DOE seeks Congress imprimatur on scrapping of power taxes

Published August 12, 2022, 9:11 AM

by Myrna M. Velasco

The legislative lever of Congress is sought on the proposed revamping of the multi-tiered taxes in the power sector to reduce the pass-on tariff in the electric bills of consumers by as much as P1 per kilowatt hour.

The power tax components being recommended for scrapping include those on public policy charges, such as senior citizen and lifeline subsidy rates in the bills, as well as system loss and even the value added tax (VAT) in fuel commodities used for electricity generation.

Energy Secretary Raphael P.M. Lotilla told lawmakers in a Senate hearing of the Committee on Energy that “these are the points that we would like to discuss with you in the future, it needs rethinking.”

He, however, cautioned that this legislative recommendation of tax jettison will put the revenue collections of the government on a knife edge and that could compromise significant fraction of the national budget.

Lotilla qualified “it’s really more of balancing and we would like to work with you to address this…it’s really re-examining the concept of what is value added; so when we subsidize other consumers, is that value added and ought to be taxed?”

Initial estimates of power distribution utilities showed that if some components of power taxes will be ditched, the reduction in the electric bills could range from P0.70 to P1.30 per kWh, depending on the location of the consumers served.

In the franchise area of Manila Electric Company (Meralco), if the questioned taxes will be junked, the resulting rate cutback will be as much as P1.37 per kWh, as reckoned on its prevailing pass-on tariff of P9.5458 per kWh.

And, since VAT is a percentage tax, the revenues fetched also climb as power rates go up. There are assumptions that the government has been experiencing windfall from collections on this tax bit.

Industry players have long sounded off concerns on why rate components like lifeline rate subsidy, universal charges and system loss are even imposed with VAT which they deem unnecessary because part of these collections, primarily universal charges, are remitted to the government.

The lifeline rate subsidy is also a financial succor being extended by the more well-off consumers to their marginalized counterparts, hence, there are grumbles why they are being punished with additional tax burden when they are already providing aid to the other segments of end-users, an obligation that should have been better placed in the hands of government, but it’s being tossed instead as a responsibility of the consumers.

Industry stakeholders in the power sector likewise raised the onus of “double taxation” they had to bear through the supply chain of power generation because the fuel commodities they are importing to be utilized in electricity generation are already charged with VAT; then that same generated electricity will also carry VAT charges in the electric bills once passed on to the consumers.

As a matter fact, the “heavy taxation” track, hovering at roughly 14-percent being applied in the deregulated power sector has been considered as one of the main reasons why the Philippines was accounted to have one of the highest electricity rates in Asia.

Indubitably, in the era of surging fuel prices in the world market chiefly for oil, coal and gas commodities, power service providers are finding it extremely tough to keep up to the challenge of providing affordable rates to the Filipino consumers.