ERC Resolution No. 26, Series of 2026 – System Loss Charge Excluded from VAT Base
ERC declared the System Loss Charge a government-mandated pass-through cost excluded from the VAT base of generation companies, NGCP, and distribution utilities, reducing electricity costs for consumers by ensuring VAT is not imposed on non-revenue energy losses.
8/28/20263 min read
SUMMARY
WHAT IT IS
Declares the System Loss Charge as a government-mandated pass-through cost excluded from the gross sales of Generation Companies (GCs), the National Grid Corporation of the Philippines (NGCP), and Distribution Utilities (DUs) for Value-Added Tax (VAT) purposes, and amends relevant provisions of ERC Resolutions No. 20 (2005) and No. 14 (2022).
Generation Companies
NGCP
Distribution Utilities
Electricity consumers
BIR
WHO IS AFFECTED
KEY DEADLINES
Takes effect 15 days after publication in a newspaper of general circulation, but not before the effectivity of the appropriate confirmatory issuance from the BIR.
DUs must update billing formats within 60 days from effectivity to reflect the System Loss Charge as a separate, non-VATable line item.
Applies prospectively; no refunds or adjustments for VAT previously collected on System Loss Charges.
TAKEAWAY
DUs must revise billing systems to separately show the System Loss Charge as non-VATable and ensure compliance with the new VAT treatment.
GenCos, NGCP, and DUs should exclude the System Loss Charge from gross sales for VAT purposes in all relevant transactions and reporting.
KEY POINTS
Scope: Applies to the Value-Added Tax (VAT) treatment of the System Loss Charge collected by Distribution Utilities (DUs) from electricity consumers and remitted to Generation Companies (GCs) and the National Grid Corporation of the Philippines (NGCP).
Covered Entities: Generation Companies, NGCP, Distribution Utilities, and electricity consumers.
Key Requirement: The System Loss Charge, within the allowable cap set by the ERC, is declared a government-mandated pass-through charge and is excluded from the gross sales of GCs, NGCP, and DUs for VAT computation.
Thresholds: Only the System Loss Charge within the cap approved by the ERC (per ERC Resolution No. 10, Series of 2018, and amendments) is excluded from VAT; any system loss above the cap is not recoverable from consumers and must be shouldered by the DU.
Compliance Obligation: All DUs must, within sixty (60) days from effectivity, modify their billing format to separately and distinctly reflect the System Loss Charge as a government-mandated charge not subject to VAT.
Mechanism Introduced/Amended: Amends ERC Resolution No. 20, Series of 2005, and ERC Resolution No. 14, Series of 2022, to exclude the System Loss Charge from gross sales for VAT purposes and require separate billing line itemization.
Remittance: DUs must remit the System Loss Charge (within the allowable cap) to GCs and NGCP without any VAT component.
Deadline: Resolution takes effect fifteen (15) days after publication and after the effectivity of the appropriate confirmatory issuance from the BIR; DUs have 60 days from effectivity to update billing formats.
Prospective Application: The VAT exclusion applies only prospectively; no refunds or adjustments for VAT previously collected on System Loss Charges prior to effectivity.
Coordination: ERC will furnish the BIR with a copy of the Resolution to serve as regulatory basis for the VAT exclusion.
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ERC Resolution No. 26, Series of 2026
Detailed policy analysis
Operational and compliance implications
Stakeholder impact assessment
Risk flags and ambiguities
Suggested next actions
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Tags: System Loss Charge, VAT Exclusion, Pass-Through Cost, Billing Compliance, Distribution Utilities, ERC Amendment