MANILA, Philippines — The Bureau of Internal Revenue (BIR) has removed the 12% value-added tax (VAT) on allowable system loss charges in electricity bills, a move the Department of Energy (DOE) said could reduce consumers’ power costs by 5% to 10%.
The BIR announced the change under Revenue Memorandum Circular No. 097-2026, which took effect immediately.
The circular confirms that the BIR will no longer impose VAT on the allowable system loss charge within the cap set by the Energy Regulatory Commission (ERC).
The BIR now treats the charge as a government-mandated pass-through cost. As a result, the charge will no longer form part of the gross sales of generation companies, the National Grid Corp. of the Philippines and distribution utilities.
Electric distribution utilities have 60 days from the policy’s effectivity to update their billing systems and formats. Consumers could start seeing the system loss charge listed separately on their electricity bills as early as mid-November.
“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.
Mendoza said consumers will no longer pay VAT on the allowable system loss portion once the new billing rules take effect.
The move follows President Ferdinand Marcos Jr.’s call during his July 27 State of the Nation Address to remove system loss charges and the VAT imposed on them.
Marcos called for amendments to the Electric Power Industry Reform Act, or Epira, to prohibit power companies from passing system loss costs to consumers.
System losses refer to electricity lost during transmission and distribution after generation. Under the 2001 Epira, or Republic Act No. 9136, power companies can pass an allowable portion of those losses to consumers.
Congress would need to amend Epira to completely eliminate the system loss charge. For now, the ERC and BIR can remove the VAT under their existing authority.
“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.
Government expects billions in savings
ERC Chair Francis Saturnino Juan previously estimated that system losses cost about P50 billion annually.
Removing the VAT could save consumers as much as P6 billion a year, while the Department of Finance estimated that the government could lose about P10 billion annually in revenue.
The BIR previously excluded system loss charges from its list of charges exempt from VAT and creditable withholding taxes. That list includes the lifeline subsidy and Green Energy Auction Allowance.
The BIR circular followed an ERC resolution published Aug. 28 that clarified how utilities should treat system loss charges on electricity bills.
Energy Secretary Sharon Garin said the government could achieve the complete removal of the charge before Marcos delivers his final Sona next year.
The DOE has said any amendments to Epira should protect consumers while maintaining the financial viability of distribution utilities and supporting investments in power infrastructure.
The department also said electric cooperatives would need to modernize power lines, substations, transformers and metering systems to reduce technical losses. The ERC would review the capital expenditures needed for those upgrades.
The DOE previously estimated that removing the system loss charge could reduce electricity bills by 5% to 10%, depending on the distribution utility.
For customers of Manila Electric Co. (Meralco), system loss charges account for about 5% of monthly electricity bills. Meralco reported a system loss rate of 5.72% during the first quarter of 2026, below the ERC’s 6.5% cap.
Some electric cooperatives have reported system losses as high as 16%, Garin said.
Meralco raises concerns
Meralco said it respects Marcos’ policy direction and remains willing to participate in discussions on possible Epira amendments.
The company also stressed that some technical losses remain inherent in operating an electricity distribution system.
Meralco chair Manuel V. Pangilinan opposed the proposal to completely eliminate the system loss charge, saying the costs could become too large for power industry players to absorb.
“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 said July 29.
“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.
