ERC asked to review VAT treatment of system losses

A LEGISLATOR representing power cooperatives asked the Energy Regulatory Commission (ERC) on Wednesday to review its value-added tax (VAT) policy governing system losses, disputing this item’s classification as a good or service subject to VAT.

At a House ways and means committee hearing, Association of Philippine Electric Cooperatives Party-list Representative Sergio C. Dagooc questioned the VAT on the two charges.

According to a breakdown of distribution charges presented by the ERC, the system loss charge rate is P0.4509.

System loss refers to the difference between the energy delivered to the distribution system and the energy delivered to end-users and other entities connected to the system.

“How will it fall under the definition of services and goods? Are losses considered goods and services? It (is) considered a loss, why is a VAT still imposed?” Mr. Dagooc said.

Leila O. Cilio, ERC chief energy regulation officer with the agency’s Investigation and Enforcement Division for Generation Companies, told the panel that system loss charges qualify for VAT because they form part of gross receipts.

Mr. Dagooc also questioned whether consumers should subsidize “lifeline rates” charged to marginalized power consumers.

Manila Electric Co. Vice-President and Head of Utility Economics Lawrence S. Fernandez told the committee that power users who consume 20 kilowatt-hours (kWh) or less receive a 100% discount on their electricity rates.

Under the Implementing Rules and Regulations of Republic Act No. 11552 or “An Act Extending and Enhancing the Implementation of the Lifeline Rate, Amending for the Purpose Section 73 of Republic Act No. 9136 (Electric Power Industry Reform Act of 2021),” poor Filipino families or those who consume less than 100 kWh qualify for such aid on their monthly electricity bill.

Ms. Cilio said “non-lifeliners,” or those who consume 101 kWh or more, subsidize the lifeline. VAT is also imposed on lifeline rates.

“I should be the government who will subsidize that,” Mr. Dagooc said. “(We are already) soliciting from consumers, but we still apply VAT on their subsidy.”

Energy Undersecretary Sharon S. Garin told the committee, “We want the electricity cost to be lower, but we do not want the revenue impact to cripple government services.” — Beatriz Marie D. Cruz