DOE backs VAT removal on electricity, but calls for study

Sen. Risa Hontiveros on Monday filed Senate Bill No. 2076, a measure seeking to remove the value-added tax (VAT) on system loss charges in electricity bills. The Department of Energy (DOE) has expressed support for the proposal but deferred a final decision to the Department of Finance (DOF), calling for a thorough study on its fiscal impact.

Senate Bill 2076: What It Seeks

Senate Bill No. 2076 directly targets the 12% VAT imposed on system loss charges – costs passed on to consumers for power lost during transmission and distribution. Hontiveros argues that taxing these losses is unjust, as consumers pay for electricity they never receive.

The bill aims to reduce the monthly burden on Filipino households and businesses, particularly those already grappling with the highest electricity rates in Southeast Asia.

DOE's Conditional Support

Energy Secretary Sharon Garin confirmed the DOE's backing of the VAT removal proposal but emphasized the need for further study. "We support the intent to lower electricity costs, but we must ensure it does not unduly affect government revenues," Garin said in a statement.

The DOE defers the final decision to the DOF, which will assess the potential revenue loss and its implications on national budget priorities. Garin noted that a mischaracterization of the DOE's own recent study on power costs could lead to unintended consequences.

Broader VAT Removal Proposals

The electricity VAT issue is part of a wider push to remove VAT and excise taxes on fuel and power. Another proposal calls for the immediate repeal of the 12% VAT on fuel, providing an average relief of P27 per liter for consumers.

Senate President Francis Escudero has argued that removing VAT on electricity would help lower operating costs for businesses, temper inflation, and increase disposable income for Filipino families. "This is not just about household savings; it's about making the Philippines more competitive," Escudero said.

Fiscal Realities and Debate

The DOF has raised concerns about the revenue hole that such tax removals would create. In 2025, VAT collections on electricity and fuel amounted to roughly P180 billion, a significant portion of national tax revenues. Policymakers are weighing immediate consumer relief against long-term fiscal sustainability.

Economists are divided. Some argue that targeted subsidies for low-income households would be more efficient than blanket tax removals. Others contend that reducing the tax burden on essential goods like electricity can stimulate economic activity and reduce poverty.

What It Means for Filipino Consumers

If enacted, SB 2076 could lower monthly electricity bills for an average household by an estimated P50 to P150, depending on consumption and system loss allocation. For small and medium enterprises (SMEs), the savings could be more substantial, potentially reducing operational costs by thousands of pesos annually.

Consumer groups have welcomed the bill but caution against delays. "Every month that passes without this reform, Filipino families continue to pay for electricity they did not use," said a spokesperson for the Samahang Plumbero ng Pilipinas.

Next Steps in Congress

The bill has been referred to the Senate Committee on Energy, chaired by Sen. Sherwin Gatchalian. Hearings are expected to begin within the next legislative session. The DOE has committed to submitting a comprehensive impact assessment within 60 days to aid the DOF's review.

Meanwhile, counterpart measures in the House of Representatives have been filed, signaling a potential bipartisan push for reform. For more updates on energy policy, visit PinoyPulse Energy or learn more about our mission at PinoyPulse About.

Significance for Filipino Readers

This development is a critical step toward addressing one of the Philippines' most persistent economic challenges: high electricity costs. For millions of Filipino households and over a million SMEs, lower electricity bills could mean more disposable income and a more competitive business environment. However, the path to reform requires careful balancing of consumer relief and fiscal responsibility. With DOE backing and Senate action, the debate now shifts to Congress – and to every Filipino voter watching their monthly bill.

Frequently Asked Questions

What is system loss charge?
System loss charge is the cost of electricity lost during transmission and distribution due to technical factors like line resistance and non-technical factors like pilferage.

How much could I save if VAT on system loss is removed?
For an average household consuming 200 kWh per month, savings could range from P50 to P150, depending on the utility company's system loss rate.

Will this affect the government's budget?
Yes, the DOF estimates a potential revenue loss of up to P15 billion annually, which must be compensated through other measures or budget adjustments.

When will the bill be passed?
Hearings start next session. A timeline for approval remains uncertain, but advocates hope for enactment within the current Congress.