THE House of Representatives, intending to lower power rates, unanimously approved on third and final reading a bill exempting the system loss charge component in the sale of electricity by distribution companies and electric cooperatives from the coverage of the value added tax.
House Bill 1616, principally authored by Rep. Isagani Zarate of Bayan Muna party-list, seeks to amend Section 109 (1) of the National Internal Revenue Code of 1997, as amended by Republic Act 9337 and RA 10378, so that the system loss component in the sale of electricity by distribution companies and electric cooperatives shall be among the transactions exempt from VAT.
Zarate said another amendment provides for the VAT exemption of sale or lease of goods or properties or the performance of services, the gross annual sale and/or receipts do not exceed the amount of P1.5 million.
Provided that not later than Jan. 31, 2019 and every three years thererafter, the amount herein stated shall be adjusted to its present value using the consumer price index as published by the National Statistics Office.
Zarate, member of the Makabayan Bloc, said the VAT was a form of sales tax.
It is a tax on consumption levied on the sale, barter, exchange or lease of goods or properties and services in the Philippines and on importation of goods into the country, he said.
Zarate said VAT was an indirect tax which is shifted or passed on to the buyer, transferee or lessee of goods, properties or services.
Being a pass-on tax, the tax burden of paying the VAT is therefore ultimately left upon the shoulder of the end users—the consuming public, he said.
Meanwhile, system loss is the part of one’s electric bill representing the cost of electricity lost during transmission, pilferage, and due to technical and administrative inefficiency.
Even pilfered power and electricity used by the distribution companies such as the Manila Electric Co. and electric cooperatives are passed on to consumers, according to Zarate.
Citing a report by independent think-tank Ibon Foundation, Zarate said the system loss charge comprises about eight percent of the total electricity bill.
Worse, this system loss charge is also subjected to the coverage of VAT which further drives electricity bills up.
As a tax on consumption, Zarate said VAT ought to be imposed upon the goods and services people actually buy and consume.
By its very definition, therefore, the lawmaker said the imposition of VAT upon the system loss charge was unfounded and illegal as the people were taxed for goods/services they have not actually consumed.
For instance, in 2013, based on Meralco’s tariffs, which averaged 24 US cents per kilowatt hour, the price Filipinos paid for their electricity was the fifth highest in the world.
It also showed that electricity in the Philippines costs nearly twice that of Thailand’s, while about five times that of Indonesia, according to him.
In another study conducted by the International Energy Consultants, a Perth-based consultancy firm commissioned by Meralco to conduct the study, Zarate said the rates in Luzon were placed at ninth highest electricity tariffs of the 44 countries surveyed. Maricel V. Cruz
Per the IEC study, the primary reason for such higher power rates as compared to other countries is the absence of government subsidies for electricity, unlike countries such as Indonesia, Thailand, and Malaysia, where electricity rates are subsidized by the government.
These subsidies comprise a large part of their public budget, he said.
“With this backdrop, along with the rising prices of consumer goods and commodities, fuel, education and medical costs, worsening inflation, and unabated sinking of the purchasing power of the peso, it is high time that the Congress devise means which could readily help in keeping the pockets of Filipinos, especially those coming from the lower income class, from completely running dry,” Zarate said.