The Philippine Rural Electric Cooperatives Association Inc. (Philreca) is pushing for a new law to rationalize the application of value-added tax on electricity billing by excluding certain charges that do not constitute actual consumption.
The group made the proposal to address longstanding concerns regarding the current tax framework under the National Internal Revenue Code of 1997, as amended by Republic Act 9337, which imposes VAT on the gross receipts of electricity-related services.
Philreca said this setup includes various components in the electricity bill—such as system losses, universal charges, subsidies, and pass-through costs—that do not represent value-adding transactions or actual consumption by end-users.
“This proposed measure is thus anchored on the fundamental principle that VAT, as a consumption tax, should only be imposed on transactions that involve the actual sale or exchange of goods or services where value is added,” Philreca said.
Under the current tax framework, authorities impose VAT on gross receipts derived from the sale of services, including electricity. The government interprets this to include all components reflected in the electricity bill under the Single Billing Scheme, which covers pass-through charges, subsidies and regulatory impositions.
“As a result, consumers are effectively subjected to VAT on amounts that do not redound to the benefit of the collecting utility, nor correspond to any direct service rendered. More importantly, it erodes the principles of fairness and equity in taxation, as consumers are made to shoulder additional costs on items that are already burdensome in nature,” the association said.
Philreca said the imposition of VAT on system loss charges is difficult to justify because the tax intends to apply to value derived from the consumption of goods or services, whereas system loss involves no actual consumption by the end-user.
The group also said that subjecting universal charges to VAT creates a problematic “tax-on-tax” scenario. Because universal charges are already government-mandated contributions used for public welfare, Philreca financial representatives argued that “this redundancy artificially inflates electricity rates.”
The association also called for the exclusion of the national lifeline subsidy from VAT computations, recognizing its nature as a social policy instrument rather than a commercial transaction. The lifeline subsidy uses a socialized pricing mechanism to ensure equitable electricity access for qualified marginalized end-users.
“Non-beneficiary consumers are already bearing the additional financial obligation of supporting the subsidy, yet they are further required to pay VAT on the same amount. This results in a compounded burden where those who do not benefit from the subsidy are effectively taxed on amounts that are not only non-consumptive in nature but are also redistributive in purpose,” Philreca said.
