SCRAPPING the 12-percent value-added tax (VAT) on system loss charge would result in revenue losses for the government, according to the Department of Finance (DOF).
On the sidelines of a news briefing by the Social Security System last Tuesday, Finance Secretary Frederick D. Go told reporters that removing the levy would cost the government P10 billion annually.
Go told reporters they are still waiting for the Energy Regulatory Commission’s decision on the matter.
System loss refers to electricity that has been generated and paid for but is physically lost during distribution before it reaches end users.
Only allowable system losses within the ERC-prescribed caps may be recovered through the system loss charge shown in electricity bills. Those exceeding the authorized caps are not recoverable from customers and are solely the responsibility of distribution utilities.
Earlier, Charlito Martin R. Mendoza, commissioner of the Bureau of Internal Revenue (BIR), said that the system loss charge is currently bundled with the gross sales of electricity distributors, causing it to be included in the tax base for VAT.
‘The BIR’s position is clear. If [system loss] is not part of their gross sales, if that is a mandated pass-through charge, then that should not be subject to VAT,’ Mendoza said.
The energy regulator’s resolution declares that the system loss charge is an inherent government-mandated pass-through cost that does not form part of the gross sales of generation companies, the National Grid Corporation of the Philippines and distribution utilities for VAT purposes.
Likewise, the ERC requires all distribution utilities to modify their billing formats to separately and distinctively reflect the system loss charge as a government-mandated line item that is not subject to VAT within 60 days from the effectivity of the resolution.
The ERC said the resolution will only be effective upon the appropriate confirmatory issuance from the BIR, an agency attached to the DOF.
Mendoza said a revenue memorandum circular will be issued soon, 15 days after the publication of ERC’s resolution.