The Energy Regulatory Commission (ERC) will be instituting a uniform formula that shall be adhered to by the distribution utilities (DUs) in passing on value-added tax (VAT) charges to electricity consumers.

ERC executive director Francis Saturnino Juan explained they have noticed the differing formulas being adopted by DUs in the VAT computations; hence, the need to draw up a common formula for such charges.

DUs are in the front-line of billing VAT charges to customers, including collections for those in generation and transmission which are subsequently remitted to the companies concerned.

He noted that some distribution firms are calculating VAT rates as percentage of generation, transmission and system loss; while some are computing it in terms of peso-per-kilowatt hour.

The intent of the ERC-proposed resolution, he said, will be to standardize VAT computation and charging system using the peso-per-kilowatt hour formula.

In a notice to stakeholders, the ERC enjoins interested parties to submit their respective inputs to the proposed policy that shall define the parameters on VAT recoveries.

The imposition of VAT charges on electricity bills covered components, such as: distribution charge; metering charge; supply charge; lifeline rate subsidy; inter-class cross subsidy; Power Act Reduction; rate reduction due to loan condonation; currency exchange rate adjustment; and local franchise tax.

For such charges, the ERC noted that it will “perform confirmatory process on the VAT imposed upon the generation, transmission and recoverable system loss as passed on to end-users by the distribution utilities.”

It further noted that the verification and confirmation processes for VAT on distribution revenues of the DUs “shall be left to the normal course of the Bureau of Internal Revenue (BIR) audit.”

The VAT charges were considered policy outcome as part of the government’s drive to scour solutions to pare down budgetary deficit in 2004.

In the energy sector, both the oil and power industries have been swamped with the burden to the consternation of end-users as this either jacks up pump prices or their electricity bills.