The VAT on Electricity That Shouldn’t Be There

The coffee had gone cold. Again.

Not because I forgot about it, but because I was too caught up watching a campaign speech I chanced upon on YouTube. Benhur Abalos was on stage, talking about removing VAT from electricity—something that actually sounded like a good idea.

Regardless of who was speaking, this issue is worth looking into.

A 12% reduction on electricity bills doesn’t seem like much until you do the math. My bill swings between ₱4,000 to ₱7,000, sometimes more when summer turns the house into an oven. Take away VAT, and that’s a few hundred pesos saved each month. Money that could go somewhere else.

And yet, nothing changes.

We’re still paying one of the highest electricity rates in Southeast Asia. The government still clings to the revenue. Power companies still charge whatever they want. If other countries can cut VAT on electricity, why can’t we?

The coffee stayed untouched. The questions didn’t.

What Would VAT-Free Electricity Mean for Consumers?

The numbers don’t lie.

A ₱4,000 to ₱7,000 electricity bill means ₱480 to ₱840 of that is VAT. Money that could have stayed in our wallets, used for groceries, transportation, or savings. Instead, it disappears into government revenue, adding to the burden of already high electricity costs.

Other countries have taken steps to reduce or remove VAT on electricity. Portugal lowered its rate from 23% to 6% (Tungsten Automation). Spain and Belgium followed suit, recognizing that taxing electricity like a luxury made no sense (Marosa VAT, IEA).

And yet, the Philippines, with one of the highest power rates in Southeast Asia, still imposes a 12% VAT on something every household and business depends on (BusinessWorld Online).

How VAT-Free Electricity Could Change Things

• Lower Bills, More Breathing Room: Removing VAT means immediate savings. Whether it’s ₱480 or ₱800, that’s money freed up for other essentials. For some, that amount could cover a week’s worth of groceries, fuel for a commute, or even a portion of monthly rent. It may not seem like much difference for those who can afford higher bills, but for many Filipino households, every peso matters. Cutting VAT would give consumers some relief, especially at a time when inflation is already squeezing household budgets (SunStar).

• A Break from Summer’s Strain: When temperatures soar, so do electricity bills. The cost of keeping a fan running all day, or turning on an air conditioner at night, adds up fast. Many Filipinos are forced to choose between comfort and cost, enduring sleepless nights in stifling heat to avoid an outrageous bill. Without VAT, summer electricity bills would still be high, but at least the extra charge wouldn’t punish people for trying to stay cool. A 12% reduction might be the difference between keeping the air conditioner on for a few more hours or shutting it off to save money (Philippine News Agency).

• Better Conditions for Businesses: Small businesses bear the brunt of high electricity costs. A laundry shop, a bakery, a neighborhood internet café—every single one relies on power to operate. When electricity is expensive, prices go up, making it harder to compete with bigger businesses or even cheaper imports. Removing VAT would give these small enterprises a much-needed break, helping them reinvest in better equipment, lower their prices, or even hire more workers. A VAT cut wouldn’t just benefit homeowners—it could keep many small businesses afloat in an already struggling economy (Philippine Chamber of Commerce and Industry).

• More Investment, More Jobs: It’s not just local businesses that suffer from high electricity costs. Investors look at operating expenses before setting up shop, and energy costs are a major factor. The Philippines has some of the highest power rates in the region, which makes it less attractive for manufacturers and industrial businesses that need affordable and stable electricity. Without VAT, the country could become more competitive, attracting more investments and creating more jobs. Instead of pushing investors away, lower electricity costs could be an incentive for industries to grow and expand locally (Police Files Tonite).

The Bigger Question

It’s not just about the savings—it’s about why we’re paying this tax at all. Electricity isn’t a luxury. It’s not a privilege. It’s a necessity, yet it’s taxed as if we have a choice.

The government says removing VAT would hurt revenue. That’s the justification every time.

But why is it always the consumer who has to bear the weight?

Why Is This Not Happening?

The benefits of removing VAT on electricity are clear. Lower bills, better economic conditions, and relief for consumers struggling with high power costs.

So why hasn’t it happened yet?

The answer isn’t as simple as flipping a switch.

