• House bill exempts system loss from VAT


    A BILL exempting the system loss charge component in the sale of electricity from the coverage of the value-added tax (VAT) has been approved by the House of Representatives on third and final reading earlier this week.

    House Bill 1616, principally authored by Bayan Muna party-list Rep. Carlos Zarate, was approved unanimously by 204 lawmakers.

    The bill amends Section 109 of the National Internal Revenue Code.

    It also exempts gross annual sales of not more than P1.5 million from the VAT.

    Zarate said the bill, when enacted into a law, will help ease the burden of the public, adding that the VAT on system loss is “foolishness.”

    “This is indeed a positive development especially since the prices of basic commodities and services like electricity are skyrocketing. If enacted, this bill will give a welcome relief to consumers,” he noted in a statement.

    “As a consumption tax, the VAT ought to be imposed upon the goods and services people actually buy and consume. By its very definition, therefore, the imposition of the value-added tax upon the system loss charge is unfounded and illegal,” Zarate said.

    “Also, based on an IBON Foundation study, the system loss charge is eight percent of the total electricity bill and its reduction would be good for consumers,” he added.

    IBON Foundation is a local think tank.

    Inefficiencies in the distribution system mean that power is lost on its way from power plants to users’ homes.

    Meralco, the country’s biggest power distributor, charges users for such “technical” system loss.

    “Non-technical” system loss, however, is also included in the “technical” system loss charge.

    This is power lost as a result of the power being stolen by people through bypassing of meters or tapping into the distribution system illegally.

    System loss charges can go up to a maximum of 8.5 percent of electricity bills.

    Critics say consumers should not be charged for system losses at all, with a columnist of The Manila Times calling it “another instance of inefficiency being rewarded by regulation” as consumers, not Meralco, bear the responsibility for system loss.

    Zarate, in his bill, cited a study of the International Energy Consultants that electricity rates in Luzon are ninth-highest among the 44 countries surveyed in terms of electricity tariffs.

    Metro Manila, the country’s political and economic center, is in Luzon, the Philippines’ biggest group of islands.


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