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WHEREAS, the Congress of the Philippines has enacted Republic Act No. 9337 (An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237, and 288 of the National Internal Revenue Code (NIRC) of 1997, as amended, and for other Purposes);

WHEREAS, Section 6 of R. A. No. 9337 provides that "Section 108 of the NIRC of 1997, as amended, is hereby further amended to read as follows:

 

Section 108. Value Added Tax (VAT) on Sale of Services and Use or Lease of Properties.

 

"(A) Rate and Base of Tax. _ There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties: Provided, That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied:

 

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth (2 4/5%); or

 

(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%).

 

The phrase `sale or exchange of services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by xxx xxx xxx, sales of electricity by generation companies, transmission, and distribution companies; services of franchise grantees of electric utilities, xxx xxx xxx."

 

"xxx xxx xxx."

 

"The term `gross receipts' means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding value added tax."

 

"(B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate:

 

(1) xxx xxx xxx.; and

 

(7) Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels."

WHEREAS, Section 15 of R. A. No. 9337 further amended Section 119 of the NIRC of 1997, as amended, exempts franchise grantees of electricity from franchise taxes.

WHEREAS, Section 24 of R. A. No. 9337 provides that "The following laws or provisions of laws are hereby repealed and the persons and/or transactions affected herein are made subject to the value-added tax subject to the provisions of Title IV of the NIRC of 1997, as amended:

(A) Section 13 of R.A. No. 6395 on the exemption from value-added tax of the National Power Corporation (NPC);

(B) Section 6, fifth paragraph of R.A. No. 9136 on the zero rate imposed on the sales of generated power by generation companies; and

(C) All other laws xxx which are contrary to xxx ."

WHEREAS, said R. A. No. 9337 shall take effect on November 1, 2005;

WHEREAS, the Commission in the exercise of its power and authority had previously authorized Private Distribution Utilities to collect National Franchise taxes;

WHEREAS, in Revenue Memorandum Circular No. 61-2005 of the Bureau of Internal Revenue (BIR), said agency clarified certain provisions of Revenue Regulation No. 14-2005 as amended by Revenue Regulations No. 16-2005, implementing the Tax Code of 1997, as amended by R. A. No. 9337, affecting generation, transmission and distribution companies as well as electric cooperatives as defined in R. A. No. 9136 subject to the value added tax as well as their suppliers and customers effective November 1, 2005;

WHEREAS, this Commission is vested with the power and authority to determine, fix and regulate the rates charged by all electric distribution utilities (DUs), the NPC and the National Transmission Corporation (TRANSCO), pursuant to R. A. No. 9136 and Section 18 of R. A. No. 7638;

NOW, THEREFORE, be it resolved, as this Commission hereby resolves, to implement, as it hereby implements, Section 4, 6, 15 and 24 of R. A. No. 9337 by allowing the

Generation Companies (GC), TRANSCO and all DUs to impose the appropriate VAT rate subject to the following:

I. GENERAL PRINCIPLES

(a) The imposition of VAT directed herein shall be based on the Gross Receipts (GR) of GC, TRANSCO and DUs concerned and shall be reflected as a separate item in their individual billing statements to their customers in a format approved by ERC. The current billing format as approved by the Commission is hereto attached as Annex "A"^*. Furthermore sample billing statements are attached as Annexes "A-1"^* and "A-2"^*.

(b) The imposition of the VAT replaces the payment of the National Franchise Tax.

(c) The VAT rate used in this Resolution shall be ten percent (10%) unless increased by the President of the Philippines to twelve percent (12%), or zero percent (0%) or a combination of both, in appropriate cases.

(d) GR shall not include the Energy Tax under Batas Pambansa 36, the Universal Charges implemented under R. A. 9136, Benefits to Host Communities under Energy Regulation 1-94 and security deposit for metering machines including interests provided that when applied to the consumer's liability, it shall be subject to VAT.

(e) GR shall be net of all discounts and gross of penalties.

