ERC, BIR urged to remove system loss on power bills from VAT calculation

THE Energy Regulatory Commission (ERC) and the Bureau of Internal Revenue (BIR) were urged at a Senate hearing to remove the system loss on electricity bills from the value-added tax (VAT) calculation.

“Why are we taxing unused electricity by 12%?” Senator Lorna Regina B. Legarda said at a Senate Committee on Ways and Means hearing on measures seeking to bring down electricity prices. “Can we immediately remove VAT (from the system loss charge) without legislation?”

ERC Chief Executive Officer Francis Saturnino C. Juan said the commission supports initiatives seeking to redefine the VAT base for electricity.

“If we can exclude system loss-related costs from the gross receipts of generation, transmission, and distribution companies, it would constitute a big cut considering that 5% to 10% system loss is being imposed,” Mr. Juan said.

Mr. Juan said VAT is imposed on the system loss due to its inclusion in the gross receipts of the distribution utility but added that he is generally open to the exclusion of pass-through charges from the VAT calculation.

“In our position, as communicated to the committee, we support all proposals… to lower electricity rates,” he said.

He also noted that the ERC has already lowered the system loss reduction cap from 14% to 5.5%.

He said setting the cap at zero may force distribution utilities to either operate more efficiently or absorb the costs related to the system loss. — Kaela Patricia B. Gabriel