ECs' Gross Receipts for Value Added Tax and Local Taxes

April 8, 2015 NEA MEMORANDUM NO. 009-15 TO : All Electric Cooperatives SUBJECT : ECs' Gross Receipts for Value Added Tax and Local Taxes This Memorandum is hereby issued by the National Electrification Administration (NEA) to address the queries of certain electric cooperatives (ECs) on the composition of gross receipts (GR) of the ECs for purposes of computing the twelve percent (12%) value added tax (VAT) imposed by the Bureau of Internal Revenue (BIR) and the local taxes imposed by the local government units (LGUs) based on pertinent provisions of Energy Regulatory Commission (ERC) Resolution No. 20 and BIR Revenue Memorandum Circular No. 62-2012. I. Background Information 1. R.A. 9337 amended and repealed certain provisions of the National Internal Revenue Code (Tax Code) of 1997, particularly Section 108 (a) thereof, on the imposition of value added tax (VAT). 2. The BIR issued Revenue Memorandum Circular (RMC) No. 61-2005 clarifying certain provisions of Revenue Regulations No. 14-2005, as amended by Revenue Regulations No. 16-2005, implementing the Tax Code, as amended, affecting generation, transmission and distribution companies as well as ECs. 3. RMC No. 61-2005 provides, inter alia , that generation, transmission and distribution companies including ECs shall be subject to VAT effective November 1, 2005, pursuant to the Tax Code, as amended by R.A. 9337. 4. The ERC, pursuant to the provisions of R.A. 9337 and in accordance with its power and authority to determine, fix and regulate electricity rates under Section 43 (f) of R.A. 9136 and Section 18 of R.A. 7638 issued Resolution No. 20, Series of 2005, authorizing the generation companies (GC), TRANSCO and all distribution utilities (DUs) including ECs to impose appropriate VAT subject to certain conditions mentioned therein. A copy of ERC Resolution No. 20, Series of 2005 is hereto attached as Annex "A" for your reference. 5. NEA issued Memorandum No. 2008-025 dated October 1, 2008 on the pro-forma accounting entries to take up the VAT, a copy thereof is hereto attached as Annex "B" for your reference. 6. NEA issued Memorandum No. 2010-017 dated July 13, 2010 on the standard procedures and guidelines for the remittance of the VAT collections, a copy thereof is hereto attached as Annex "C" for your reference. 7. The BIR Issued Revenue Memorandum Circular (RMC) No. 62-2012 dated October 25, 2012 to synchronize the remittance of the VAT on power generation and other related charges under Section 108 of the Tax Code of 1997, as amended, a copy thereof is hereto attached as Annex "D" for your reference. II. ECs' Gross Receipts 1. Under II (c) of ERC Resolution No. 20, Series of 2005, the ECs' GR shall mean the total amount paid to them for the distribution of electricity and related electric services, including but not limited to the following: i. Distribution charge ii. Supply charge iii. Metering charge: a. Retail customer charge b. Metering system charge iv. Lifeline rate subsidy v. Inter-class subsidy vi. Power Act Reduction vii. Rate Reduction due to Loan Condonation viii. Currency Exchange Rate Adjustment (CERA); and ix. Local Franchise Tax TcDAHS 2. GR shall not include the Energy Tax under Batas Pambansa Blg. 36, 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 consumer's liability, it shall be subject to VAT. 3. Under I (k) of ERC Resolution No. 20, the GC and TRANSCO shall bill the end-users through the DUs for the sale and transmission of electricity and ancillary services including the VAT thereon. The amount collected from the end-users 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-users 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 (underscoring ours). 4. Under RMC No. 62-2012, the amount collected by the DUs and ECs from end-users for such charges (generation and transmission charges), including the VAT thereon, shall not form part of the GR of the DUs and ECs (underscoring ours). III. Value Added Tax under ERC Resolution No. 20 1. Under I (a) of ERC Resolution No. 20, the imposition of the VAT shall be based on the respective GR of GC, TRANSCO and DUs and shall be reflected as separate items in their billing statements to the consumers. 2. Under II (2) of ERC Resolution No. 20, the ECs shall bill the end-users for the corresponding VAT on the sale and transmission of electricity. The said VAT is neither part of the DUs' GR nor an input VAT. The DUs shall ensure that they are revenue-neutral in their collection of the said VAT. The VAT on the current month's sale and transmission of electricity shall be billed to the end-user on the next billing circle (underscoring ours). 3. 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. VAT on system loss above the allowed cap shall be shouldered by the ECs. 4. The VAT collected by the ECs on generation, transmission and system loss shall be remitted to the concerned GC and NGCP, which in turn, shall be responsible for the tax due to the BIR. EacHSA 5. The ECs are liable for the VAT on their own gross receipts and it will be the GC and NGCP, which are liable, under the law, to pay for the VAT on generation gross sales and transmission gross receipts, respectively. Gross receipts, as used herein, shall be net of all discounts and gross of penalties. Any additional VAT imposed on the ECs by reason or as a consequence of their fault or negligence cannot be passed on to the end-users. 6. Renewable sources of electricity are zero-rated. Hence, the generation income of the ECs from renewable sources is zero-rated. The ECs' VAT inputs for costs and expenses in generating their own renewable energy may be claimed, through Tax Credit Certificates from the BIR. The ECs, being zero-rated on their imbedded renewable generation, are not liable for the VAT output tax on said generated renewable power. IV. Value Added Tax under BIR RMC No. 62-2012 1. The GCs, Aggregators, Market Operators, Retail Electricity Suppliers and other suppliers of electricity shall bill the DUs and ECs for the sale and transmission of electricity and ancillary services including the VAT thereon, if applicable. The VAT shall be remitted by the DUs and ECs to the GCs, Aggregators, Market Operators, Retail Electricity Suppliers and other suppliers of electricity together with the payment for generation and transmission services. All collections by GCs, aggregators, Market Operators, Retail Electricity Suppliers and other suppliers of electricity from DUs and ECs pertaining to generation and other VATable charges shall be deemed to include the VAT thereon. 2. The amount collected by the DUs and ECs from their end-users for such charges, including the VAT thereon, shall not form part of the gross receipts of the DUs and ECs (underscoring ours). V. Gross Receipts for Local Taxes Similarly, the GR of the ECs for purposes of computing the local taxes based on gross receipts imposed by LGUs consist of the GR as defined in Section II-c (4) of ERC Resolution No. 20, Series of 2005 and as clarified under BIR RMC No. 62-2012. The generation and transmission charges as well as the VAT thereon do not form part of the GR of the ECs. Please be guided accordingly. (SGD.) EDITA S. BUENO Administrator