VAT exemption on power losses could cost Philippines P10 billion yearly

MANILA — The government faces a significant fiscal impact from the proposed removal of the value-added tax on power system loss charges, according to the Department of Finance. Finance Secretary Frederick Go confirmed the estimated P10 billion annual revenue loss while discussing the planned VAT exemption on electricity costs related to system losses.

The 12-percent VAT currently applied to system loss charges represents a meaningful source of government revenue. System losses refer to the electricity that dissipates during transmission and distribution from power generation facilities to end consumers, with these costs typically passed on to consumers as part of their bills.

The proposed VAT exemption is aimed at reducing electricity costs for consumers, a priority for policymakers seeking to ease the burden on households and businesses facing high power rates. However, the DOF's assessment highlights the trade-off between consumer relief and government budget constraints.

No timeline for the implementation of the VAT removal has been announced. The proposal comes as the Philippines grapples with electricity affordability issues, particularly in the capital region and other major population centers where demand continues to grow.