ERC seeks excise tax suspension

Published May 19, 2022, 2:30 PM

by Myrna M. Velasco

The Energy Regulatory Commission (ERC) is proposing the suspension of excise tax for fuel products used in power generation to lower electricity rates for Filipino consumers.

ERC Chairperson Agnes T. Devanadera will be forwarding a proposal to presumptive President Ferdinand Marcos Jr., the agency’s recommendation, primarily calling for the suspension of excise taxes for fuel products used in power generation.

Devanadera also told reporters in a briefing that the generation charge component in electricity rates must also revert to zero-rating value added tax (VAT) treatment, which has been the original prescription of the Electric Power Industry Reform Act (EPIRA).

Based on ERC calculation, suspending the excise taxes for fuel and VAT across the various sub-segments of the power sector, the overall impact in the electric bills of consumers will be a reduction of 7.0-percent to 10-percent. This would result in rates reduction by a range of P0.70 to even higher than P1.00 per kilowatt hour.

“We, at the ERC, would like to come up with some proposals — there can be a temporary solution and there can be permanent solution. The very immediate is we can go into suspension of the excise tax on coal and the petroleum fuel products,” Devanadera stressed.

The ERC chief said she will make a personal report to the new President on her proposed “electricity rate reduction measures” before she will bow out as chair of the ERC by July this year.

When asked on the proverbial worry of the Department of Finance (DOF) on highly probable revenue losses when excise taxes are written off, Devanadera indicated that the decline of revenue collections from the power sector could be offset by imposing higher taxes on the so-called “non-essentials” – and such may cover vehicle purchases, the Philippine Offshore Gaming Operators (POGOs), as well as those that are in the gaming industry.

On the imposition of higher taxes to some sectors or industries, she stipulated “This is what I call a prioritization and also a judgment call. We can increase the taxes for non-essentials. Some might get mad at me, but the examples we can consider are cars. We can consider increasing the taxes for POGOs; and also those on gaming.”

Further, the ERC chief explained that the application of VAT on some charges in the electric bills must be rationalized – and one feasible proposal is to revert to the VAT zero-rating incentive for the power generation sector.

At the same time, she conveyed that there are components in the rates that should not be charged with VAT anymore – like the universal charges, because these cost items are charges that go to the government.

She expounded that if a bill from distribution utilities, like that of Manila Electric Company (Meralco) will be fleshed out, it will show that there’s double taxation in the generation component of the supply chain – because if the fuel used for power generation is brought into the country, that’s already charged with VAT. In addition, when the electricity generated is supplied to consumers in the provision of electricity service, there are also VAT charges reflected in the bills.

If VAT will be suspended in some rate components, chiefly on universal charges as well as system loss, Devanadera opined that such will no longer need legislation. Instead, the Bureau of Internal Revenue (BIR) can just render legal interpretation and issue regulations on that specific taxation policy.

“We only need BIR (decision) for that. Generation used to be VAT zero-rated under Section 6 of the EPIRA, so this should be considered because this will have immediate lowering effect in our bills – especially those who belong to the 200 kilowatt hours and below, the discount could be as much as P100,” the ERC chief emphasized.

 
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