Bill exempting system loss from VAT OK’d

The House of Representatives has taken steps to reduce power cost after lawmakers passed on second reading a bill that would stop government from imposing value-added tax (VAT) on system loss charge component in sale of electricity.

With 221 congressmen present, the chamber unanimously approved on second reading House Bill 1616 before Congress went on break last Friday.

Authored by Bayan Muna Rep. Carlos Isagani T. Zarate, HB 1616 provides VAT exemption for system loss charge component in the sale of electricity by distribution companies and electric cooperatives.

In pushing for the enactment of his proposal, Zarate pointed out that VAT is considered a former of sales tax.

He aired the optimism that by exempting systems loss charges from VAT payment, electricity cost will go down.

“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 Philippines,” he said.

Zarate said HB 1616, a re-filed measure, will correct the “unfounded and illegal” collection of VAT on system loss charge portion of electricity sale.

“As a tax on consumption, VAT ought to be imposed upon the goods and services of people actually buy and consume,” stated Zarate.

The party-list lawmaker explained that by its definition alone, VAT imposition on system loss charge “is unfounded and illegal as the people are taxed for goods/services they have not actually consumed.”

In the explanatory notes of the bill, Zarate lamented that the cost of electricity of Filipinos is higher than Philippine neighbors, with power price nearly costing twice over Thailand’s and five times that of Indonesia’s.

“In another study conducted by the International Energy Consultants, a Perth-based consultancy firm commissioned by Meralco to conduct the study, the rates in Luzon are placed at ninth highest electricity tariffs of the 44 countries surveyed,” he disclosed.

HB 1616 seeks to amend the National Internal Revenue Code of 1997, as amended by Republic Act 9377 and 10378, by halting VAT collection on system loss charge.