BIR Removes VAT on Allowable System Loss Charge in Electricity Bills

Excerpt: The Bureau of Internal Revenue has removed VAT from the allowable system loss charge in electricity bills. This means consumers may see a small reduction in their bills once the new rule is applied.

The Bureau of Internal Revenue (BIR) has removed the Value-Added Tax or VAT from the allowable system loss charge included in electricity bills.

The change was announced through Revenue Memorandum Circular No. 97-2026, issued on September 14, 2026.

Simply put, consumers will still pay for the allowable system loss charge, but VAT will no longer be added to that portion of the electricity bill.

What does this mean for your electric bill?

Electricity bills are made up of several charges. One of these is the system loss charge.

Under the new BIR rule, the allowable system loss charge approved by the Energy Regulatory Commission (ERC) will no longer be subject to VAT.

This means the amount charged to consumers for that part of the bill should become slightly lower once the new rule takes effect.

However, this does not mean the entire electricity bill will be VAT-free.

It also does not mean that the system loss charge itself will disappear.

Only the VAT previously added to the allowable system loss charge is being removed.

What is a system loss charge?

Not all electricity produced by power plants reaches homes and businesses.

Some electricity is lost while it travels through power lines, transformers, and other parts of the electricity system.

This is known as system loss.

A certain amount of system loss is allowed by the ERC and may be included in electricity bills.

The BIR’s new rule applies only to the allowable system loss charge that falls within the limit approved by the ERC.

How much can consumers save?

The exact savings will depend on several factors, including a household’s electricity consumption and the system loss charge imposed by its electricity provider.

For example, if part of your monthly bill represents an allowable system loss charge, VAT will no longer be added to that particular amount once the new rules apply.

The reduction may not be large on its own, but it means one less tax being added to that portion of the electricity bill.

Will the system loss charge still appear on the bill?

Yes.

Electric companies and other affected power providers are required to show the allowable system loss charge separately on billing statements, invoices, or similar documents.

This will make it clear which portion of the bill qualifies for the VAT exemption.

The rule applies to affected generation companies, the National Grid Corporation of the Philippines, distribution utilities, electric cooperatives, and other covered taxpayers.

When will the change take effect?

RMC No. 97-2026 states that the new tax treatment will apply prospectively and in accordance with the effectivity of ERC Resolution No. 26, Series of 2026.

Once applied to covered billings, consumers should no longer be charged VAT on the allowable system loss portion of their electricity bill.

The BIR clarified that the exemption applies to VAT. Other tax rules, including those involving income tax and applicable withholding taxes, remain in place.

The measure is part of government efforts to reduce electricity costs where existing tax and regulatory rules allow.

Source: Bureau of Internal Revenue, Revenue Memorandum Circular No. 97-2026
View RMC No. 97-2026