The study reviews the Philippines’ energy tax on electricity power consumption. It states that it is necessary that a review of said tax be conducted, since Batas Pambansa (BP) Blg. 36, imposing the energy tax, has been in existence for more than 30 years now and there are those who believe that the tax should be scrapped since it is no longer viewed to be responsive and has become insignificant due to the rising demand for electricity.
The energy tax is imposed on the monthly electric power consumption of residential consumers using more than 650 Kilowatt-hour (KWh). The tax was intended to conserve and promote efficient utilization of energy. Among the users of electricity, it is assumed that the residential customers are the ones likely to practise wasteful and luxurious consumption of electricity especially those belonging to the middle and high income groups. Thus, the tax rates are structured in such a way that high income consumers bear a heavier tax burden in accordance with the ability to pay principle of taxation.
Based on the study made in October 2010 by the International Energy Consultants, the Philippines now has the most expensive electricity in Asia. However, in the survey conducted by the Central Intelligence Agency (CIA) Factbook, the country constantly occupied the 42nd to 45th position from 2003 to 2010 in terms of electricity consumption. The facts show that while electricity rate in the country is expensive, Filipino electric consumers are either not using electricity wisely or just not conscious of the cost of electricity. Improvement of technology and the rapid increase in population may also be pinpointed as reasons for the yearly increase in electricity consumption or demand. Based on the findings of the study, as far as electricity use is concerned, the energy tax has no bearing thereon. Moreover, there is a clamor to repeal BP 36 because it is alleged that it is already ineffective as an energy conservation mechanism as it only targets 3% of electricity consumers and is redundant to other electric rate mechanisms in place. However, the study states that the smallness of the tax is not enough reason to render the energy tax ineffective. The importance of energy conservation cannot be overemphasized due to the scarcity and cost of energy sources. The revenue generated by the tax no matter how small can also be used to augment government’s overall revenue intake considering the various expenditure programs that have to be financed by the government. The study did not recommend to abolish the energy tax because it can still contribute in the government’s revenue collection. Instead, to make it more responsive and relevant to the present condition, an amended energy tax structure is proposed.
In the proposed structure, two more brackets are added (those consuming 1,501 KWh to 3,000 KWh) to broaden the tax base and, to incorporate price inflation, the tax rates are increased by 100% to 200%. An increase in the tax rate by 100% will yield an estimated annual incremental revenue of PhP380 million to the government, while the 200% increase will yield PhP808 million. The generated revenue can be tapped by the government to beef up its environmental protection program to mitigate the pollution caused by power plants and/or projects relative to energy conservation and power generation. In this way, the government does not have to collect any environmental charge being paid by residential electricity consumers, thereby, lowering the monthly electricity expenditure of the latter.
Lastly, the study further recommended that the numerous charges comprising the cost of electricity should be thoroughly reviewed to determine which can be phased out so that it will lessen the burden of electricity consumers. For instance, the system loss, which comprises 12.3% of the annual Philippine electric consumption from 2004-2010, is approximately 6.5% of total residential billing. It is considered to be burdensome especially since it is subject to VAT. Its proportion to electricity cost should perhaps be reduced. A similar observation may be made for the generation charge which is more than 50% of the total billing and also subject to VAT.
