The government has formally halted the planned implementation of the 15 percent value-added tax (VAT) on domestic electricity consumption.
The Ministry of Finance has therefore instructed the Northern Electricity Distribution Company (NEDCO) and the Electricity Company of Ghana (ECG) to halt the imposition of the levy. The Ministry of Finance made this known in a press release on Wednesday, February 7, 2024.
The Ministry claims that the suspension is necessary to enable in-depth discussion and to secure the support of labor unions and industry participants in light of the serious concerns expressed regarding the impact on businesses and consumers.
A portion of the statement said, “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.”
In order to support the nation’s Medium-Term Revenue Strategy and the IMF-Supported Post-COVID-19 Program for Economic Growth (PC-PEG), the government had directed the imposition of the tax policy on electricity customers above the maximum consumption level specified for block charges for lifeline units, effective January 1, 2024. The purpose of this policy is to mobilize revenue.
However, this was much to the chagrin of numerous interest groups that saw it as a poorly thought-out directive as well as punitive.
Previous reports indicated that the government was thinking about meeting with the IMF to reach an agreement on the estimated shortfall in revenue needed to suspend the electricity VAT.
According to the Ministry’s release, “the engagements are expected to yield innovative, resilient, and inclusive approaches to closing the current fiscal gap while bolstering economic resilience.”
On February 13, 2024, Organized Labor scheduled a nationwide protest to demand that the government revoke the order imposing a 15% value-added tax on residential electricity usage.
Members have been wearing red bands to work earlier this week to indicate that if the VAT directive is not withdrawn following the demonstration, there may be a national strike.
