JUNE 8, 2011

NR # 2429B

Bill exempts from VAT coverage consumers using less than 250-kwh
electricity per month
A Metro Manila lawmaker has proposed to exempt from VAT the sale of electricity to
households with consumption not exceeding 250-kilowatt-hours per month to help unburden
residential users especially those who belong to the lower middle-income bracket and below.

Rep. Ma. Theresa Bonoan-David (4th District, Manila) said prior to the enactment of
Republic Act 9337, or the Expanded Value Added Tax, the cost of electricity in the country was
already one of the highest in Asia and the imposition of VAT on power further increased its cost.

Bonoan-David authored House Bill 4507 seeking to amend Republic Act 8424 or the
National Internal Revenue Code of 1997.

Quoting the Department of Energy, Bonoan-David said residential consumers or

households would have to shell out an additional 0.592 centavos per kWh due to the imposition
of the VAT.

“If a household consumes an average of 250 kWh per month, household members would
be able to save P148 in electricity payment if the VAT is removed, a rather substantial amount
especially for those belonging to the lower middle income bracket and below,” said Bonoan-
David.

According to Bonoan-David, her proposal is limited to exempting residential users or

households only because households cannot avail of output VAT to mitigate their VAT liability
unlike industries, businesses and commercial establishments which could pass on the cost of
electricity to the users of their services.

Bonoan-David said commercial users are in a better position to carry out the burden of
VAT on electricity compared to households.

Households are also the last point in the VAT chain so the exemption will not adversely
affect the VAT collection efficiency in terms of establishing a paper trail of VATable transactions,
Bonoan-David added.

The bill seeks to amend Section 109 of the NIRC so that the sale of electricity by
distribution utilities to residential consumers whose monthly consumption does not exceed 250
kWh shall be among the transactions exempt from the VAT.

The bill provides that the Secretary of Finance shall, upon the recommendation of the
Commissioner of Internal Revenue, promulgate the necessary rules and regulations for
implementing the amended law. (30) rbb