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Monday, June 17, 2024

DOF denies double taxation on power sector

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Finance Secretary Carlos Dominguez III denied Thursday that the power sector suffers from double taxation with the imposition of value-added tax on generation charge.

Dominguez issued the statement in response to the proposal of Energy Regulatory Commission chairperson Agnes Devanaderal to the next administration to remove the 12-percent VAT imposed on the generation charge, saying the levy should be applied only on the distribution charge to avoid the supposed double taxation.

“There is no double taxation in the electric power industry. Because the EPIRA [Electric Power Industry Reform Act] law has unbundled the pricing at each stage of electricity production, the VAT is imposed separately in each stage of the production,” Dominguez said.

“But at the end of the day, if you look at the total bill, the entire electricity service is charged 12-percent VAT on the side of the consumer,” he said.

Dominguez said for double taxation to exist, two taxes should be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction during the same taxing period and they must be of the same kind or character.

The EPIRA law requires that the pricing of electricity be disintegrated or unbundled.

“With this unbundled pricing mechanism, VAT is imposed on every level of the value chain and not integrated vertically like other sectors,” Dominguez said.

He said this means “the VAT paid on the distribution charge only accounts for the value-added in distributing the electricity and does not include the generation and transmission of power.”

Dominguez said like any producer of goods or services, the VAT paid on inputs can be offset against the output VAT imposed on the sale of electricity to consumers. Julito G. Rada

“VAT exemption is not the solution. If the intention is to unburden consumers, the next administration needs to review the existing policies on power generation pricing,” he said.

He said removing the VAT would not necessarily translate into a 12-percent reduction in prices. The VAT-exempt businesses do not charge output VAT and also could not recover the VAT they pay on their own inputs, he said.

“Thus, this input VAT becomes an additional cost to them and to recover this, it is passed on to the consumers,” Dominguez said.


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