During intense deliberations that preceded the 2005 enactment of the Expanded Value Added Tax (E-VAT) Law, which also covered oil and electricity, lawmakers defended the measure as a treasury-tightening mechanism; an unpopular but calculated imposition designed to raise massive revenues so it could plug a gaping budget deficit that was already weakening the country’s economic stability and pushing it toward a potential fiscal collapse at the time.

Back then, the lawmaker-sponsors of the VAT on energy presented it as a temporary sacrifice, assuring the public that once the budget deficit was fixed, the taxes burdening every kilowatt (kW) consumed and liter of fuel burned could be lifted. More than 20 years later, that promise appears like a governance illusion that never expired.

Rather than serving as the original stopgap for a serious budget shortfall, the policy narrative has solidified over time. The 12-percent VAT is no longer treated as a temporary remedy as intended, but as a permanent and entrenched source of government revenues.

Based on estimates, VAT earnings from electricity alone could already hover at ₱120 billion annually. And with electricity rates on their relentless climb, that revenue stream is poised to grow even larger.

For oil products, revenues are even heftier, with VAT collections exceeding ₱170 billion to ₱180 billion on a yearly basis. President Ferdinand R. Marcos Jr. recently noted that the country could reap a “windfall” from VAT on oil as surging global fuel prices continue to drive up collections.

However, with Filipino household budgets already stretched to the breaking point, such statements do not land as a comforting gesture but as a harsh irony; where gains are drawn from an energy crisis that is already severely eroding the purchasing power of consumers.

And what makes it even more overbearing is that the VAT is not just confined to supply chain services across the energy sector, it also cascades to nearly every line item in the electricity bill—covering even system loss and universal charges, as well as policy-driven components like subsidies.

VAT can be removed if corruption is seriously dealt with

To many struggling Filipinos, the question is simple and cutting: why not tackle corruption decisively or at least reduce it drastically? That way, real fiscal space can be provided to ease the financially oppressive taxes and cost pressures on the energy sector.

Take the flood control scandal as a stark example: government figures show about 9,900 projects funded from 2022 to 2025 with a staggering ₱545.6-billion allocation, while estimates suggest corruption losses could exceed $2 billion, an amount already comparable to VAT collections in the electricity sector. Somehow, that exposes how public funds meant for protection and development can evaporate while consumers are continuously burdened with heavy taxation on a very basic need like electricity.

Then if flood control is only one slice of a much larger pattern of systemic corruption in this country, it becomes clear that only a truly serious and uncompromising drive to end it can break the cycle. In the process, that will also lower the cost of goods and services for Filipinos while finally freeing public funds to deliver the infrastructure and services the people have long been promised.

And while the government clings to an overtaxed electricity sector, there are major real costs that are likewise slipping away; primarily foreign direct investments (FDIs), especially in manufacturing, because these investors tend to avoid countries with punishing power rates. Instead, they set up shop in markets where cheaper electricity does not just enable industrial growth but also strengthens competitiveness and sustainability; that’s why the Philippines is steadily losing those investment dollars to its Association of Southeast Asian Nations (ASEAN) neighbors like Thailand and Vietnam.

Some in the power industry argue that neighboring countries keep electricity cheap through subsidies, but broader scrutiny would show that these are less distortions; rather, they serve as strategic policies with clear economic returns. Lower rates help them attract far larger foreign direct investments (FDIs) than the Philippines, especially when combined with investor perception of significantly lower corruption levels in these markets.

Proposals on cutting tax burdens

At the very least, Energy Secretary Sharon Garin has signaled support for scrapping VAT on energy commodities. In a way, a door seems to have opened on trying to ease one of the heaviest cost burdens on consumers.

But here’s the caveat: even the Department of Energy (DOE) chief’s position carries a built-in escape clause, since she stressed that any change would still need a fresh round of legislation or a new law amending the National Internal Revenue Code (NIRC), or the Tax Code. In the end, it becomes a case where the mind can imagine reform, but the system’s legal and procedural weight keeps the government from ever turning that proposal into reality.

Then with the broader executive branch, especially the Office of the President (OP) and the Department of Finance (DOF), showing clear hesitation, the proposal to remove VAT really remains a distant aspiration.

So is there any real relief for electricity consumers? At best, there is only a narrow reprieve, as renewable energy (RE) already enjoys a zero-rated VAT privilege, alongside VAT-free treatment for Malampaya gas feeding into power plants.

Another law that urgently needs reform is Batasang Pambansa 36, a 46-year-old policy originally designed as a tax for energy conservation but now functioning as an added burden on consumers. If it is scrapped, that could immediately reduce residential electricity bills by about ₱0.10 to ₱0.35 per kilowatt-hour (kWh), especially for higher-usage households.

Frontline distribution utilities (DUs), including Manila Electric Co. (Meralco), have already called for the phaseout of that outdated energy tax, arguing that it has already been overtaken by modern frameworks like socialized pricing as well as the Energy Efficiency and Conservation Act under Republic Act (RA) No. 11285, thus rendering that old levy redundant and long overdue for repeal.

More than anything else though, if officials truly have the iron will and determination to confront entrenched corruption head-on, there could finally be genuine fiscal leverage to dismantle the heavy tax burden on energy.

As Filipinos bluntly put it, the cost burden feels doubly painful because while taxes are supposed to fund public services and infrastructure improvements, these are instead deceptively being siphoned off into the pockets of those in power instead of delivering real benefits to the people.