ERC’s Devanadera sees immediate price impact if fuel excise suspended

THE HEAD of the Energy Regulatory Commission (ERC) has called for the suspension of the excise tax on coal and petroleum products to immediately bring down the cost of electricity.

“The very immediate (solution) is, we can go into (the) suspension of the excise tax,” ERC Chairperson and Chief Executive Officer Agnes VST Devanadera said in a virtual briefing late Wednesday.

She identified coal and petroleum products as items that can be exempted from the excise tax.

“Here the impositions of (the) government in terms of taxes amount to about 12%,” she said. “You’d see that in your (electricity) bill.”

Ms. Devanadera called the briefing and offered her proposal ahead of the change in political leadership in July, which is also the same month that her term at the ERC ends.

She said the suspension of the excise tax is among the solutions needed to bring down power rates in the Philippines, which are among the highest in Southeast Asia.

“The actual cost that is being billed to us is reflective of the real cost as there is no subsidy,” she said.

She also cited supply constraints brought about by the Russia-Ukraine war that have jacked up the cost of petroleum products, further pushing higher the cost of electricity.

“Unlike other countries, (the Philippines does not) provide a subsidy for energy,” she said.

Ms. Devanadera also called for a review of the multiple imposition of the value-added tax (VAT) that further adds to the cost of electricity. She said VAT is imposed on power generation companies when they sell to the distribution utilities that bring electricity to consumers.

“When Meralco (Manila Electric Co.) bills us, the consumers, meron na namang (there is again) VAT,” she added.

For consumers, the imposition of VAT is a burden because it is applied on power generation, transmission, and distribution, Ms. Devanadera said, adding that the tax should be imposed only on distribution utilities.

Pass-through charges from power generation and transmission are paid to the suppliers and the grid system operator, respectively. Taxes, universal charges, and the feed-in tariff allowance are remitted to the government. Power sellers earn from the distribution charge.

“We don’t need a law to be passed. It’s a matter of interpretation of the agency that can do this,” she said, pointing to the Bureau of Internal Revenue. “That will give us a reduction of about 7%, so that’s a lot.”

Even the system loss — or power that is lost when it is exported from the plant to end-consumers — is charged VAT, she added.

“We don’t need a law for that,” she said, referring to the removal of the system loss VAT. “We only need an issuance by the executive.”

Her sample computation put the VAT component at P1,700 of a monthly electricity bill of P16,000, but if the tax is imposed only on the distribution utility, consumers could end up paying between P400 and P600.

Asked about substitute revenue sources for the government in place of the suspension of the excise tax and VAT, she suggested imposing higher taxes on non-essentials, which she identified as cars, condominiums, and gaming.

Ms. Devanadera was appointed to head the ERC towards the end of 2017. Her appointment papers, authorizing her to serve out the unfinished term of her predecessor, set the end of her term at July 10, 2022. — Victor V. Saulon