(f) The corresponding amount of VAT for the sale of electricity to the government shall be reflected as a separate line item in the sample bill. The five percent (5%) final VAT withholding rate shall represent the net VAT payable of the seller. The remaining five percent (5%) effectively accounts for the standard input VAT for sales of goods or services to government or any of its political subdivisions, instrumentalities or its agencies, including government-owned or controlled corporations (GOCC), in lieu of the actual input VAT directly attributable or ratably apportioned to such sales. The withholding of the five percent (5%) final VAT shall be made when the payments of purchases of electricity were actually or constructively made. The VAT withheld shall be remitted to the BIR within ten (10) days following the end of the month the withholding was made.

(g) Electricity sold, transmitted and distributed on or before October 31, 2005 but which will be collected on or after November 1, 2005 shall be considered accrued as VAT zero rated provided such is billed by November 30, 2005.

(h) "Deferred Charges" such as Generation Rate Adjustment Mechanism (GRAM) and Incremental Currency Exchange Rate Adjustment (ICERA) incurred on or before October 31, 2005 although billed and collected thereafter, shall still be considered as VAT zero rated. For this purpose, an inventory of the said "Deferred Charges" shall be submitted to the BIR by November 30, 2005.

(i) Generation rate and foreign exchange rate adjustments to electricity sold on or before October 31, 2005, although billed and collected thereafter, shall be considered as VAT zero-rated.

(j) Penalties including the corresponding VAT imposed on DUs by reason of their fault or negligence shall not be passed on to DUs' customers.

(k) The GC and TRANSCO shall bill the end-user through the DUs for the sale and transmission of electricity and ancillary services including the VAT thereon. The amount collected from the end-user for such charges shall not form part of the GR of the DUs and shall not be claimed by the DUs as input tax. The amount collected from the end-user as payment for the generation and transmission charges including the VAT thereon shall form part of the GR and output VAT of the GC or TRANSCO, accordingly.

The DUs may advance, exclusive of the corresponding VAT, the generation and transmission charges to the GC and TRANSCO, respectively. The amount advanced may be offset against the amount collected from the end-user and only the VAT portion of the generation and transmission charges shall be remitted to the GC and TRANSCO upon collection from the end-user. The reckoning of the sale subject to VAT between the GC and TRANSCO to the end-user shall be upon collection on the billing made by the DUs.

(l) The GC and TRANSCO, whose billing periods start on the 26th day of each month shall calculate the VAT on a pro rata basis applied on electricity consumption beginning November 01, 2005. A sample computation of VAT calculation on a pro rata basis is shown in Annex "B"^*.

(m) DUs with billing cycles that do not start on the 1st day of each month shall calculate the VAT on a pro-rata basis applied on the distribution component for consumption beginning November 1, 2005. The generation and transmission components shall be billed to their end users upon receipt of the power bills from the GC and TRANSCO. A sample computation of VAT calculation on a pro rata basis for the distribution component is shown in Annex "C"^*.

(n) Pursuant to RMC 61-2005, sales of electricity by GC, TRANSCO, and DUs or to Philippine Economic Zone Authority (PEZA) or Subic Bay Metropolitan Authority (SBMA) registered enterprises shall effectively be subject to the zero (0%) VAT rate.

(o) The ERC shall perform confirmatory process on the VAT imposed by the Generation, Transmission and Distribution Utilities.

II. IMPOSITION OF THE VALUE-ADDED TAX - The appropriate VAT shall be imposed as follows:

(a) FOR GENERATION COMPANIES

1. The GR of the GC shall mean the total amount paid by the end-user through the DUs to the GC for the sale of electricity and related ancillary services. The

latter is billed and collected by the transmission company which shall remit such collection to the concerned GC.

2. For GC, which generates/sources its power purely from non-renewable, GR shall mean the total amount paid for the electricity sold.

3. For GC, which generates/sources its power purely from renewable, GR shall be subject to zero percent (0%) VAT rate.

4. For GC, which generates/sources its power from a mixture of non-renewable and renewable sources of energy, GR shall mean the total amount paid for the electricity sold from non-renewable energy sources.

5. At the implementation of the VAT, the GC shall impose the ten percent (10%) VAT rate on the current billing based on the non-renewable energy portion of the prior month's generation mix. The GC shall undertake an annual true up.

(b) FOR TRANSCO, ITS BUYER OR CONCESSIONAIRE

1. The GR of TRANSCO shall mean the total amount paid by the end-user through the DU to TRANSCO for the transmission of electricity and related electric services.

