The Bureau of Internal Revenue (BIR) recently issued Revenue Memorandum Circular (RMC) No. 116-2024 on August 21, 2024, implementing Republic Act (RA) No. 11976 or the Ease of Paying Taxes (EOPT) Act, affecting generation, transmission, and distribution utility (DU) companies, electric cooperatives (EC) and retail electricity suppliers (RES).
In the power industry, transmission charges and VAT are commonly passed on from Generation Companies (GenCos) and Transmission Companies (TransCos) to the DUs, ECs and RES. Since these are merely pass-through costs from the GenCos to the DUs, ECs and RES, these amounts are not considered as part of the gross sales of the latter. This is consistent with the provisions under the EOPT, wherein amounts earmarked for payment to third parties or reimbursements for payment on behalf of another which do not redound to the benefit of the seller are excluded from gross sales for recognition of VAT.
In this regard, the income tax and VAT liability of GenCos and TransCos will be based on the invoices it issues to the DUs, ECs, and RES. Consequently, the latter, who issues the invoice for the full amount of power sales and pass-through costs, cannot make a claim for input VAT on the said pass-through costs because the rightful claimants of input VAT are the customers engaged in business.
Further, DUs, ECs, and RES may have customers that are subject to VAT zero-rating or VAT exemption. As this is unbeknownst to GenCos and TransCos, the DUs, ECs, and RES shall submit certifications of zero-rated or VAT-exempt transactions to GenCos and TransCos by the fifth (5th) day of the month after the invoicing period. In this case, GenCos and TransCos will subsequently issue adjustment documents, such as debit or credit memos, journal vouchers, or negative invoices, to update their output VAT liabilities, reflecting that VAT on exempt transactions which was previously accounted for in their original invoices. A negative VAT invoice shall reflect the negative adjustment on the output tax initially charged by GenCos and TransCo. This invoice, together with the other adjusting documents, shall indicate the original invoice number of the transaction being adjusted.
The BIR has further outlined the list of the mandated government charges that shall not be subject to Output Tax and Creditable Withholding Tax on VAT and Income as follows: (1) Energy Tax under Batas Pambansa Blg. 36; (2) Universal Charges (UC) under Sec. 34 of R.A. No. 9136 (EPIRA); (3) Benefits to Host Communities under Sec. 66 of R.A. 9136 (EPIRA) and DOE Energy Regulations No. 1-94; (4) Feed-in Tariff Allowance (FIT-ALL) under ERC Res. 24, Series of 2013; (5) National and Local Franchise Taxes under Section 9 of RA No. 9511 and Art. III of ERC Res. No. 02, Series of 2021, respectively; and (6) Real Property Tax (RPT) under Art. II of ERC Res. No. 02, Series of 2021.
For administrative feasibility of withholding taxes, however, RMC No. 116-2024 clarified that the five percent (5%) creditable VAT withheld by government customers and the two percent (2%) creditable taxes withheld by customers engaged in business, shall be computed based on the total invoiced amount including pass-through charges, and can be claimed as creditable VAT and tax credits, where applicable, by DUs, ECs and RES provided that the same is also accompanied by the appropriate withholding tax certificate under BIR Form No. 2307.
Being service entities, there is a possibility of deferred VAT for sales collectible by GenCos and TransCos prior to the EOPT Act. Under the new regulation, the BIR emphasized that GenCos and TransCos shall not be liable for the remittance of all outstanding deferred VAT from the effectivity of RR No. 3-2024 on April 27, 2024, provided that the transitory procedures shall be observed. GenCos and TransCo shall submit an inventory of outstanding deferred VAT, in hard and soft copies, to the Revenue District Offices (RDOs) or Large Taxpayers (LT) Offices on or before September 30, 2024.
DUs and ECs, as the collecting agents, will remit the deferred VAT using the BIR Form No. 0605, indicating the TIN of GenCos and TransCo. Additionally, DUs and ECs shall submit a Summary of the Remittance of Deferred VAT to the RDOs/LT Offices on or before the tenth (10th) day from the date of remittance of BIR Form No. 0605. They shall also provide GenCos and TransCos copies of duly filed BIR Form No. 0605, together with the proof of payment, within three (3) days from the remittance date. Any deferred VAT from before April 27, 2024, that remains unremitted will continue to be outstanding until fully collected or until the BIR completes its audit of the power industry.
All previous revenue memorandum circulars and rulings inconsistent with this guideline are amended, modified, or repealed. This Circular shall take effect immediately.
Please be guided accordingly.
Source:
P&A Grant Thornton
Certified Public Accountants
P&A Grant Thornton is the Philippine member firm of Grant Thornton International Ltd.
As published in SunStar Cebu, dated 26 November 2024
