Revenue Memorandum Circular No. 97 – 2026

Fort he information and guidance of all internal revenue officials, employees, and other concerned, attached herewith as Annex “A” is a copy of Energy Regulatory Commission (ERC)Resolution No. 26, seried of 2026, entitled “A Resolution 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 Distriburion Utitlities for Value-Added Tax Purposes and Ammending Pertinent Provisions of ERC Resolution No. 20, Series of 2005, and ERC Resolution No. 14, Series of 2022.”

In its Resolution No. 26, Series of 2026, the ERC declared the allowable System Loss Charge, within the cap approved by the ERC pursusant to its rules and regulations, as a government-mandated pass-through cost that does not form part of the gross sales of Generation Companies (Gen Cos), the National Grid Corporation of the Philippines (NGCP), and Distribution Utilities (DUs) for Value-Added Tax (VAT) purposes.

Section 108 of the National Internal Revenue Code of 1997, as amended (Tax Code), imposes VAT on the gross sales derived from the sale or exchange of services, including digital services, and the use or lease of properties. Gross sales means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services during the taxable quarter for the services performed for another person, which the purchaser pays or is obliged to pay to the seller in consideration of the sale, barter or exchange or services that has already been rendered by the seller and the use or lease of properties that have already been supplied by the seller excluding value-added tax and those amounts earmarked for payment to third (3rd) party or reveived as reimbursemnet for payment on behalf of another which do not do not redound to the benefit of the seller as provded under relevant laws, rules or regulations.

Accordingly, Q&A No. 3, of Revenue Memorandum Circular (RMC) No. 16-2024, as amended by RMC No. 60-2026, is hereby further amended to recognize and confirm the allowable System Loss Charge within the cap approved by ERC under Resolution No. 26, Series of 2026 and other applicable ERC rules and regulationsas one of the government-mandated charges excluded from Gross Sakes for purposes of VAT computation and, consequently, not subject to Output Tax and Creditatble Withholding on VAT. This exclusion, however, shall not extend to income tax and the corresponding creditable withholding tax.

For VAT purposes, the allowable System Loss Charge shall be excluded from Gross Sales, provided that is separately indetified in the billing statement, invoice, or similar document in accordance with ERC Resolution No. 26, Series of 2026 and other applicable ERC rules and regulations. Such exclusion shall likewise be subject to the applicable provisions of the Tax Code and its implementing rules and regulations governing the setermination of Gross Sales, invoicing requirements, and proper treatment of government-mandated charges.

All concerned Gen Cos, NGCP, DUs, electric cooperatives, and other affected taxpayers shall ensure the proper billing, accounting, reporting, and separate identification fo the allowable System Loss Charge in accordance with applicable ERC rules an regulations and the applicable provisions of the Tax Code and its implementing rules and regulations.

This Circular shall take effect 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.