CONSUMERS welcome the removal of the 12% value-added tax (VAT) on allowable system loss charges, noting that it is a step in the right direction toward reducing the burden of electricity costs.
The Bureau of Internal Revenue (BIR), through Revenue Memorandum Circular No. 97-2026 issued on September 14, formally recognized the allowable system loss charge within the Energy Regulatory Commission (ERC)-approved cap as a government-mandated pass-through cost excluded from the VAT base. This means VAT will no longer be imposed on the allowable system loss portion of electricity bills.
However, the Davao Consumer Movement said the government must do more because consumers may see only limited savings from the measure, considering that the generation charge continues to account for the largest portion of their electricity bills.
For example, Davao Light reported a total system loss of 9.41% in 2025, according to AboitizPower’s 2025 Annual Report.
Using this 9.41% figure purely for illustration, a household consuming 200kW at Davao Light’s July 11 to August 10, 2026 residential rate of P13.09/kWh would have an electricity bill of about P2,618. If 9.41% of the consumption is system loss, this would amount to about P246.15.
Removing the 12% VAT from this amount would result in savings of only P29.54, bringing the bill down to P2,588.46.
The savings are welcome, but the example also shows why the government must look at the bigger components of the electricity bill. A consumer using 200 kWh would save only around P29.54 from the VAT removal on system loss, while the generation charge continues to have a much larger impact on the total amount consumers pay.
This is why we see the removal of VAT on system loss as a welcome first step, but not the end of the conversation on electricity affordability.
If the government wants consumers to feel more meaningful relief through more affordable electricity and better services, it must pursue broader reforms in the power industry. This includes facilitating the entry of new power generation firms to increase access to more affordable sources of power, removing unnecessary charges from electricity bills, and reviewing the layers of taxes imposed on electricity.
Every reduction in the electricity bill matters. But for consumers to truly feel meaningful relief, the government must also address the bigger components of the bill.
The removal of VAT on system loss is a step in the right direction. Now, the government must take the next steps.
Ryan Amper
Convenor, Davao Consumer Movement
0905-5634083
