RMC No. 97-2026: VAT Treatment of System Loss Charges

Revenue Memorandum Circular
(RMC) No. 97-2026

Date of Issuance: September 14, 2026 (BIR Website)

Effectivity: Immediately and shall be applied prospectively from its effectivity and from the effectivity of ERC Resolution No. 26, Series of 2026 pursuant to Sections 12, 14 and 17 thereof.

“Circularizing Energy Regulatory Commission Resolution No. 26, Series of 2026, Declaring the System Loss Charge as a Government-Mandated Pass-Through Cost Not Forming Part of the Gross Sales of Generation Companies, National Grid Corporation of the Philippines, and Distribution Utilities for Value-Added Tax Purposes, and Further Amending Revenue Memorandum Circular No. 116-2024”

RMC No. 97-2026 circularizes Energy Regulatory Commission Resolution No. 26, Series of 2026, which declares the allowable System Loss Charge as a government-mandated pass-through cost that does not form part of the gross sales of Generation Companies (GenCos), the National Grid Corporation of the Philippines (NGCP), and Distribution Utilities (DUs) for VAT purposes.

Key Highlights

1. Exclusion from VAT Gross Sales

The allowable System Loss Charge, within the cap approved by the ERC, is excluded from the determination of Gross Sales for VAT purposes. As a result, it is not subject to output VAT.

2. Not Subject to Creditable Withholding VAT

Since the allowable System Loss Charge is excluded from VAT gross sales, it is likewise not subject to Creditable Withholding VAT (CWVAT).

3. Income Tax Treatment Unchanged

The exclusion applies only for VAT purposes. The Circular expressly states that the exclusion does not extend to income tax and the corresponding creditable withholding tax.

4. Compliance Requirements

To qualify for VAT exclusion:

• The allowable System Loss Charge must be separately identified in the billing statement, invoice, or similar document;
• Taxpayers must comply with ERC rules and regulations and the invoicing and gross sales provisions of the Tax Code; and
• GenCos, NGCP, DUs, electric cooperatives, and other affected taxpayers must ensure proper billing, accounting, reporting, and disclosure of the charge.

5. Affected Taxpayers

The following taxpayers shall ensure the proper billing, accounting, reporting, and separate identification of the allowable System Loss Charge in accordance with applicable ERC rules

and regulations and the relevant provisions of the Tax Code and its implementing rules and regulations:

• Generation Companies (GenCos);
• National Grid Corporation of the Philippines (NGCP);
• Distribution Utilities (DUs);
• Electric Cooperatives; and
• Other affected taxpayers.