The Bureau of Internal Revenue (BIR) has ordered power generators, the National Grid Corp. of the Philippines (NGCP), and distribution utilities to stop charging value-added tax on "system loss" — the cost of electricity lost to technical inefficiency and pilferage that utilities pass on to consumers — under a circular issued Monday, September 14, 2026, according to the Philippine Star. The order delivers a narrower slice of the electricity-bill relief President Ferdinand Marcos Jr. demanded in his July State of the Nation Address (SONA), when he called on Congress to scrap system-loss charges from power bills altogether.
Revenue Memorandum Circular No. 97-2026 recognizes "allowable system loss" — the portion of lost electricity regulators permit distributors to recover from customers — as a government-mandated pass-through cost rather than part of a utility's gross sales, removing it from the base on which the 12% VAT is computed. BIR Commissioner Charlito Martin Mendoza said in the circular, as reported by the Philippine Star: "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."
The change took effect prospectively following an August 26, 2026 resolution from the Energy Regulatory Commission (ERC), which had recommended removing VAT from system-loss charges as early as mid-August, according to BusinessMirror. It applies nationwide to generation companies, NGCP as the transmission operator, and electric distribution utilities, including Meralco.
Consumers will not see system-loss charges disappear from their bills entirely. The BIR circular removes only the VAT layered on top of the charge; distributors may still recover the underlying cost of lost electricity from ratepayers, and VAT continues to apply to other components of the bill, including generation, transmission, and distribution charges.
The move falls short of what Marcos asked for in his SONA, when he urged Congress to amend the Electric Power Industry Reform Act (EPIRA) to eliminate system-loss charges from consumer bills altogether — a legislative overhaul that would require new law, not just a tax circular. Following the President's SONA remarks, Meralco had urged caution on more sweeping system-loss reforms, according to the Philippine Star, citing the need to protect utilities' ability to recover legitimate distribution losses.
Neither the BIR nor the ERC has published an estimate of how much a typical household would save from the VAT removal, and the agencies did not respond as of this report with a projected timeline for the broader EPIRA amendments Marcos requested. It also remains unclear how quickly distribution utilities will reflect the change in monthly billing statements.
Context
The system-loss VAT removal is the latest in a string of government moves this year aimed at electricity costs following record-high spot market prices. Pulpulitiko previously reported that the ERC ordered a separate, more sweeping fix on September 10 — shifting the Wholesale Electricity Spot Market's price cap to a regional basis — which is expected to cut Visayas and Mindanao power rates by more than 50%, retroactive to August, after a 20-year price record exposed the toll of an aging plant fleet neither the Duterte nor Marcos administrations had replaced in time. A market-conduct probe into generators from that episode is still pending. Congress has yet to act on the EPIRA amendments Marcos requested in his SONA, and no bill scrapping system-loss charges outright has advanced to plenary as of this report.
Sources
- "BIR removes VAT on system loss charges in power bills" — Philstar.com
- "SONA 2026: Marcos wants system loss charges removed from power bills" — GMA News Online
- "Sona promise: Lower power bills as VAT on system loss out" — Philippine Daily Inquirer
- "ERC recommends VAT removal on system loss to lower power bills" — BusinessMirror
- "After Marcos' SONA, Meralco urges caution on system loss reforms" — Philstar.com
