Philippine business groups have welcomed the government's decision to remove the value-added tax (VAT) on system loss charges, but they say deeper reforms are needed to bring down electricity costs, including grid upgrades and faster permitting for new power plants.

The tax relief was formalized through Revenue Memorandum Circular No. 97-2026, issued on Sept. 14, which clarified that allowable system loss charges within the cap approved by the Energy Regulatory Commission are not subject to the 12% VAT. System loss refers to electricity dissipated as it moves through transmission and distribution networks, and regulators cap how much of that cost utilities may recover from consumers' monthly bills.

"We welcome the removal of VAT on allowable system loss charges, but this alone will not address the bigger problem of high power costs," Management Association of the Philippines President Donald Patrick L. Lim said via Viber.

Despite the relief for power users, Mr. Lim noted that many consumers continue to endure unstable supply that disrupts productivity and raises operating costs. "The issue is not just affordability but also reliability," he said.

Citing feedback from Cebu-based businessmen, he said firms in some provinces have been hit by rotating brownouts in recent months. "We urgently need more generation capacity, a more reliable grid, greater competition and faster investments in renewables and energy storage," he said. "Power is a basic requirement for business, and we cannot expect Philippine companies to be competitive if electricity remains both expensive and unreliable."

Makati Business Club Chairman Edgar O. Chua said reforms to the permitting process and the electric cooperative industry should be prioritized to further reduce power costs. "There are still many other reforms needed to lower power costs," he said via Viber.

Mr. Chua called for streamlining the permit process for new generation plants, as well as professionalizing and depoliticizing the selection of directors and officers of electric cooperatives. Building more generation facilities to reduce Wholesale Electricity Spot Market costs, especially during yellow and red alerts, would also provide relief to businesses, he added. The Wholesale Electricity Spot Market is where electricity is traded at prevailing market prices, and the alert levels reflect how thin power reserves have become, with red alerts signaling the tighter of the two conditions.

The Philippines has some of the most expensive electricity rates in Southeast Asia. Department of Energy estimates put the average power price in June at P12.43 per kilowatt-hour (kWh), surpassing Singapore's average rate by P0.09 per kWh.

Business groups have long pushed for reforms to lower power costs, arguing that high electricity rates squeeze operating margins, drag down productivity, and dampen competitiveness.

Government estimates indicate that removing the VAT on system loss charges could generate approximately P6 billion in annual savings for electricity consumers. For firms and households, the follow-through measures to watch are the ones the groups flagged: streamlined permitting for new plants, governance reform of electric cooperatives, and faster investment in generation, grid capacity, and storage.

Reporting by Beatriz Marie D. Cruz; source: BusinessWorld