NTRC Tax Research Journal Volume XXIII.5 Sept. – Oct. 2011 A Review of the Energy Tax on Electric Power Consumption 11 I. INTRODUCTION Electricity plays a pivotal role in nation building. With it, various sources of livelihood are created, delivery of services is improved which leads to the betterment of the lives of people. In recent years, technology has revolutionized the electricity sector. The outstanding performance of the economy demonstrated the importance of electricity to economic expansion. No doubt, electricity is an essential input to all economic activities. Though life seems hard without electricity, people still tend to take it for granted. Considering the high cost of electricity, the Philippines ranks 42 nd out of 132 countries in terms of electricity consumption based on 2009 estimates. 1 There is also no denying that the state of the country’s power plants is already alarming and some of them are on their way to retirement. If the country does not invest on putting up new power plants with accompanying measures to conserve electricity, it is not farfetched that the country will again experience lingering and rotating power shortages just like in the early 1990s. As early as 1979, the Philippine government had already passed Batas Pambansa Bilang 36 (BP Blg. 36) otherwise known as the Energy Tax on Electric Power Consumption to promote the efficient utilization of electricity. The energy tax is levied and collected on the monthly electric power consumption of every residential customer of electric power utilities of more than 650 Kilowatt-hour (KWh). Batas Pambansa Blg. 36 has already been in existence for more than 30 years now and it is high time that a review of the said tax be conducted as there are those who believe that it should be scrapped since it is no longer viewed to be responsive and has become insignificant due to the rising demand for electricity. In view thereof, this study reviews the country’s energy tax on electric power consumption to serve as inputs to fiscal policymakers. * Prepared by Eva Marie T. Nejar, Tax Specialist I, reviewed by Monica G. Rempillo, Economist IV, and Aurora C. Seraspi, Economist V, Economics Branch, NTRC. 1 CIA World Factbook, www.indexmundi.com/philippines/electricity_consumption.html , March 11, 2011.
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NTRC Tax Research Journal Volume XXIII.5 Sept. – Oct. 2011
A Review of the Energy Tax on Electric Power Consumption 11
I. INTRODUCTION
Electricity plays a pivotal role in nation building. With it, various sources of
livelihood are created, delivery of services is improved which leads to the betterment of the
lives of people. In recent years, technology has revolutionized the electricity sector. The
outstanding performance of the economy demonstrated the importance of electricity to
economic expansion. No doubt, electricity is an essential input to all economic activities.
Though life seems hard without electricity, people still tend to take it for granted.
Considering the high cost of electricity, the Philippines ranks 42nd
out of 132 countries in
terms of electricity consumption based on 2009 estimates.1 There is also no denying that the
state of the country’s power plants is already alarming and some of them are on their way to
retirement. If the country does not invest on putting up new power plants with
accompanying measures to conserve electricity, it is not farfetched that the country will again
experience lingering and rotating power shortages just like in the early 1990s.
As early as 1979, the Philippine government had already passed Batas Pambansa
Bilang 36 (BP Blg. 36) otherwise known as the Energy Tax on Electric Power Consumption
to promote the efficient utilization of electricity. The energy tax is levied and collected on the
monthly electric power consumption of every residential customer of electric power utilities
of more than 650 Kilowatt-hour (KWh).
Batas Pambansa Blg. 36 has already been in existence for more than 30 years now
and it is high time that a review of the said tax be conducted as there are those who believe
that it should be scrapped since it is no longer viewed to be responsive and has become
insignificant due to the rising demand for electricity. In view thereof, this study reviews the
country’s energy tax on electric power consumption to serve as inputs to fiscal policymakers.
* Prepared by Eva Marie T. Nejar, Tax Specialist I, reviewed by Monica G. Rempillo, Economist IV,
and Aurora C. Seraspi, Economist V, Economics Branch, NTRC.
1 CIA World Factbook, www.indexmundi.com/philippines/electricity_consumption.html, March 11,
NTRC Tax Research Journal Volume XXIII.5 Sept. – Oct. 2011
A Review of the Energy Tax on Electric Power Consumption 29
varies according to consumption: (a) 0 to 20 KWh, 100%; (b) 21 to 50
KWh, 50%; (c) 51 to 70, 35%; and 71 to 100 KWh, 20%. The rate of the
Lifeline Subsidy is P0.1210 per KWh.
17.9 Cross Subsidy Charge refers to the collection of under recoveries in the
Inter-class Cross Subsidy in accordance with ERC Order in ERC Case No.
2007-157 dated November 16, 2009. The Inter-class Cross Subsidy
Charge was imposed on industrial and commercial end-users in order to
reduce electricity rates of other customer sectors such as residential end-
users, hospitals, streetlights and charitable institutions but was fully
removed in November 2006. However, Meralco was not able to recover in
full from subsidizing customers the subsidy it had advanced to the
subsidized sectors so it applied for an authority from the ERC to recover
the amount of P1,048,541,216.00 equivalent to P0.0103 per KWh. The
ERC approved the application of Meralco to recover said amount until
such time that the amount shall have been fully recovered.
17.10 Senior Citizen Subsidy Charge is imposed on subsidizing end-users, i.e.,
residential customers consuming more than 100 KWh at a rate of P0.0001
per KWh. The Senior Citizen Subsidy is granted to registered senior
citizens with a monthly consumption not exceeding 100 KWh at a
minimum 5% discount on their monthly electric bill pursuant to the
Expanded Senior Citizens Act of 2010 (RA No. 9994, dated February 16,
2011). Meralco implemented the discount starting with the February 2011
billing.
