The Energy Regulatory Commission (ERC) of the Philippines has issued an advisory providing guidelines for excluding allowable system loss charges from gross sales when calculating Value-Added Tax (VAT) on electricity transactions. The move follows ERC Resolution No. 26, Series of 2026, which declared system loss charges as government-mandated pass-through costs.
The resolution was issued on August 26, 2026, published on September 2, and took effect on September 17, 2026. The change is intended to ensure that allowable system loss charges are not included in the VAT base when properly identified on electricity bills and invoices.
The Bureau of Internal Revenue (BIR) subsequently issued Revenue Memorandum Circular (RMC) No. 097-2026 on September 14, 2026. Under the circular, generation companies, the National Grid Corporation of the Philippines (NGCP), and distribution utilities (DUs) are required to exclude allowable system loss charges from gross sales for VAT purposes on a prospective basis starting September 17, 2026.
To qualify for the VAT exclusion, the system loss charge must be separately identified as a line item on billing statements and invoices in accordance with ERC requirements.
On September 17, the ERC also issued Resolution No. 28, Series of 2026, establishing a standardized billing format for distribution utilities. The format is designed to identify government-mandated pass-through charges that are exempt from VAT.
The commission recognized that distribution utilities would require time to modify their billing systems. Following discussions with industry stakeholders and BIR representatives on September 18, the ERC established interim measures to allow immediate implementation of the new VAT treatment.
For electricity bills issued by power suppliers and the transmission service provider after September 17, system loss charges will be excluded from gross sales under the applicable zero-rated VAT treatment. Distribution utilities are required to implement the exclusion beginning with their October 2026 billing cycle.
During the transition, utilities may use one of three interim approaches. They may retain their existing billing format while labeling the charge as “System Loss (Govt-Mandated)” and applying a zero percent VAT rate. Alternatively, they may retain existing line items and include a billing note stating that the charge is government-mandated and not subject to VAT. Utilities that are ready may immediately adopt the complete billing format prescribed under ERC Resolution No. 28.
The ERC clarified that these interim measures will remain applicable only while utilities complete their billing-system reconfiguration. Distribution utilities must ultimately comply with the standardized format and submit proof of compliance together with their regular reporting requirements under ERC Resolution No. 14, Series of 2022.
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