Indigenous natural gas gets VAT exemption

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March 20, 2026 | 12:00am

MANILA, Philippines — Electricity generated from indigenous natural gas is set to become cheaper after the government issued guidelines exempting it from the 12 percent value-added tax (VAT).

The Bureau of Internal Revenue (BIR) said the purchase and sale of indigenous gas, aggregated gas and power generated from local gas sources are now exempted from VAT.

The tax perks provided under Republic Act 12120 will apply to all forms of purchase and sale, including transactions conducted through supply deals, the Wholesale Electricity Spot Market and the ancillary reserves market.

Internal Revenue Commissioner Charlito Martin Mendoza, however, clarified that the VAT exemption is limited only to the portion of indigenous natural gas included in the aggregated gas deals.

RA 12120 or the Philippine Natural Gas Industry Development Act grants fiscal incentives to all eligible gas-fired facilities in recognition of the significant investments required for their construction and operation.

Under its second revenue regulations, the BIR said generation facilities may avail themselves of tax incentives if they are endorsed by the Department of Energy and receive certification on the power produced from local natural gas.

The Malampaya deep water gas-to-power project, the country’s first and only indigenous gas field offshore Palawan, currently accounts for around 20 percent of Luzon’s electricity requirements.

During the February supply month, utility giant Manila Electric Co. (Meralco) sourced about 21 percent of its energy needs from two major Batangas facilities powered by Malampaya gas.

Meralco head of utility economics Larry Fernandez said the company has yet to finalize how the VAT exemption will affect power rates, as it is still awaiting billing from gas plants and other suppliers.

“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,” Fernandez told The STAR yesterday, adding that customers could expect smaller taxes in their power bills.

Earlier, the Petroleum Association of the Philippines (PAP) said locally produced gas could reduce the country’s heavy reliance on highly volatile imported fuel amid the ongoing global oil crisis.

PAP chairperson Donnabel Kuizon Cruz said electricity generated from Malampaya gas costs about P4.80 per kilowatt-hour, way below the P10.30 per kWh charged for imported liquefied natural gas.

“That’s how big the difference between our own fuel in the country is compared to imported gas today,” said Cruz, who also serves as president and CEO of Malampaya field operator Prime Energy Resources Development B.V.