Philippines to Drop VAT on Power System Loss Charges by November

Philippine authorities plan to eliminate the 12 percent value-added tax on electricity system loss charges from consumer and commercial utility bills as early as November 2026.

The Energy Regulatory Commission issued Resolution No. 26, which reclassifies transmission and distribution losses as pass-through costs rather than taxable revenue for power generators, grid operators and distribution utilities.

Energy Regulatory Commission Chairperson Francis Saturnino Juan confirmed during a Department of Energy budget hearing that the Bureau of Internal Revenue is drafting the required revenue memorandum circular. The tax agency plans to release the circular following a mandatory 15-day publication window, clearing distributors to update their billing systems.

Bureau of Internal Revenue Commissioner Charlito Martin Mendoza stated that the adjustment ensures consumers no longer pay taxes on electricity that never reaches homes or businesses.

The Seven Billion Peso Cleanup

Lifting the tax does not remove the underlying system loss charges, which continue to appear on Philippine power bills. Energy Secretary Sharon Garin told lawmakers that eliminating the actual loss charges requires a phased program and significant capital expenditure across regional grids.

System losses divide into technical and non-technical categories. Non-technical losses cover meter tampering, power theft, defective metering equipment and administrative billing errors. Department of Energy estimates indicate that eliminating non-technical loss allowances will require approximately 7 billion pesos in enforcement, meter replacements, database cleanups and cooperative management overhauls.

Technical losses occur naturally across cables and transformers during transmission. Fixing them requires electric cooperatives and private utilities to replace ageing lines, upgrade substations and redesign local grid architecture.

Legislative Limits and Network Audits

Philippine commercial operators face some of the highest electricity tariffs in Southeast Asia, where utility line items consistently eat into store operating margins and household discretionary spending. While cutting the 12 percent tax offers immediate margin relief, dismantling the base charge faces statutory limits under the Electric Power Industry Reform Act, which permits distribution utilities to recover system losses up to regulatory caps.

Electric cooperatives will take roughly six months to complete physical grid assessments before regulators can adjust allowable technical loss caps. Garin said the government expects to deliver its formal progress report on technical losses in the first half of 2027.