Scrapping system loss is consumers’ gain

The Bureau of Internal Revenue’s (BIR) announcement on Monday of the immediate removal of the 12-percent value-added tax (VAT) on system loss charges in electricity bills has finally addressed a longstanding malaise that has plagued the power sector and unduly burdened electric consumers.

Once the order takes effect in two months, we can expect our bills to drop by about 5 to 10 percent, according to the BIR (see “Sona promise: Lower power bills as VAT on system loss out,” News, 9/15/26).

The BIR’s order has made real what, to many skeptical listeners during President Marcos’ penultimate State of the Nation Address (Sona) seven weeks ago, was merely a wish.

“Therefore, we, the people, request—no, we demand the immediate amendment of the Epira [Electric Power Industry Reform Act] and to prohibit charging system loss against consumers, including the value-added tax thereon,” said Mr. Marcos in his well-applauded portion of the Sona. The President unmistakably recognized the onerousness of the scheme—he found it “not right” (“hindi naman tama”) that consumers should suffer from the double whammy of a system loss charge plus the VAT levied on it.

BIR Revenue Circular No. 097-2026, which removed VAT on system loss, is just one pillar of Mr. Marcos’ multipronged strategy to meaningfully lower power rates—the highest in the region—and ease Filipinos’ economic pain amid elevated oil and gas prices driven by the protracted Middle East conflict. All eyes are now on Congress to scrap the system loss and other universal charges in response to the President’s and the people’s “demand” to correct a wrong that has persisted for 25 years across multiple administrations.

The logic is simple: consumers should pay only for what they consume. What frustrates us is that we pay not only for power we never used but also for “inefficiencies” in grid transmission—industry code for technical system losses and nontechnical losses, such as metering errors, pilferage, electricity theft, and illegal connections. And we are slapped with a tax for these industry inefficiencies.

Epira’s passage in 2001 (Republic Act No. 9136) produced exactly the opposite of what the law intended—to lower electricity prices. The law fundamentally restructured the power industry into four operational sectors—power generation, transmission, distribution, and supply. It raises the question of whether the government was hoodwinked, or industry players sweet-talked Congress into breaking up the government’s crucial control over the power industry by deregulating it and massively incentivizing private investment in hopes of ensuring a stable, reliable power supply.

Admittedly, the reforms Epira introduced encouraged private-sector participation and improved power supply compared with the ’80s and ’90s, but the privatization scheme failed to curb high electricity prices. Two and a half decades later, even service areas of the interconnected Luzon grid routinely experience rotating brownouts in summer, the Visayas grid is frequently placed on yellow alert, and universal access to electricity remains a pipe dream for millions of households in off-grid communities and on islands.

Epira has delivered mixed results. On pass-through charges, the law stands as a monument to yet another failure of imagination—government’s inability to anticipate that, without effective guardrails, industry players could engage in profiteering and collusion, laughing all the way to the bank, while household consumers and small businesses are forced to swallow a bitter pill just to keep the lights on.

Until the passage of the Murang Kuryente Act in 2019, Epira had allowed universal charges to be passed to consumers for stranded contract costs and stranded debts owed to independent power producers from decades earlier, and to pay off the National Power Corp.’s massive debts.

Short of outright repealing Epira, Congress must eliminate these pass-on charges, including the universal charge for missionary electrification and the environmental charge, which the government should bankroll rather than pass on to consumers.

Lawmakers should take advantage of the President’s favorable stance, which supports household consumers and small businesses, and ignore objections from oligarchs who have long profited from government acquiescence. Their objections fly in the face of their ever-increasing profit margins, which are concentrated in a few conglomerates that control 95 percent of power generation and distribution, with foreign players cashing in through joint ventures.

In Epira’s case, let’s correct an obvious wrong that neither fostered genuine competition nor lowered electricity prices. Governments worldwide have been putting the brakes on deregulation and privatization by reasserting control over power utilities and vital industries on behalf of their citizens, in whom power truly resides.

One big takeaway is the need to include a sunset provision that automatically mandates a congressional review of laws that directly impact politically sensitive power and oil prices.

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