The BIR explains the VAT exemption mechanism for electricity generated from domestic gas
By Sheldeen Joy Talavera, A reporter
LAWS seeking 12% value-added tax (VAT) exemption for electricity generated from domestic natural gas has been issued, effective Republic Act (RA) No. 12120, said the Bureau of Internal Revenue (BIR).
Revenue Regulations No. 2-2026 sets out how to use the financial grants authorized by RA 12120, or the Philippine Natural Gas Industry Development Act.
It said that this incentive applies to the purchase and sale of natural gas through power plants for the use of electricity supply agreements, or power intended to be provided in the Wholesale Electricity Spot Market, and the electricity generated to provide related services.
The National Revenue Code of 1997 imposes taxes on the sale of goods and services, including electricity. However, the natural gas law provides financial benefits such as exemptions from the purchase and sale of natural gas, combined gas, and energy produced by power plants.
The gas supplier is required to obtain a certificate from the Department of Energy (DoE) Oil Industry Management Bureau, indicating the volume and percentage of domestic gas sold.
Production facilities that use natural gas exempted from VAT also need to secure a certificate from the bureau.
Signed into law last year, RA 12120 aims to develop the natural gas industry by privatizing the purchase and use of resources, providing tax benefits over imported natural gas and other conventional energy sources.
Currently, the Malampaya gas field is the only natural gas producer in the country, supplying about 20% of Luzon’s electricity needs.
Edgar Benedict C. Cutiongco, president of the Philippine Petroleum Association, said the directives “support the country’s long-term goal of developing and exploiting our energy resources.”
“Reducing the tax burden on domestically produced electricity can help reduce the cost of fuel for gas-fired power plants, contributing to more stable electricity prices for consumers,” said Mr. Cutiongco told. BusinessWorld.
“Most importantly, it strengthens the role of indigenous natural gas as a reliable fuel as the country continues to expand renewable energy,” he added.
Manila Electric Co. (Meralco), the country’s largest private utility company, got about 21% of its electricity supply needs last month from two large gas-fired power plants in Batangas.
Meralco Vice President and Head of Utility Economics Lawrence S. Fernandez said the company has not yet clarified the amount of VAT exemption on electricity bills but it is seeing a reduction in costs.
“Since this will be an exemption from VAT, the reduction will not be reflected in the production fee part of the bill, but in the VAT part,” said Mr. Fernandez BusinessWorldadding that consumers can expect lower charges as soon as the tax exemption is implemented by gas stations.
The Petroleum Association of the Philippines (PAP) said the increased use of domestic natural gas may reduce pressure on electricity prices as it will reduce dependence on imported fuel.
“If we use more (domestic) gas now, it can help lower the price,” said PAP Chairman Donnabel Kuizon Cruz.
