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Gov’t suspends controversial 15% VAT on electricity

The government has formally halted the planned implementation of the 15 percent Value Added Tax (VAT) on home 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 tax.

The Ministry of Finance made a press release on Wednesday, February 7, 2024, which included this information.

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 on the impact on businesses and consumers.

“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.

The government had ordered that, starting on January 1, 2024, electricity users who consume more than the maximum amount allowed for block charges for lifeline units be subject to a tax policy. This was done in order to support the nation’s Medium-Term Revenue Strategy and the Post-COVID-19 Program for Economic Growth (PC-PEG), which is supported by the IMF and aims to raise money.

However, several interest groups opposed this strongly, seeing it as both punitive and a poorly thought out policy.

Previous reports indicated that the government was thinking about meeting with the IMF to reach an agreement on the estimated deficit in revenue needed to suspend the power VAT.

“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.

In an effort to pressure the government to rescind the decree to impose a 15% VAT on home electricity consumption, Organized Labor had scheduled a nationwide demonstration for February 13, 2024.

Members warned that if the VAT regulation is not rescinded following the rally, they may go on a national strike by wearing red bands to work earlier this week.