BIR exempts energy subsidies, green allowances from VAT

By Francis Allan L. Angelo

Electricity consumers have been spared the irony of being taxed on charges meant to help them.

To prevent social subsidies and renewable energy funds from taking a detour through the tax collector’s office, the Bureau of Internal Revenue (BIR) has ruled that government-mandated energy charges are strictly exempt from value-added and withholding taxes.

The BIR clarified over the weekend that the Lifeline Subsidy and the Green Energy Auction Allowance (GEA-All) are not subject to output VAT and creditable withholding taxes.

This effectively ensures that funds collected for low-income consumers and the country’s clean-energy transition reach their intended destinations intact.

The BIR ruling removes the risk of unnecessary costs being baked into electricity bills by clarifying that the collections are merely passing through distribution utilities and electric cooperatives.

Power distributors will no longer face tax burdens for funds they simply collect and remit, as the money does not pad their revenues.

The policy was formalized on June 4, 2026, through the issuance of Revenue Memorandum Circular (RMC) No. 60-2026.

The circular amends RMC No. 116-2024 by adding the Lifeline Subsidy and GEA-All to the growing list of power-sector charges classified as pass-through collections.

BIR Commissioner Charlito Martin R. Mendoza stressed that the charges do not belong to power distributors and therefore should not be treated as taxable earnings.

“These amounts do not belong to the distribution utilities or electric cooperatives, do not form part of their revenues, taxable income, or gross sales,” Mendoza said in a press statement.

“These are government-mandated charges, regulatory in nature, that are collected and remitted to the proper entities,” he added.

The BIR amendment follows Energy Regulatory Commission (ERC) Resolution No. 02, Series of 2026, which established the Uniform National Lifeline Subsidy Program.

It also aligns with ERC Resolution No. 6, Series of 2025, covering the Green Energy Auction Allowance.

Under the ERC framework, the Lifeline Subsidy is collected by distribution utilities and electric cooperatives to help fund subsidized electricity rates for qualified low-income and marginalized households.

Meanwhile, the GEA-All supports obligations arising from the Green Energy Auction Program, a key initiative designed to fast-track renewable energy projects and expand the country’s clean-energy capacity.

Mendoza emphasized that the circular does not create a new tax break but merely puts the charges in their proper tax lane.

“This is not a grant of a new tax exemption,” Mendoza said.

“Rather, it ensures that the tax treatment of these ERC-mandated charges is consistent with their nature as pass-through collections and with other charges in the power sector.”

According to the BIR, the measure helps prevent additional tax burdens on charges that do not constitute utility income or gross sales, potentially contributing to lower electricity costs for consumers.

The clarification arrives as regulators continue pushing measures aimed at easing electricity costs for vulnerable households while accelerating investments in renewable energy.

The agency said the circular supports the implementation of Republic Act No. 11976, or the Ease of Paying Taxes (EOPT) Act.

The issuance aligns with the administration’s whole-of-government efforts to protect consumers from rising energy costs while promoting long-term renewable energy development.