No double taxation on electricity VAT – DOF

MANILA, Philippines — The Department of Finance (DOF) is against the proposal pitched by the Energy Regulatory Commission (ERC) to remove the 12 percent value-added tax (VAT) on generation charge to bring down electricity prices for consumers.

Finance Secretary Carlos Dominguez III yesterday said there is no double taxation in the power industry that users have to pay for as raised by ERC chairman Agnes Devanadera.

Dominguez said the Electric Power Industry Reform Act has unbundled the pricing at every level of electricity production, making it necessary for the government to slap VAT separately at each of those stages.

However, Dominguez said the electric bill received by consumers only carries a single VAT of 12 percent. He pointed out that for double taxation to exist—as alleged by Devanadera—two taxes must be imposed with the same purpose, by the same authority, within the same jurisdiction.

According to Dominguez, the law requires that the pricing of electricity be disintegrated. In such a mechanism, the government is mandated to collect VAT at every level of the supply chain.

“With this unbundled pricing mechanism, VAT is imposed on every level of the value chain and it is not integrated vertically like other sectors,” Dominguez said.

The finance chief clarified that the VAT paid by consumers covers just the electricity distribution, as suppliers are responsible for settling the VAT on generation and transmission of power.

As head of the DOF, the same agency pushing for fiscal consolidation, Dominguez said the next administration should review policies on power generation pricing instead of suspending, if not lifting altogether, the VAT imposed on users.

If Devanadera’s proposal to remove VAT is heeded, electricity firms can no longer charge output VAT on consumers, but would still be left paying VAT for their own inputs. In that case, the input VAT becomes an additional cost to them that they will try to recover by passing to users.

Dominguez attributed the ballooning price of electricity in the Philippines to the expensive costs of producing power. For one, the generation charge collected by Manila Electric Co. accounted for around 59 percent of an electric bill in the first quarter.

“VAT exemption is not the solution [because] if the intention is to unburden consumers, the next administration needs to review existing policies on power generation pricing,” Dominguez said.

The DOF wants the next administration to consolidate its finances, wherein VAT exemptions will be lifted, to make space for debt payments.

In a text message to The STAR, Devanadera said there is a disconnect between what was she pitching for and what the finance chief may have heard.

“We never said that it will bring a reduction of 12 percent. I think what we said was not accurately relayed,” she said.