Government Officially Suspends 15% VAT On Electricity

The planned implementation of the 15 percent Value Added Tax (VAT) on domestic consumption of electricity has been suspended officially by the government.

Both the Electricity Company of Ghana (ECG) and the Northern Electricity Distribution Company (NEDCO) have thus been directed by the Ministry of Finance to put the charging of the levy on hold.

This was contained in a press statement issued by the Ministry of Finance on Wednesday, February 7, 2024.

The suspension according to the Ministry is to allow for extensive dialogue and also to get the buy-in of industry players and labour unions following the grave concerns raised about its impact on consumers and businesses.

“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 labour”, portions of the statement read.

Government had directed the imposition of the tax policy on electricity customers above the maximum consumption level specified for block charges for lifeline units, from January 1, 2024, to support the country’s Medium-Term Revenue Strategy and the IMF-Supported Post-COVID-19 Program for Economic Growth (PC-PEG) with the aim to mobilize revenue.

But this was much to the opposition of various interest groups that viewed it as not only punitive but a poorly-thought-through directive.

Earlier reports suggested that government was considering engagements with the IMF for a consensus on the anticipated revenue shortfall for a suspension of the VAT on electricity.

“The Ministry expects that these engagements will birth innovative, robust, and inclusive approaches to bridging the existing fiscal gap, while bolstering economic resilience”, the Ministry’s release concluded.

Organized Labour had planned a nationwide demonstration on February 13, 2024, urging the government to withdraw the directive to implement the 15% VAT on residential electricity consumption.

Earlier this week, members wore red bands at work to signal the possibility of a nationwide strike if the VAT directive is not withdrawn after the demonstration.