The Philippine Rural Electric Cooperatives Association (PHILRECA) backed the proposed removal of value-added tax (VAT) on system loss charges but warned that the reform must not transfer unrecovered costs to electric cooperatives or other parts of the power sector.

Responding to President Ferdinand R. Marcos Jr.’s call to remove system loss charges from electricity bills, PHILRECA said it would support their complete elimination only if the national government directly shoulders the costs through a dedicated subsidy mechanism.

The association said consumers should not be taxed for electricity that was lost before reaching their homes. However, it called for a comprehensive review and legislative revision of existing tax rules before VAT is removed.

“For the removal of VAT on system loss to be truly meaningful and fair, it must not result in unrecoverable input VAT or disguised costs that Electric Cooperatives, generation companies, the National Grid Corporation of the Philippines, or end-consumers will ultimately have to shoulder,” PHILRECA said.

Under current tax arrangements, electric cooperatives pay input VAT to generation companies and the National Grid Corporation of the Philippines (NGCP) for electricity passed through the grid.

PHILRECA warned that removing VAT only at the consumer end could leave electric cooperatives unable to recover the input VAT they had already paid, turning the proposed tax relief into an additional operating cost for non-stock, non-profit entities.

The group called for zero-rating or appropriate tax exemptions across the entire power value chain for electricity lost in transit.

It said this would ensure that VAT removal provides actual tax relief instead of transferring the burden to electric cooperatives, generation companies, transmission providers, or member-consumer-owners.

On the broader proposal to remove system loss charges entirely, PHILRECA said government support would be necessary to protect rural electric cooperatives.

“We can support the complete elimination of system loss charges from electricity billing if and only if the national government directly shoulders these costs through a dedicated subsidy mechanism,” the association said.

PHILRECA argued that some technical losses in rural distribution networks are unavoidable because electric cooperatives operate extended feeder lines across challenging terrain.

It said these losses are governed by physical conditions rather than automatically indicating inefficiency on the part of an electric cooperative.

The association warned that prohibiting all system loss recovery without a government subsidy could bankrupt non-profit electric cooperatives and would violate Section 25 of the Electric Power Industry Reform Act (EPIRA).

Should the government decline to shoulder the costs, PHILRECA urged Congress to adopt a performance-driven transition instead of an immediate total prohibition.

Its proposed framework includes customized, feeder-specific technical loss caps set by the Energy Regulatory Commission, government-backed funding for grid upgrades, and stronger enforcement against electricity pilferage.

PHILRECA maintained that consumer relief should address or fund the underlying costs rather than simply transfer them elsewhere in the electricity supply chain.

Will Congress pursue full-chain tax relief, a direct subsidy, or a performance-based transition as it considers removing system loss charges from consumer bills?

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