Editorial: Suspended 15 percent VAT on electricity to be re-introduced?

As the inflation rate continues to decline, the suspended 15 percent value-added tax (VAT) on electricity could be reintroduced.

In its July 2024 Country Staff Report, the International Monetary Fund (IMF) noted the willingness of local officials to reinstate the tax once inflation eases.

On page 10 of the report, the IMF said: on the revenue side, implementation of VAT on residential electricity (expected yield 0.17 percent of GDP) was suspended due to strong social resistance. The authorities are committed to implementing this measure when the inflation dynamics are more conducive.

VAT on residential electricity was initially announced as part of revenue-generating measures under the IMF-supported COVID-19 recovery efforts.

A letter from the Ministry of Finance, signed by former finance minister Ken Ofori-Atta and dated January 1, 2024, directed the Electricity Company of Ghana (ECG) and Northern Electricity Distribution Company (NEDCo) to implement the VAT for residential customers above a specified consumption level.

However, following an intense public outcry led by organised labour, government suspended the controversial tax in early February 2024 to allow for further engagement with stakeholders.

To plug an expected GH¢1.8billion revenue gap caused by the decision to halt electricity VAT, government among other things announced its plans to tax the foreign incomes of resident Ghanaians.

In April 2024, Finance Minister Dr. Mohammed Amin Adam said government had to look for alternative revenue measures after abandoning the VAT on electricity.

At the time, Dr. Adam explained that government’s decision to suspend VAT on electricity had consequences for the country’s fiscal framework – and the new tax on foreign incomes is an effort to avoid missing key fiscal targets under Ghana’s IMF programme.

“The consequences could persist unless we are proactive enough to find ways of filling the gap and avoid missing out on the fiscal target – as the IMF programme then suffers.”

Last week, the Ghana Statistical Service (GSS) reported that annual inflation had slowed to a 28-month low of 20.9 percent in July – the slowest pace since March 2022 – compared to 22.8 percent for June this year.

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