RMC 97 - 2026

What is “System Loss”?

When electricity travels from power plants through high-voltage transmission lines and local distribution grids to reach your home, some of that energy is inevitably lost.

Because distribution utilities cannot completely eliminate these losses, the Energy Regulatory Commission (ERC) allows them to pass a capped percentage of this cost onto consumers. This is the allowable system loss charge on your bill.

The Consumer’s Problem

For years, consumers have expressed frustration over payment of 12% Value-Added Tax (VAT) on system losses.

VAT is a tax on consumption. Consumer advocacy groups and lawmakers argued that charging VAT on system losses meant forcing consumers to pay a tax on electricity that they never actually consumed or benefited from.

How the Circular Resolve this

The circular officially removes the 12% VAT on system loss. In connection with the ERC Resolution No. 26 - 2026, the circular officially ruled that the allowable system loss charge is exempt from Output Value Added Tax (VAT).

By classifying the allowable system loss as a government-mandated pass-through cost rather than a value-adding "service" provided by the utility, the BIR legally justified removing the 12% VAT on the system loss charge.

What Can Consumers Expect

• Lower Overall Bill Amounts: The 12% output VAT will no longer be computed on the system loss line item, shrinking the total tax component of power costs.

• Clearer Bill Breakdown: Consumers will see the "Allowable System Loss" charge explicitly isolated and unbundled on their monthly statements. This separation is a mandatory requirement for utilities to claim the tax exemption.

• Capped Tax Relief: The VAT removal applies to the allowed system loss amount. Any system loss exceeding the cap cannot be charged to consumers.

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