The Energy Regulatory Commission (ERC) is moving to strip value-added tax (VAT) from system loss charges to ease electricity costs for Filipino consumers.

In a draft resolution released on Tuesday, Aug. 11, the power sector regulator proposed reclassifying system loss charges as government-mandated pass-through costs. The shift would eliminate the 12 percent VAT currently imposed on the line item.

If approved, distribution utilities and electric cooperatives would have 60 days to update their billing statements to explicitly reflect the VAT exemption on system losses. However, the proposal remains subject to final consultations and an official assessment by the Bureau of Internal Revenue (BIR).

ERC Chairperson Francis Saturnino Juan noted during a Tuesday media briefing that the BIR has already exempted several other government-mandated pass-through charges from VAT, including the lifeline subsidy, the Feed-in Tariff Allowance, the Green Energy Auction Allowance, and the energy tax.

Meanwhile, National Electrification Administration (NEA) Administrator Antonio Almeda warned against proposals to eliminate system loss charges entirely, rather than just removing the VAT.

Almeda explained that while administrative and non-technical losses can be eliminated, technical losses—which stem naturally from physical electricity dissipation along power lines—can only be minimized, never completely eradicated.

He noted that the ERC regulates electric cooperatives as non-profit distribution utilities, allowing them to collect revenues primarily through distribution, supply, and metering charges, alongside reinvestment funds designated for capital expenditures.

Forcing cooperatives to absorb technical losses without a clear cost-recovery mechanism could severely strain their finances and compromise their ability to pay power suppliers, the NEA official said.

A pattern of partial payments to power suppliers would inevitably lead to compounding debt without a dedicated revenue source for repayment, Almeda said.

He urged that the NEA be empowered to institutionally regulate electric cooperatives to ensure that only a strictly minimized level of technical loss is passed on to member-consumers—balancing consumer relief with the financial viability of rural power distribution networks.