Stop making the honest pay for system losses

The proposal to remove the value-added tax (VAT) on system loss charges brings renewed attention to a long-standing inequity in the country’s electricity sector. While the measure is a step in the right direction, it addresses only a symptom of a deeper structural problem. It won’t address the indiscriminate imposition of system loss costs on all electricity consumers, regardless of responsibility or benefit.

A system loss refers to electricity lost during transmission and distribution, whether due to technical inefficiencies or unlawful activities such as pilferage and illegal connections. Existing legal frameworks, including Republic Act No. 7832 and Republic Act No. 9136, permit distribution utilities to recover a portion of these losses by incorporating them into consumer charges. While originally conceived as a practical mechanism, this policy has, over time, resulted in a generalized transfer of financial burden to consumers who neither contributed to nor benefited from such losses.

This arrangement raises serious concerns of fairness and accountability. Law-abiding households and enterprises, already contending with rising electricity costs, are effectively required to subsidize inefficiencies and, in some cases, unlawful conduct. Such a framework undermines the principle of equitable responsibility and diminishes incentives for both operational efficiency and regulatory compliance.

Addressing this issue requires more than the removal of VAT on system loss charges. It calls for a comprehensive reassessment of policies that enable the broad recovery of these losses from the general consumer base. Distribution utilities must be required to adopt more targeted and accountable approaches. They must focus on the identification, prevention, and recovery of losses directly from responsible parties. Strengthened enforcement mechanisms, coupled with investments in advanced technologies, can significantly reduce both technical and non-technical losses.

Both the Senate and the House of Representatives bear a crucial responsibility in this regard. Policy reforms should aim to limit the scope of recoverable system losses, establish stricter thresholds, and enhance transparency in billing practices. Consumers are entitled to clear and accurate information regarding the charges they incur, as well as assurance that such charges are justifiable and proportionate.

The private sector, particularly power distribution companies, must likewise assume a more proactive role. Investments in modern infrastructure, such as smart metering system, automated monitoring, and data-driven detection tools, can substantially improve the ability to identify irregularities and prevent unauthorized consumption.

Equally important is corporate accountability. Regulators must impose stricter penalties on utilities that consistently exceed allowable loss thresholds without demonstrating genuine efforts to address the problem. Profitability cannot come at the expense of fairness.

At the same time, the broader public must not be overlooked. Addressing electricity pilferage requires collective vigilance and a commitment to lawful conduct. Communities should actively discourage illegal connections and support initiatives that promote compliance and transparency. Individual consumers, by maintaining proper metering practices and reporting irregularities, contribute to a more accountable and sustainable system.

Ultimately, this issue is rooted in the principle of justice. It is neither reasonable nor equitable for compliant consumers to bear the cost of inefficiencies of power distribution companies and violations beyond their control. The removal of VAT on system loss charges is a meaningful initiative, but it must be complemented by broader reforms that realign responsibility with accountability.

Only through decisive legislative action, responsible corporate practices, and active public participation can this persistent inequity be effectively addressed. Until such reforms are undertaken, the burden will continue to fall disproportionately on customers who adhere to the rules, an outcome that no just system should permit.