge in their billing documents and comply with the required accounting and reporting rules.

The issuance follows earlier BIR action covering other government-mandated electricity charges, including the Lifeline Subsidy and Green Energy Auction Allowance.

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