LINE CHECK Linemen inspect electric meters installed on top of electric posts in Sta. Ana, Manila, in this file photo. Households and businesses can expect lower electricity bills before year-end as the government removes the value-added tax on system loss charges. —Grig C. Montegrande
MANILA, Philippines — The Bureau of Internal Revenue (BIR) has removed the 12-percent value-added tax (VAT) on system loss charges in electricity bills effective immediately, a move the Department of Energy (DOE) earlier estimated may lower power costs for consumers by about 5 to 10 percent.
Under Revenue Memorandum Circular No. 097-2026 published on Monday, the BIR said it confirmed the removal of VAT on the allowable system loss charge within the cap approved by the Energy Regulatory Commission (ERC).
This means the BIR now recognizes the charge as a government-mandated pass-through cost that will no longer form part of the gross sales of generation companies, the National Grid Corp. of the Philippines and distribution utilities (DUs).
Consumers will start seeing the system loss charge as a separate line item in their electricity bills as late as mid-November, as DUs have been given 60 days from the effectivity of the policy to modify their billing formats.
“Every peso saved by consumers counts. This may be one part of a broader effort to bring down electricity costs, but it is a relief that can be implemented under existing law,” BIR Commissioner Charlie Mendoza said in a statement.
“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. That means a lower amount will be passed on to consumers on covered billings and transactions,” he added.
The move was prompted by a call made by President Marcos in his State of the Nation Address (Sona) on July 27. He pushed for the removal of system loss charges and the corresponding VAT in electricity bills, saying it was time to stop making consumers bear the burden for something that was not their fault.
“Therefore, we, their people, request—no, we demand the immediate amendment of the Epira and to prohibit charging system loss against consumers, including the VAT thereon,” he said.
System losses refer to electricity that is generated but lost during transmission and distribution. Under the 2001 Electric Power Industry Reform Act (Epira), also known as Republic Act No. 9136, power firms can charge a portion of system loss to consumers.
Since doing away with the charge would require Congress to amend the Epira law, all the ERC and BIR can do for now is to remove the VAT.
“While Congress continues to consider wider reforms on electricity charges and taxes, the BIR is acting on the measures within its authority that can reduce the burden on consumers,” Mendoza said.
P10-B revenue cut
ERC Chair Francis Saturnino Juan earlier said that system losses cost about P50 billion annually. Removing VAT from the charge could save consumers up to P6 billion a year although it may cost the government an estimated P10 billion annually in revenues, according to the Department of Finance.
Prior to the latest circular, the system loss charge was not included in the BIR’s list of charges exempt from VAT and creditable withholding taxes. Other charges on the list include the lifeline subsidy and the Green Energy Auction Allowance, among others.
The BIR announcement comes after the ERC issued Resolution No. 26 published on Aug. 28, which clarified the treatment of system loss charges in electricity bills.
The day after the President’s Sona, Energy Secretary Sharon Garin said the complete removal of the charge could be achieved before Marcos’ next and final Sona next year, although implementation would begin immediately through discussions with the ERC and the National Electrification Administration.
The DOE also said amendments to Epira should protect consumers while preserving the financial viability of DUs and encouraging investments in power infrastructure.
Many electric cooperatives would need to modernize power lines, substations, transformers and metering systems to reduce technical losses, with the required capital expenditures subject to ERC approval, it added.
Once implemented, the DOE estimated that electricity bills could fall by 5 to 10 percent, depending on the distribution utility.
For customers of Manila Electric Co. (Meralco), system loss charges account for about 5 percent of monthly bills. Meralco, the country’s biggest power distributor with about 8.3 million consumers, said its system loss rate stood at 5.72 percent in the first quarter of 2026, below the ERC’s 6.5-percent cap. Some electric cooperatives, however, post system losses as high as 16 percent, Garin noted.
Meralco’s concerns
In reaction to the Sona, Meralco said it respected the President’s policy direction and was ready to participate in discussions on proposed Epira amendments, but stressed that “a certain level of technical losses remains inherent in operating an electric distribution system.”
Businessman and Meralco chair Manuel V. Pangilinan publicly aired his opposition to the President’s proposal on July 29, saying the costs from scrapping the system loss charge will be “too big” for power industry players to shoulder.
“When you push electricity through the copper wires, there will be a resistance. The longer the lines are, the more the losses will be,” Pangilinan told reporters in a media briefing.
“It is not a question of inefficiency. It is just the way it is, and there’s a cost to it. So the real question is, who bears the cost?” he added.