The government has officially suspended the planned implementation of the 15% Value Added Tax (VAT) on domestic consumption of electricity.
In a press statement issued by the Ministry of Finance on Wednesday, February 7, 2024, both the Electricity Company of Ghana (ECG) and the Northern Electricity Distribution Company (NEDCO) were directed to halt the charging of the levy.
The decision to suspend the VAT implementation was made to allow for extensive dialogue and to obtain input from industry players and labor unions. Concerns had been raised about the potential impact of the tax on consumers and businesses, prompting the need for further consultation.
“On behalf of the government, the Ministry would like to inform ECG and NEDCO to suspend the implementation of the VAT directive pending further engagements with key stakeholders, including organized labor,” the statement from the Ministry of Finance read.
The government had initially directed the imposition of the VAT policy on electricity consumers above the maximum consumption level specified for block charges for lifeline units. This directive was intended to support the country’s Medium-Term Revenue Strategy and the IMF-Supported Post-COVID-19 Program for Economic Growth (PC-PEG) by mobilizing revenue.
However, the decision faced strong opposition from various interest groups who deemed it punitive and poorly thought out.
Earlier reports indicated that the government was considering engaging with the International Monetary Fund (IMF) to discuss the anticipated revenue shortfall and seek a consensus on the suspension of the VAT on electricity.
“The Ministry expects that these engagements will lead to innovative, robust, and inclusive approaches to bridging the existing fiscal gap while bolstering economic resilience,” the release from the Ministry stated.
Organized labor had planned a nationwide demonstration on February 13, 2024, to call for the withdrawal of the directive to implement the 15% VAT on residential electricity consumption. Earlier this week, members of the labor unions wore red bands at work as a symbol of their readiness for a nationwide strike if the VAT directive was not withdrawn following the demonstration.
The official suspension of the controversial 15% VAT on electricity demonstrates the government’s responsiveness to the concerns raised by various stakeholders. It also paves the way for further engagement and dialogue to find alternative solutions that balance revenue generation with the welfare of consumers and businesses.
By Vincent Kubi