2. TRANSCO's GR includes the power service delivery, system operations, supply and metering services, intra-grid cross-subsidy and/or revenue components consistent with Open Access Transmission Service (OATS) Rules and as defined under the Transmission Wheeling Rates Guidelines (TWRG).

3. TRANSCO shall also charge the VAT on the ancillary services. TRANSCO shall impose the ten percent (10%) VAT rate on the non-renewable energy portion of the total amount for ancillary service for the current billing period based on the generation mix when the rate for ancillary services was set.

4. The ancillary service charge inclusive of the corresponding VAT shall be remitted to the concerned GC who shall be responsible for the tax due to the BIR.

(c) FOR DISTRIBUTION UTILITIES

1. The DUs shall bill the end-user for the corresponding VAT on the sale and transmission of electricity. The said VAT is neither part of the DUs' GR nor input VAT. The DU shall ensure it is revenue-neutral in its collection of the said VAT. The VAT on the current month's sale and transmission of electricity shall be billed to the end-users on the next billing cycle.

2. The VAT on the allowable System Loss shall be computed on the proportionate share of the transmission component and the generation share from non-renewable sources. The VAT on system loss above the allowed cap shall be shouldered by the DU. Attached herewith as Annex "D" is a sample computation.

3. The VAT collected by the DU on generation, transmission, and system loss shall be remitted to the concerned GC and TRANSCO, who in turn, shall be responsible for the tax due to the BIR.

4. The DUs' GR shall mean the total amount paid to the DUs, which include electric cooperatives, for the distribution of electricity and related electric services, including but not limited to the following:

(1) Distribution charge;
(2) Metering charge;

(2.1) retail customer charge;
(2.2) metering system charge;

(3) Supply charge;
(4) Lifeline rate subsidy;
(5) Inter-class cross-subsidy;
(6) Power Act Reduction;
(7) Rate Reduction Due To Loan Condonation;
(8) Currency Exchange Rate Adjustment; and
(9) Local Franchise Tax.

The DU shall impose the VAT on the above charges as approved by the Commission.

III. REPORTORIAL REQUIREMENTS _ The following shall be submitted on or before the 10th day of each month following the effectivity of this Resolution:

a. For Generation Companies

1. Certification under oath of the Monthly Generation Mix (Non Renewable to Total Mix) per Grid, supported by the monthly kWh generation sales per plant type;

2. Certification under oath of the Summary of Monthly Invoices and official receipts issued to DUs supported by a copy of the invoices and official receipts per DU; and

3. Certificate of VAT Remittance from BIR.

4. Other documents that may be needed by the Commission in the course of confirmation.

b. For TRANSCO, its Buyer or Concessionaire

1. Certificate of VAT remittance from BIR.

2. Other documents that may be needed by the Commission in the course of confirmation.

c. For Distribution Utilities

In addition to the reportorial requirements enumerated in the Guideline for the Automatic Adjustment of Generation Rate and System Loss Rates by Distribution Utilities (AGRA) and Guideline for the Adjustment of Transmission Rates by Distribution Utilities (TRAM), the DUs shall submit the following:

1. Certificate of VAT remittance from BIR.

2. Certification under oath of the Monthly Generation Mix (Non Renewable to Total Mix) of the power source/s for DUs sourcing electricity requirements from NPC and/or IPPs and/or own generation supported by the monthly kWh generation sales per plant type;

3. Other documents that may be needed by the Commission in the course of confirmation.

Likewise, the Commission resolved as it is hereby resolves, to revoke the authority granted to all private DUs to collect National Franchise Taxes on their consumers.

Let copies of this Resolution be furnished all DUs for the appropriate posting thereof in the bulletin boards of the respective cities/municipalities within their franchise areas. Likewise, let copies of this Resolution be furnished the NPC, TRANSCO, the Committees on Energy of both Houses of Congress, the National Economic Development Authority (NEDA), Department of Finance (DOF), Bureau of Internal Revenue (BIR), Department of Energy (DOE), National Electrification Administration (NEA), Department of Justice (DOJ), and other concerned agencies for their information and guidance.

This Resolution shall take effect immediately.

Adopted: 7 November 2005

^* Text Available at Office of the National Administrative Register, U.P. Law Complex, Diliman, Quezon City.