BIR spells out VAT exemption mechanism for electricity generated from domestic gas

By Sheldeen Joy Talavera, Reporter

THE RULES for claiming the 12% value-added tax (VAT) exemption for electricity generated from domestic natural gas have been issued, effectively operationalizing Republic Act (RA) No. 12120, the Bureau of Internal Revenue (BIR) said.

Revenue Regulations No. 2-2026 lay down how to avail of the fiscal incentives authorized by RA 12120, or the Philippine Natural Gas Industry Development Act.

It said the incentive applies to the purchase and sale of indigenous natural gas by generation facilities for transactions covered by power supply agreements, or for power intended to be offered on the Wholesale Electricity Spot Market, as well as electricity generated to supply ancillary services.

The National Internal Revenue Code of 1997 imposes taxes on the sale of goods and services, including electricity. However, the natural gas law offers fiscal incentives such as exemptions for the purchase and sales of indigenous natural gas, aggregated gas, and power generated by generation facilities.

The gas supplier is required to obtain certification from the Department of Energy (DoE) Oil Industry Management Bureau, indicating the volume and percentage of domestic gas sold.

Generation facilities that utilize indigenous gas exempt from VAT also need to secure certification from the bureau.

Signed into law last year, RA 12120 aims to develop the natural gas industry by privatizing the procurement and use of the resources, offering tax advantages over imported natural gas and other conventional energy sources.

Currently, the Malampaya gas field is the country’s only producing indigenous gas field, which supplies about 20% of Luzon’s electricity requirements.

Edgar Benedict C. Cutiongco, president of the Philippine Petroleum Association, said the guidelines “support the country’s long‑term goal of developing and utilizing our own energy resources.”

“Reducing the tax burden on locally produced gas can help moderate the fuel cost of gas‑fired power plants, contributing to more stable electricity prices for consumers,” Mr. Cutiongco told BusinessWorld.

“More importantly, it strengthens the role of indigenous natural gas as a dependable transition fuel while the country continues to expand renewable energy,” he added.

Manila Electric Co. (Meralco), the country’s largest private electric utility, sourced around 21% of its power supply requirements last month from two major gas-fired power plants in Batangas.

Meralco Vice-President and Head of Utility Economics Lawrence S. Fernandez said the company has yet to determine the extent the impact of the VAT exemption on power bills but sees reduction in charges.

“Since this will be a VAT exemption, the reduction will not be reflected in the generation charge component of the bill, but in the VAT portion,” Mr. Fernandez told BusinessWorld, adding that consumers may expect smaller charges as soon as the tax exemption is implemented by the gas facilities.

The Petroleum Association of the Philippines (PAP) has said that maximizing the use of domestic natural gas could ease pressure on electricity prices as it will cut dependence on imported fuel .

“If we use more (domestic) gas now, it would help reduce the price,” PAP Chairperson Donnabel Kuizon Cruz said.