The Bureau of Internal Revenue (BIR) has removed the value-added tax (VAT) on the allowable system loss charge within the cap approved by the Energy Regulatory Commission (ERC), a move expected to provide relief to electricity consumers.

The BIR issued Memorandum Circular No. 97-2026 on September 14, formally recognizing the allowable system loss charge within the ERC-approved limit as a government-mandated charge excluded from gross sales for VAT purposes.

The charge will therefore no longer be subject to output VAT and creditable withholding on VAT. The exemption, however, does not cover income tax and the corresponding creditable withholding tax.

BIR Commissioner Charlito Mendoza said the measure responds to President Ferdinand R. Marcos Jr.’s directive to pursue practical ways to ease the burden on consumers.

“Every peso saved by consumers counts,” Mendoza said, noting that while broader reforms on electricity charges and taxes remain under consideration, the BIR is acting on measures within its authority that can help reduce electricity costs.

For the VAT exclusion 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 are required to ensure proper billing, accounting, reporting, and identification of the charge in accordance with ERC rules and tax regulations.

The circular took effect immediately.

Mendoza said the practical impact is that VAT will no longer be imposed on the allowable system loss portion of covered electricity bills, potentially lowering the amount passed on to consumers.

He added that the BIR would continue pursuing reforms that are lawful, practical, and capable of delivering tangible benefits to the public.