Government Revenue Loss: The Main Justification

The government collects billions from VAT on electricity. Officials argue that removing it would create a budget gap, affecting funds meant for infrastructure, education, and social programs (SunStar).

This is always the argument—we can’t afford to lose that money. But what about the consumers who are already stretched thin? How is it fair that Filipinos pay some of the highest electricity rates in the region while still shouldering a 12% tax on something essential?

Lawmakers who oppose VAT removal insist that there’s no alternative to replace the lost revenue. But is that really true?

Electricity Pricing: Why VAT Removal Doesn’t Guarantee a Lower Bill

There’s another complication—VAT is just one part of the total cost. The EPIRA Law unbundled electricity pricing, meaning different charges (generation, transmission, and distribution) are taxed separately (making it harder for consumers to feel the full impact of a VAT reduction since the tax is applied at multiple stages) (Lawyer Philippines).

Even if VAT is removed, power companies might adjust other charges to make up for the lost revenue. We’ve seen it before—fees suddenly appear, and bills barely change. Without clear regulations, what’s stopping them from doing the same thing again?

A tax cut only works if consumers actually feel the reduction. If not, it’s just a political stunt.

The Politics of It All: Empty Promises or Real Reform?

Politicians have talked about this issue for years. Benhur Abalos is pushing for VAT removal now, but will it be more than just a campaign promise? (Police Files Tonite).

Even Senator Escudero has said that instead of relying on VAT, the government should focus on improving tax collection efficiency (Philippine News Agency). Billions are lost each year to tax evasion and corruption, yet it’s ordinary Filipinos who are taxed the most.

If VAT on electricity is such a burden on consumers, why isn’t removing it a bigger priority?

If a senatorial candidate like Benhur Abalos is serious about pushing for this agenda, the challenge isn’t just public support—it’s proving that VAT removal won’t cripple government funds or give energy companies an opening to shift costs elsewhere. Without a solid plan, consumers might not feel the relief they’re expecting.

The Power Sector’s Influence: Who Really Benefits from High Electricity Costs?

There’s one more piece to this puzzle—the energy sector itself.

Power companies don’t want lower electricity prices if it means lower profits. The industry is controlled by a few major players, and any price reduction would likely come with negotiations and compromises.

Even if VAT is removed, would they actually pass the savings on to consumers? Or would they find another way to keep their margins intact?

A study on the Philippine energy sector found that electricity providers often shift costs, using pricing mechanisms that favor their financial stability over consumer relief (Philippine Institute for Development Studies).

We’ve seen this before—whenever fuel prices drop, fares and goods don’t instantly follow. Companies adjust when it benefits them, not when it benefits the public.

The Bigger Question

Removing VAT on electricity is possible, but it requires more than just speeches. It needs real political will, strict consumer protections, and transparency from the energy sector.

And if the government insists VAT removal isn’t an option, then the next question is just as important:

Where will they recover the lost revenue? Are there better ways to balance affordability with economic stability?

If VAT on Electricity Is Removed, Where Will the Government Recover the Lost Revenue?

The government argues that removing VAT on electricity would create a revenue gap, affecting public services and infrastructure. But just how big is this gap? And more importantly—are there ways to offset it without overburdening consumers elsewhere?

The reality is that the Philippine government has already achieved record-breaking tax collection in 2024. The Bureau of Internal Revenue (BIR) collected ₱2.85 trillion, the highest in two decades, thanks to efforts such as expanding the tax base, digitalizing tax systems, and improving tax compliance (PCO). If tax collection efficiency continues to improve, this could help offset the need for VAT on electricity without compromising government programs.

At the same time, there’s another issue—government budget wastefulness. The 2024 national budget is ₱5.768 trillion, a 9.5% increase from the previous year, yet critics argue that much of it favors big corporations, creditors, and the military, while failing to prioritize social assistance programs for ordinary Filipinos (IBON Foundation). Moreover, unprogrammed funds—which lack clear allocations—ballooned from ₱281.91 billion to ₱731.45 billion, raising concerns about transparency and potential misuse (Rappler).

