The value-added tax you pay on one of the most confusing line items in your electric bill could finally be gone before the year ends, and the Energy Regulatory Commission says November is the realistic target. In a budget hearing before the House of Representatives on Wednesday, ERC Chairperson Francis Saturnino Juan told lawmakers the agency is racing to have the VAT on the system loss charge removed as early as November. It is the latest step in a push, backed by President Ferdinand Marcos Jr., to bring down some of the highest power rates in the region.
What the ERC actually announced
Juan said the Bureau of Internal Revenue is targeting September to release the Revenue Memorandum Circular covering the change, after which the ERC would direct distribution utilities to revise their billing format. Once the bill format changes, the 12 percent VAT stops being charged on the system loss line.
He acknowledged there are implementation wrinkles because the system loss a distributor recovers is only known after the generator has already billed it. Still, the timeline he gave lawmakers was specific.
“Hopefully, after September, if October, there is that already. At the earliest is November for the implementation,” Juan said.
Why the system loss line gets its own tax fight
System loss is the electricity that disappears between the power plant and your home, some of it technical (heat lost as power travels through wires) and some of it non-technical (power stolen or lost to faulty meters). That loss is a real cost, and under current rules distributors pass it on to consumers through a system loss charge.
Last month the ERC released Resolution No. 26, Series of 2026, which reclassified system loss as a pass-through cost, declaring it should not form part of generation companies’ gross sales when the 12 percent VAT is computed. That reclassification is what opened the door for the BIR to cut the tax on the line.
We explained the mechanics of the charge and why regulators want it gone in an earlier system loss explainer; the short version is that for Meralco customers the line typically eats up around 5 to 6 percent of a monthly bill.
How much of your bill this touches
Electricity bills in the Philippines pile several charges on top of each other, from generation and transmission to taxes and green-energy levies. Here is where the system loss charge and its VAT sit in that stack:
| Bill component | What it is | VAT status under the change |
|---|---|---|
| Generation charge | Cost of the power you actually used | Still subject to VAT |
| Transmission charge | Cost of moving power on the grid | Still subject to VAT |
| System loss charge | Electricity lost between plant and home | 12% VAT removed |
| Other taxes and subsidies | Levies and green-energy funds | Unchanged |
Removing the VAT does not erase the system loss charge itself, it only takes the 12 percent tax off that line. The ERC has also been working separately with utilities on the broader question of who should shoulder the underlying loss.
What happens next
The order of events, as Juan described it, is: the BIR issues its memorandum this month, the ERC follows with a directive telling distributors to update their bill format, and then the new, VAT-free line shows up on your statement, with November as the earliest realistic month. The Inquirer reported the change could take effect as early as next month, depending on how quickly the circular and the distributor directive land.
For households watching their bills climb after recent rate adjustments, any reduction on a fixed monthly charge is a welcome break. Watch your next statement for the revised format, and for the ERC’s formal directive in the weeks after the BIR circular is released.
