The Energy Regulatory Commission (ERC) has proposed a draft resolution declaring the System Loss Charge as a government-mandated pass-through cost that should not form part of the gross receipts of Generation Companies (GCs), the National Grid Corporation of the Philippines (NGCP), and Distribution Utilities (DUs) for the purposes of the twelve percent (12%) Value-Added Tax (VAT) under the National Internal Revenue Code (NIRC) of 1997, as amended.
The draft Resolution, once finalized and confirmed by the Bureau of Internal Revenue (BIR), will effectively remove the VAT on the System Loss Charge — a cost that consumers currently bear on top of the charge itself — delivering direct and immediate relief to household and commercial electricity users nationwide.
The ERC’s action directly responds to and gives flesh to the directive of President Ferdinand Marcos Jr. in his State of the Nation Address (SONA), calling for the reduction of electricity costs and the elimination of charges that do not reflect actual services rendered to consumers. The VAT on System Loss has long been identified as a charge that consumers pay on electricity that was never actually delivered to them — a burden the President expressly sought to address.
System Loss refers to electricity that is generated and paid for but is physically dissipated or lost in the course of transmission and distribution before it ever reaches consumers. Under existing rules, consumers are charged for this lost electricity, and on top of that, they are also made to pay VAT on the charge. The proposed Resolution puts an end to this layered burden.
ERC Chairperson and CEO Atty. Francis Saturnino Juan underscored the fundamental inequity of the current arrangement.
“System loss is electricity that consumers pay for but never receive,” Juan said.
“Imposing VAT on top of a charge for electricity that was never delivered to consumers is fundamentally at odds with the nature of VAT.”
“Imposing VAT on top of a charge for electricity that was never delivered to consumers is fundamentally at odds with the nature of VAT as a tax on the value of goods and services actually rendered. This proposed Resolution addresses that and gives consumers the relief they rightly deserve,” the ERC chief added.
The proposed Resolution amends pertinent provisions of ERC Resolution No. 20, Series of 2005, and ERC Resolution No. 14, Series of 2022, to align the existing regulatory framework with this policy position.
“Working within our existing regulatory authority and in close coordination with the BIR, we are seeking to remove a layer of taxation that consumers have been shouldering for far too long.”
“This is a concrete and immediate step as directed by the President toward making electricity more affordable,” he explained. “Working within our existing regulatory authority and in close coordination with the BIR, we are seeking to remove a layer of taxation that consumers have been shouldering for far too long.”
The Commission will conduct public consultations on the proposed Resolution on 25 August 2026. Stakeholders, including Generation Companies, Distribution Utilities, NGCP, consumer groups, and the general public, are encouraged to attend and actively participate in the consultations.
Written comments on the proposed Resolution may be submitted to the Commission on or before 18 August 2026. Comments may be sent to the ERC through its official address or email.
“We invite all stakeholders to participate in the public consultation process,” Juan said.
The ERC remains steadfast in its commitment to ensuring that electricity is affordable, reliable, and accessible to all Filipinos, in fulfillment of the President’s SONA directive and in service of the public interest.