If the government cut wasteful spending and allocated funds more effectively, VAT on electricity could be reduced—or even removed—without harming essential services

Alternative Revenue Sources: Practical Replacements

Instead of continuing to tax electricity at 12%, the government has several options to generate revenue elsewhere:

• Luxury Goods & Non-Essential Tax Adjustments
  Increasing taxes on luxury goods and high-income earners could help shift the tax burden to those who can afford it, rather than making electricity more expensive for all consumers. Essential services like power should not be treated the same way as high-end purchases.

• Digital Services Tax Expansion
  The Philippines already taxes digital platforms like Netflix and online marketplaces. Expanding this tax base—such as taxing large foreign e-commerce companies and tech firms operating locally—could provide a stable revenue stream to help compensate for the lost VAT (Grant Thornton).

• Environmental & Carbon Taxes
  Some countries have successfully used carbon taxes to fund public programs while reducing reliance on fossil fuels. Instead of taxing consumers through VAT, could the government charge high-polluting industries a higher tax to offset the lost revenue? (PwC).

What Needs to Be Addressed

Even if VAT is removed, there’s one major concern:

Will energy companies compensate by increasing other charges?

Electricity rates are broken down into multiple components, including generation, transmission, and distribution charges. Without proper oversight, power providers could adjust these charges, canceling out the benefits of VAT removal (Lawyer Philippines).

To prevent this, the government must:

• Enforce Price Regulations
  If VAT is removed, the government should ensure that energy companies don’t simply repackage the costs elsewhere. Without regulation, consumers might not see any real savings.

• Require Transparency in Pricing Adjustments
  Electricity providers should be obligated to disclose price adjustments so consumers can verify that VAT removal actually results in lower bills. A consumer watchdog could monitor these pricing changes to ensure fairness.

Where Do We Go From Here?

Instead of just debating whether VAT should be removed, the real question is:

• Why should consumers continue paying VAT on electricity when tax collection is already at record highs?

• How can the government eliminate wasteful spending instead of relying on VAT?

• What regulations need to be in place so that VAT removal leads to real savings?

VAT removal on electricity isn’t impossible, but it needs a well-planned strategy so that both the government and consumers benefit in the long run. It’s not just about scrapping a tax—it’s about making sure that policy changes actually translate into lower electricity bills and economic relief for the people who need it the most.

Will VAT Removal on Electricity Ever Become a Reality?

Lawmakers have talked about this before. It’s been debated, proposed, and even filed as a bill, yet VAT on electricity remains untouched. If this is truly a solution to high electricity costs, why hasn’t anything changed?

Political Will: Are Lawmakers Serious About This?

Some leaders have called for VAT removal, arguing it would lower costs for consumers and make the country more attractive to investors. Yet, despite these calls, the tax remains in place. The Department of Finance (DOF) insists removing VAT would create a revenue shortfall. They’ve said this year after year, even as the government collected a record-breaking ₱2.85 trillion in taxes in 2024—the highest in two decades (PCO). If tax collection has improved, shouldn’t that mean there’s room to rethink how essential services like electricity are taxed?

But even if lawmakers hesitate, they don’t operate in a vacuum. Public pressure has changed policies before. It can change this one too.

Public Pressure: Can Consumers Influence Policy?

History has proven one thing—when enough people push back, the government listens. Fuel tax hikes have been adjusted after public outrage. Transport strikes have stopped fare increases. Electricity pricing reforms have been brought to the table because of widespread complaints.

But here’s the thing—without real, organized pressure, VAT removal on electricity might never move beyond discussions.

One way to push for action is through local government units (LGUs) and consumer advocacy groups. Some cities have managed to lower franchise taxes on power providers, bringing down local electricity rates. Consumer groups have challenged unnecessary charges and rate hikes. If more people got involved, policymakers would feel the heat.

Lawmakers may propose reforms, but without public backing, these ideas don’t get very far. Those pushing for lower electricity costs, like Benhur Abalos, need consumer support to turn these proposals into something real. He has long argued that high electricity rates hurt both consumers and businesses, but like every other attempt before this, nothing will happen if people stay quiet.

Because at the end of the day, waiting for lawmakers to act isn’t enough. VAT on electricity won’t disappear because it’s a good idea—it will only happen if consumers demand it, if people refuse to accept high power costs as just another fact of life, and if elected officials know that ignoring the issue comes at a price.

The coffee is gone, but the electric meter is still running. The bills keep coming, and they’re not getting any cheaper.