REVENUE MEMORANDUM CIRCULAR (RMC) NO. 97-2026
This Circular provided that the System Loss Charge does not form part of the Gross Sales of Distribution Utilities (DUs), Generation Companies (GCs), and the National Grid Corporation of the Philippines (NGCP), pursuant to Energy Regulatory Commission (ERC) No. 26, Series of 2026, attached hereto as Annex A.
It further amends Q&A No. 3 of RMC No. 116-2024, as amended by RMC No. 60-2026.
Definition of Terms
- System Loss – It is defined as the electricity that is generated and fully paid for but is physically dissipated or lost during its transmission and distribution to end-users. (Section 2(a) of ERC No. 26, Series of 2026)
- System Loss Charge – These are collections made by DUs from electricity consumers which they then remit to the applicable GCs and the NGCP as reimbursement for the cost of energy generated but lost during delivery. The allowed System Loss Charge is capped and passed to the consumers mandated by the ERC’s rules and regulations. (Section 3.48 as amended by Section 9 of ERC No. 26, Series of 2026)
- Gross Sales – It is derived from the sale or exchange of services, including digital services, and the use or lease of properties. Section 108 of the Tax Code, as amended also states that Gross Sales excludes the amount earmarked for payment to third party or received as reimbursement for payment on behalf of another which do not redound to the benefit of the seller.
The System Loss Charge, as defined above, being a pass-through cost, should not form part of the Gross Sales because the amounts collected by the DUs merely represents the recovery of system losses authorized by the ERC to be remitted to the GCs and NGCP, and does not constitute consideration for the service rendered by the DUs.
For VAT purposes, the System Loss Charge will now be excluded from the Gross Sales that will be subject to Output Tax and Creditable Withholding VAT, provided that it is separately identified in the billing statement, invoice, or similar document in accordance with ERC regulations. Provided, further, that such exclusion remains subject to the Tax Code, as amended and its implementing rules and regulations.
Please also note that the exclusion of System Loss Charge from Gross Sales doesnot extend to Income Tax and its corresponding Creditable Withholding Tax.
The prescribed tax treatment takes effect immediately and prospectively applies to transactions from the effectivity of this Circular and ERC No. 26, Series of 2026.