Gov’t suspends VAT on electricity

Government has suspended the controversial 15 percent value-added tax (VAT) on residential electricity consumers, to allow for further engagement with organised labour.

In a letter dated January 1, Finance Minister Ken Ofori-Atta directed the Electricity Company of Ghana (ECG) and Northern Electricity Distribution Company (NEDCO) to implement the VAT, aiming to raise revenue for the COVID-19 recovery programme.

However, following stiff opposition from the Trades Union Congress (TUC) and general public, government said it is suspending the decision to allow for further engagement with stakeholders.

“On behalf of government, the Ministry of Finance would like to inform the Electricity Company of Ghana and Northern Electricity Distribution Company to suspend implementation of the VAT directive pending further engagements with key stakeholders including organised labour.

“The ministry expects that these engagements will birth innovative, robust and inclusive approaches to bridging the existing fiscal gap, while bolstering economic resilience,” a statement announcing the suspension said.

The TUC last month gave government an ultimatum to withdraw imposition of the VAT on electricity consumption above lifeline.

TUC Secretary General Dr. Yaw Baah vehemently opposed the move, citing its detrimental impact on the livelihoods of ordinary Ghanaians – particularly pensioners and low-income earners.

“It’s always the poor people in this country, including pensioners, who bear the brunt. And we should not allow that to continue. Organised labour, we have come together, and our message to government is very simple: we cannot pay VAT on electricity.

“We will not pay it today or tomorrow. Organised labour is demanding immediate withdrawal of the letter, and another directive from the finance minister to Ghana Grid Company (GRIDCo) and ECG to stop the implementation of VAT on electricity. We are giving government up to January 31, 2024 to withdraw the letter,” Dr. Baah said.

Apart from organised labour, the Ghana Union of Traders Association (GUTA) strongly opposed VAT on electricity and the imposition of an Emissions Levy.

In a press statement, GUTA warned that the two taxes risk worsening the economic plight of Ghanaians and businesses alike, exacerbating the already high cost of doing business in the country.

The proposed VAT on electricity charges will directly impact businesses, particularly those heavily reliant on electricity for their operations. Such businesses will face increased financial strain, which could potentially lead to reduced production capacity, layoffs and even business closures; ultimately impeding economic progress and dampening job creation opportunities, noted the release signed by the Association’s president, Dr. Joseph Obeng.

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