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HOUSE OF REPRESENTATIVES RECENT
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Quezon City

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SEVENTEENTH CONGRE
First Regular Session

161

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HOUSE BILL No. | ays g yy INDEX SERVICE
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Introduced by

Bayan Muna Rep. CARLOS ISAGANI T. ZARATE

AN ACT
EXEMPTING THE SYSTEM LOSS CHARGE COMPONENT IN THE SALE OF
ELECTRICITY BY DISTRIBUTION COMPANIES AND ELECTRIC
COOPERATIVES FROM THE COVERAGE OF THE VALUE ADDED TAX,
AMENDING FOR THE PURPOSE SECTION 109 (1) OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED BY REPUBLIC ACT NO. 9337 AND
REPUBLIC ACT NO. 10378, AND FOR OTHER PURPOSES

EXPLANATORY NOTE

This bill was first and originally filed as House Bill 5543 in the 16th Congress by Bayan
‘Muna Partylist Representatives Neti Colmenares and Carlos Isagani Zarate.

Value-Added ‘Tax (VA‘D) is a form of sales tax. It is a tax on consumption levied on the
sale, barter, exchange or lease of goods or properties and services in the Philippines and on
importation of goods into the Philippines.

VAT is an indirect tax. It is shifted or passed on to the buyer, transferee or lessee of
goods, properties o services. Being a pass-on tax, the burden of paying the VATT is therefore
ultimately left upon the shoulder of the end users — the consuming public.

System Loss charge, on the other hand, is that part of one's electric bill representing the
cost of electricity lost during transmission, pilferage, and due to technical and administrative
inefficiency. Even pilfered power and the electricity used by the distribution companies (ie.
Meralco) and electric cooperatives are passed on to consumers. hus, the people are made to pay
more than the cost of electricity they have actually consumed. In a report by independent think-
tank Ibon Foundation, the system loss charge comprises about 8% of the total electricity bill.

‘Worse, this System Loss charge is also subjected to the coverage of VAT which further drives
electricity bills up.



‘As a tax on consumption, VAT ought to be imposed upon the goods and services people
actually buy and consume. By its very definition therefore, the imposition of VAT upon this
System Loss charge is unfounded and illegal as the people are taxed for goods/services they have
not actually consumed.

For instance, in 2013, based on Meralco's tariffs, which averaged 24 US cents per
kilowatt hour, the price Filipinos pay for their electricity is the fifth highest in the world. It also
showed that electricity in the Philippines costs nearly twice that of Thailand's, while about five
(5) times that of Indonesia's.

In another study conducted by the International Energy Consultants (IEC), a Perth-
based consultancy firm commissioned by Meralco to conduct the study, the rates in Luzon are
placed at ninth highest electricity tariffs of the 44 countries surveyed.

Per the IEC study, the primary reason for such higher power rates as compared to other
countries is the absence of government subsidies for electricity, unlike countries like Indonesia,
‘Thailand, and Malaysia, where electricity rates are subsidized by the government. These subsidies
comprise a large part of their public budget. In Indonesia, for example, energy subsidies account
for 24.0 percent of their 2013 public expenditure plan.

With this backdrop, along with the rising prices of consumer goods and commodities,
fuel, education and medical costs, worsening inflation, and unabated sinking of the purchasing
power of peso, itis high time that the Congress devise means which could readily help in
keeping the pockets of Filipinos, especially those corning from the lower income class, from
completely running dey.

Thus, this bill seeks to amend the National Internal Revenue Code of 1997, as amended
by Republic Acts 9377 and 10378, by exempting the System Loss charge component in the
clectricity bills from the coverage of the Value Added Tax.

Passage of this Bill is thus earnestly sought.

Approved,

Bayan Mama Party-List


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SEVENTEENTH CONGRESS
First Regular Session

1616
HOUSE BILL No. ___

Introduced by BAYAN MUNA Rep. CARLOS ISAGANI T. ZARATE

AN ACT
EXEMPTING THE SYSTEM LOSS CHARGE COMPONENT IN THE SALE OF
ELECTRICITY BY DISTRIBUTION COMPANIES AND ELECTRIC
COOPERATIVES FROM THE COVERAGE OF THE VALUE ADDED TAX,
AMENDING FOR THE PURPOSE SECTION 109 (1) OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED BY REPUBLIC ACT NO. 9337 AND
REPUBLIC ACT NO. 10378, AND FOR OTHER PURPOSES

Be it enacted by the Senate and the House of Representative of the Philppines in Conggess assemble:

SECTION 1. Section 109 (1) of the National Internal Revenue Code of 1997, as amended
by Republic Act No. 9337 and Republic Act No. 10378, is hereby further amended

to read as follows:

5. 109. Exempt Transactions. — (1) Subject to the provisions of
subsection (2) hereof, the following transactions shall be exempt from the value-
added tax:

(A) xxx

“(B) xxx

XX

“Um

“(V) SYSTEM LOSS COMPONENT IN THE SALE OF ELECTRICITY BY
DISTRIBUTION COMPANIES AND ELECTRIC COOPERATIV



"(W) SALE OR LEASE OF GOODS OR PROPERTIES OR THE
PERFORMANCE OF SERVICES OTHER THAN THE TRANSACTIONS
MENTIONED IN THE PRECEDING PARAGRAPHS, THE GROSS ANNUAL,
SALES AND/OR RECEIPTS DO NOT EXCEED THE AMOUNT OF ONE
MILLION FIVE HUNDRED THOUSAND PESOS (1,500,000): PROVIDED,
‘THAT NOT LATER THAN JANUARY 31, 2009 AND EVERY THREE (3) YEARS
THEREAF ‘THE AMOUNT HEREIN STATED SHALL BE ADJUSTED TO
ITS PRESENT VALUE USING THE CONSUMER PRICE INDEX AS
PUBLISHED BY THE NATIONAL STATISTICS OFFICE (NSO)

SECTION 2. Repealing Clause, — All laws, executive and administrative orders or
parts thereof, inconsistent with any provision of this act are hereby repealed or modified
accordingly.

SECTION 3. Separability Clause. ~ If any provision of this Act is subsequently declared
‘unconstitutional, the validity of the remaining provisions hereof shall remain in full force and
effect.

SECTION 4. Effectivity. — This act shall take effect after fifteen (15) days following
the completion of its publication in the Official Gazette ot in a national newspaper of
general circulation.

Approved,