RR No. 2-2026: The New BIR VAT Exemption for Indigenous Natural Gas and Gas-Fired Electricity

Yes — under Revenue Regulations (RR) No. 2-2026, the sale of indigenous natural gas, and electricity generated from it, is exempt from the 12% value-added tax (VAT), effective April 1, 2026. The exemption implements Section 18 of Republic Act (RA) No. 12120, the Philippine Natural Gas Industry Development Act, and applies to natural gas producers, power plants that burn indigenous gas, and the ancillary services tied to that generation — but only when the seller holds the required Department of Energy (DOE) endorsement and certification.

What does RR No. 2-2026 actually exempt? #

RR No. 2-2026 covers three related categories of sale: indigenous natural gas itself, the indigenous portion of aggregated (blended) gas, and electricity generated using either one — plus the ancillary services that go with that power generation. The regulation was published on the BIR website on March 17, 2026 and took effect on April 1, 2026, fifteen days later.

The aggregated gas carve-out is deliberate: a plant that blends indigenous gas with imported gas can’t treat the whole blended batch as exempt. Only the share of the sale attributable to the indigenous-gas portion qualifies, which means the seller has to be able to document that percentage, not just claim the exemption on the invoice as a whole.

Summaries of Section 18 of RA No. 12120, the statutory basis RR No. 2-2026 implements, describe the exemption’s operative scope this way, per secondary tax-advisory reporting on the regulation:

The “purchase and sale of indigenous natural gas, aggregated gas, and power generated by generation facilities using indigenous natural gas and aggregated gas shall be exempt from Value-Added Tax (VAT),” with the exemption for aggregated gas “apply[ing] only to the portion attributable to indigenous natural gas.”

What documentation does the exemption require? #

RR No. 2-2026 conditions the exemption on a specific DOE paper trail, not a self-declaration by the seller. A seller claiming the exemption needs:

1. An endorsement from the DOE’s Oil Industry Management Bureau (OIMB) confirming the seller is engaged in the sale of indigenous natural gas.
2. A DOE-OIMB certification of the volume and percentage of indigenous natural gas sold during the taxable quarter — this is what supports the aggregated-gas apportionment described above.
3. A certified true copy of the DOE permit, accompanying the underlying documentation.
4. The legal basis for the exemption — Section 18 of RA No. 12120 — indicated in the corresponding field of the quarterly VAT return, BIR Form 2550-Q.

Without the DOE endorsement and certification in hand for the relevant quarter, a seller has no basis to invoice the sale VAT-exempt, even if the gas is in fact indigenous.

Does this exemption stack with other incentives? #

No — RR No. 2-2026 includes a no-double-incentive safeguard. An entity that has already claimed fiscal incentives under Title XIII of the National Internal Revenue Code (the CREATE Act incentives regime) for a given activity is disqualified from also claiming the RA No. 12120 VAT exemption for that same activity. A gas producer or generator has to choose one incentive track per activity, not layer this exemption on top of an existing incentive already claimed for the same project.

Worked example: a gas-fired power plant buying from a local producer #

A before-and-after comparison shows exactly what changes on the invoice once a seller has its DOE documentation in place. Take a fictional gas-fired power plant, Bayfront Power Generation Corp., which buys indigenous natural gas from a local upstream producer to fuel its generators.

Before RR No. 2-2026 (pre-April 1, 2026):

• Producer invoices ₱10,000,000 in indigenous natural gas for the month.
• 12% output VAT of ₱1,200,000 is charged to Bayfront Power.
• Bayfront Power treats the ₱1,200,000 as creditable input VAT against its own output VAT on electricity sales.

After RR No. 2-2026 (effective April 1, 2026), with DOE-OIMB endorsement and certification on file:

• Producer invoices the same ₱10,000,000 in indigenous natural gas, now VAT-exempt — no output VAT is charged.
• Bayfront Power has no input VAT to claim on this purchase, but also pays no VAT on it upfront.
• Bayfront Power’s own sale of electricity generated from that gas is likewise exempt, so it charges no output VAT to its customers on that portion of its electricity sales, provided its own DOE-OIMB certification is current.

The producer must retain its DOE-OIMB endorsement and quarterly volume certification to support the exempt invoicing, and must cite Section 18 of RA No. 12120 in BIR Form 2550-Q for the quarter. If the producer’s gas supply is a blend of indigenous and imported gas, only the certified indigenous percentage of that ₱10,000,000 sale is exempt — the remainder is invoiced at the regular 12% VAT rate.

How does this compare to other niche VAT exemptions? #

RR No. 2-2026 follows a pattern the BIR has used for other narrow, sector-specific VAT exemptions: a general exemption granted by statute, then a BIR regulation that adds documentation and certification conditions before a seller can actually invoice VAT-exempt. For a similar recently-clarified niche exemption on electricity charges, see RMC No. 60-2026: Electricity Charges VAT Exemption. For the broader statutory list this kind of exemption sits alongside, see VAT-Exempt Transactions Under NIRC Section 109 — RA No. 12120’s exemption is a special law outside Section 109, but the same discipline applies: an exemption is only as good as the documentation that supports it on audit.

Frequently asked questions #

What does RR No. 2-2026 exempt from VAT? #

RR No. 2-2026 exempts the sale and purchase of indigenous natural gas, aggregated gas (only the portion attributable to indigenous natural gas), and electricity generated by power plants using indigenous natural gas or that qualifying portion of aggregated gas, including related ancillary power-generation services, from the 12% value-added tax.

What law does RR No. 2-2026 implement? #

RR No. 2-2026 implements Section 18 of Republic Act No. 12120, the Philippine Natural Gas Industry Development Act, which promotes the development and utilization of indigenous natural gas by consolidating laws relating to its transmission, distribution, and supply.

When did RR No. 2-2026 take effect? #

RR No. 2-2026 was published on the BIR website on March 17, 2026 and took effect on April 1, 2026, fifteen days after publication.

What documentation does a seller need to support the VAT exemption? #

A seller needs an endorsement from the Department of Energy’s Oil Industry Management Bureau (DOE-OIMB) confirming its engagement in the sale of indigenous natural gas, plus a DOE-OIMB certification of the volume and percentage of indigenous natural gas sold in the taxable quarter, and must indicate the legal basis (Section 18 of RA No. 12120) in the corresponding field of BIR Form 2550-Q.

Can a company claim both this exemption and other fiscal incentives on the same activity? #

No. RR No. 2-2026 disqualifies an entity that has already claimed fiscal incentives under Title XIII of the Tax Code from also claiming the RA 12120 VAT exemption for the same activity — the two cannot be stacked on the same transaction or project.

Summary #

RR No. 2-2026 gives indigenous natural gas producers and gas-fired power generators a real VAT exemption under Section 18 of RA No. 12120, but it is conditional, not automatic: a seller needs a current DOE-OIMB endorsement and volume certification, must cite the statutory basis on BIR Form 2550-Q, and can’t blend an indigenous-gas exemption across a batch that also contains imported gas without apportioning it. Sellers already claiming Title XIII fiscal incentives on the same activity should also confirm they aren’t trying to stack incentives the regulation says can’t be combined.