Tax issues make retail electricity costly

By Myrna M. Velasco – May 7, 2017, 10:00 PM

from Manila Bulletin

Several unresolved tax issues of the power industry have been dumping add-on costs to the supposedly competitive retail segment of the restructured electricity sector, making it a bit expensive for customers already exercising “power of choice” on their power supply procurement.

At this stage, retail electricity suppliers (RES) under the edict of retail competition and open access (RCOA) have been sorting out these tax concerns with the Bureau of Internal Revenue (BIR) – but solutions seem far off still. These tax issues delve with value added tax (VAT) for some components of the distribution wheeling service (DWS) and tax charges levied via the Wholesale Electricity Spot Market (WESM).

In a position paper lodged with relevant government agencies, primarily with the BIR, the RES players have stipulated that “since there is no BIR regulation clearly stating that the DWS and WESM charges are “pass-through” charges, the contestable customer absorbs and pays for higher electricity fees.

Contestable customers are those that can already freely negotiate and contract for power supply with their preferred electricity suppliers as instituted in the industry’s RCOA policy.

With the temporary restraining order issued by the Supreme Court on the RCOA rules, the policy is still currently enforced on voluntary basis – generally in the threshold level of those with 1.0-megawatt consumption.

Primarily, it was explained that “some components of the DWS and WESM charges may be zero-rated (because the source of generation is renewables)…but the RES is constrained to charge 12-percent VAT despite these charges being zero-rated.”