18. All of the above charges go to the coffers of Meralco, except the VAT, local
franchise tax and universal charge which are collected on behalf of the national and
local governments and thus do not form part of Meralco’s revenues. Given the foregoing
discussions, it can be said that the tax component of electricity consumption comprises
only a small portion of the total electric bill compared to the wide array of charges
imposed by electric utilities. Attention should be focused on reducing these charges if
the objective is to lessen the burden and cost of electricity being paid by consumers,
especially those at the lower end of the income spectrum. Incidentally, there is also a
proposal to revert the electricity industry to the 3% franchise tax rather than subject it to
the 12% VAT also for the same reason. Abolishing the energy tax or arguing about its
impact on electricity usage does not seem to be a step in this direction.
E. Energy Tax in Other Countries23
19. Some States in the USA collect a tax similar to the Philippines’ energy tax on
electric consumption. The imposition is however, referred to as a consumer utility tax
and not as an energy tax. These States include Virginia, Ohio, Illinois, New Hampshire,
and Colorado. However, unlike in the Philippines, these States collect the consumer
23
Refer to ANNEXES B and C for the list of energy tax/electricity consumption tax imposed in the
USA and OECD countries.
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utility tax not only from the residential sector but also from the commercial and
industrial sectors. Also, most of the States which impose a consumer utility tax has a
single tax rate except for Illinois and Ohio which impose a graduated consumer utility
tax similar to the energy tax structure of the Philippines.
20. The OECD member-countries also levy taxes on electricity consumed to
protect the environment and to discourage polluting activities and wasteful
consumption. Among the OECD member-countries, the Netherlands imposes a
graduated energy tax, similar to the Philippines. However the tax is based on annual
electric consumption for the business and non-business use of electricity. In Austria, an
energy tax is also collected for electricity consumed. In Spain, a tax is imposed on the
production or importation of electricity. In Italy, other than electricity consumption on
industrial and private dwellings, an additional tax on electricity is also imposed on
electricity consumed for estate properties other than dwellings. The tax rates in Italian
towns/provinces are much lower compared to the tax imposed in Italian States. In Japan,
there is a power resource development tax levied on electric consumption. On the other
hand, United Kingdom’s Climate Change Tax subjects electric consumption to such tax
based on ordinary and reduced rates. Similar to other OECD member-countries,
Bulgaria, Finland, Latvia, Lithuania, Romania, Slovenia, a tax on electricity consumed
for business (e.g., manufacturing) and non-business used is imposed in the form of a
fuel excise tax. On the other hand, the energy tax imposed on electricity used for
business and non-business purposes in Belgium, Denmark, Germany and Slovak
Republic is in the form of duties on electricity.
IV. CONCLUSION & RECOMMENDATIONS
The energy tax on electric consumption under BP Blg. 36 is presently imposed on
residential sector with monthly electric consumption of more than 650 KWh. The increased
consumption of electricity and the need to raise government’s revenue are issues prompting
the need to review the energy tax on electric consumption.
Among others, the review considers the performance of the energy tax vis-a-vis the
original intention for its imposition which is to conserve and promote efficient use of
electricity.
Based on available data and literature review, it appears that the tax has not been able
to live up to government’s expectations.
For instance, electricity consumption has generally been on an uptrend. This
phenomenon is quite logical. Lifestyles have, after all, been completely transformed and
life’s requirements or amenities significantly increased. As a consequence, electricity
consumption has likewise increased.
As far as electricity use is concerned, the energy tax has not had any bearing thereon. Moreover, there is a clamor to repeal BP Blg. 36 because it is already ineffective as an energy
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A Review of the Energy Tax on Electric Power Consumption 31
conservation mechanism because it only targets 3% of electricity consumers and is redundant to
other electric rate mechanisms in place. However, the smallness of the tax is not enough
reason to render the energy tax ineffective. The importance of energy conservation cannot be
overemphasized due to the scarcity and cost of energy sources. The revenue generated by
the tax no matter how small can also be used to augment government’s overall revenue
intake considering the various expenditure programs that have to be financed by the
government.
Thus, to make the energy tax more responsive and relevant to the present condition, it
is proposed that its structure be amended. It is proposed that two more brackets be added to
broaden the tax base and increase the tax rates by 100% or 200%. The 100% increase in the
tax rates will yield an annual incremental revenue of P380 million to the government, while
the 200% increase will yield P808 million. The revenue generated can be used by the
government to finance its environmental projects. Thus, the government does not have to
collect the environmental charge being paid by residential electricity consumers, thereby,
lowering the monthly electricity expenditure of the latter.
The need to amend BP Blg. 36 is viewed to be urgent not only due to the increasing
revenue requirements of the government but more so because of the need to strengthen
efforts on energy efficiency and conservation program to address the growing demand for
electricity and ensure that its use is optimized and sustained not only for the present
generation but for succeeding generations, as well.
Lastly, there are a number of charges comprising the cost of electricity, thus, there is
also a great need to review these charges and determine which can be phased out in order not
to unduly burden electricity consumers. As an example, system loss, which comprises 12.3%
of the annual Philippine electric consumption from 2004-2010, is approximately 6% of total
residential billing is considered to be burdensome especially since it is subject to VAT. Its
proportion to electricity cost should perhaps be reduced. A similar observation may be made
for the generation charge which is more than 50% of total billing and again subject to VAT.
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