VAT exemption for power loss charge approved by panel

Business World Online
Posted on September 28, 2015 07:59:00 PM
By Melissa Luz T. Lopez, Reporter

A HOUSE of Representatives panel has approved a measure that seeks to exempt part of the electricity bill from value-added tax (VAT).

The House Committee on Ways and Means approved a bill that seeks to make the system loss charges collected by power generating firms VAT-free. The legislation was proposed by Bayan Muna Reps. Neri J. Colmenares and Carlos Isagani T. Zarate.

System losses refer to pass-on costs to cover for electricity lost during transmission and due to technical inefficiencies.

Such a measure could leave a revenue hole of as much as P1.7 billion based on estimates of the National Tax Research Center.

The Finance department, meanwhile, gave an initial estimate for foregone collections of P300 million.

Under the current Tax Code, all transactions involving power generation, transmission and distribution are covered by the 12% VAT levied on all consumer goods. This includes the system loss charges collected by power players.

“As a tax on consumption, VAT ought to be imposed upon the goods and services people actually buy and consume. By its very definition therefore, the imposition of VAT upon this System Loss charge is unfounded and illegal as the people are taxed for goods/services they have not actually consumed,” the approved House Bill 5543 reads.

Ahead of moving for the bill’s approval, Albay Rep. Al Francis C. Bichara (2nd district) said during the hearing that subjecting systems loss collections to VAT did not make sense, given that it does not entail any “add-on” service.

Sought for comment, Lawrence S. Fernandez, utility economics head of the Manila Electric Co. (Meralco) said the power provider backs the VAT exemption proposal.

“In general, we support the removal or the exemption of the power sector from the VAT which is really we’re just going back to where we were before 2005,” Mr. Fernandez said on the sidelines of the hearing.

Meralco collected P1.4 billion in VAT from systems loss charges in 2014, he added.

Two other measures filed by Representatives Colmenares and Zarate and by Davao City Rep. Karlo Alexei B. Nograles seek to exempt power generation, transmission, and distribution from VAT, in a bid to provide some relief to consumers and bring down power rates in the Philippines, which are the highest in Southeast Asia.

The committee will hold third deliberations on the two proposals, but not before pointing out to Finance officials their failure to present their projections on the revenue impact of the bills. source