Amending the Nirc (Exempting Electricity Sales from VAT)

Sin. 14'1 Dior sit. TWENTIETH CONGRESS OF THE REPUBLIC OF THE PHILIPPINES 25 JUL -3 P3:36 First Regular Session SENATE S. B. No. _ Introduced by Senator Rodante D. Marcoleta AN ACT EXEMPTING ELECTRICITY SALES FROM VALUE-ADDED TAX, FURTHER AMENDING FOR THE PURPOSE SECTIONS 108 AND 109 OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED EXPLANATORY NOTE The Philippines remains to be one of the Southeast Asian countries with the highest cost of electricity. Several factors contribute to this continuing energy problem of the country that include: deregulation of power generation, transmission bottleneck, distribution losses, reliance on imported fuel for power plants, and unrealistic regulatory asset base, among others. All these result in elevated operating expenses that deter investments, leading to high electricity costs that burden consumers. In 2024, the generation charge for electricity in the Philippines has seen multiple increases, primarily driven by several economic and market factors. The average household consuming 200 kWh monthly saw an increase of Php0.1839 per kWh, primarily due to a rise in the generation charge, influenced by higher costs from the Wholesale Electricity Spot Market (WESM) and "sweetheart deals" in Power Supply Agreements (PSAs). Specifically, WESM charges rose by Php0.2531 per kWh due to tight supply conditions, while PSAs saw a P0.1050 per kWh increase due to the weakening peso. Increases in the generation charge for electricity in 2024 highlight the complex interplay between currency fluctuations, supply chain issues, and market conditions. As the costs

associated with power generation continue to rise, consumers may need to adjust their budgeting for electricity expenses and consider energy-saving measures. Accordingly, this proposed measure seeks to exempt sales of electricity from the twelve percent (12%) value-added tax (VAT) with the objective of reducing operational costs leading to lower price of electricity. This would further stimulate economic activity and enhance domestic consumption, thereby contributing to broader and more sustainable economic growth. The removal of VAT on electricity sales is likewise anticipated to relieve financial strain on both consumers and enterprises, thereby supporting the development of a more inclusive and resilient energy system and improving the overall quality of life for Filipinos. In view of the foregoing, the immediate passage of this bill is earnestly sought. RODANTE D. MARCOLETA

THE PHILIS RECEIVED TWENTIETH CONGRESS OF THE ) REPUBLIC OF THE PHILIPPINES ) DAT UL - 3 20252 First Regular Session 00 пмЕ: 3:36 pm 0) SENATE BY: — BILLS INDEX S. B. No. _ Introduced by Senator Rodante D. Marcoleta AN ACT EXEMPTING ELECTRICITY SALES FROM VALUE-ADDED TAX, FURTHER AMENDING FOR THE PURPOSE SECTIONS 108 AND 109 OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:

Section 1. Section 108 of the National Internal Revenue Code of 1997, as

amended, is hereby further amended to read as follows: "Sec. 108. Value-added Tax on the Sale of Services, Including Digital Services, and the Use or Lease of Properties.- "(A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-added tax equivalent to twelve percent (12%) of the gross sales derived from the sale or exchange of services, including digital services, and the use or lease of properties. "The phrase 'sale or exchange of services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether personal or real; warehousing services; lessors or distributors of cinematographic films; persons engaged in milling processing, manufacturing or repacking goods for others; proprietors, operators or keepers of hotels, motels, rest houses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in securities; lending

investors; transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes; common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines; Esales of electricity by generation companies, transmission by any entity, and distribution companies, including electric cooperatives;] services of franchise grantees of [electric utilities] telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under Section 119 of this Code, and non-life insurance companies (except their crop insurances, including surety, fidelity, indemnity, and bonding companies; digital service providers; and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. The phrase 'sale or exchange of services' shall likewise include: xxx."

Sec. 2. Section 109 of the National Internal Revenue Code of 1997, as

amended, is hereby further amended to read as follows: "Sec. 109. Exempt Transactions. - (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the VAT: xXX (EE) SALE OF ELECTRICITY BY GENERATION, TRANSMISSION, AND DISTRIBUTION COMPANIES AND ELECTRIC COOPERATIVES. (FF) SERVICES OF FRANCHISE GRANTEES OF ELECTRIC UTILITIES."

Sec. 3. Separability Clause. - If any provision or part of this Act is declared invalid

or unconstitutional, the remainder thereof not otherwise affected shall remain in full force and effect.

Sec. 4. Repealing Clause. - All laws, presidential decrees, executive orders, letters

2 of instructions, proclamations or administrative regulations that are inconsistent with 3 the provisions of this Act are hereby repealed, amended, or modified accordingly.

Sec. 5. Effectivity. - This Act shall take effect fifteen (15) days after its publication

5 in the Official Gazette or in a newspaper of general circulation. Approved,