Ghana: Gov’t Imposes Value Added Tax On Electricity Consumers…But Consumers Say No Way

The Government of Ghana has announced the imposition of a Value Added Tax (VAT) on residential electricity consumers who consume above lifeline.

Previously, lifeline consumers were those who consumed between 0-50 kilowatts.

However, during the Major Tariff Review in 2023, the Public Utilities Regulatory Commission (PURC) reduced the lifeline band to 0-30 kilowatts from 0- 50 kilowatts.

With the introduction of VAT, consumers who consume above 30 kilowatts of power will now be paying more for electricity.

In a letter dated 12th December 2023 and signed by the Minister for Finance, Ken Ofori-Atta, and addressed to the Electricity Company of Ghana (ECG) and the Northern Electricity Distribution Company (NEDCo), he said the imposition of VAT on electricity consumption forms part of COVID-19 recovery programme and should be charged, starting from January 1, 2024.

“As part of the implementation of the Government’s Medium-Term Revenue Strategy and the IMF-Supported Post Covid-19 Programme for Economic Growth (PC-PEG), the implementation of VAT for residential customers of electricity above the maximum consumption level specified for block charges for lifeline units in line with Section 35 and 37 and the First Schedule (9) of Value Added Tax (VAT) Act, 2013 (ACT 870) has been scheduled for implementation, effective 1st January 2024.

“For the avoidance of doubt, VAT is still exempt for “a supply to a dwelling of electricity up to a maximum consumption level specified for block charges for lifeline units” in line with Sections 35 and 37 and the First Schedule (9) of Act 870,” part of the letter which is dated December 12, 2023,” the Finance Minister said.

Ken Ofori-Atta charged  ECG and NEDCo to put measures in place and collaborate with the Ghana Revenue Authority (GRA) to ensure that the implementation of the VAT starts on January 1.

“The Electricity Company of Ghana (ECG) and the Northern Electricity Distribution Company (NEDCO) are, hereby, requested to liaise with the Ghana Revenue Authority (GRA) to ensure that the implementation of VAT for residential customers of electricity above the maximum consumption level specified for block charges for lifeline units takes effect on 1st January 2024, in line with Sectio35 and 37 and the First Schedule (9) of Act 870.”

However, some Ghanaians have criticized the government for adding more pain to them by introducing VAT on electricity usage.

Economist and former Board Chair of the Ghana Revenue Authority (GRA), Prof Stephen Adei, is one of the many Ghanaians who have spoken against the imposition of VAT on residential electricity consumers.

“There’s no doubt at all people will be worse off. You’ll first focus on things that increase production and then that in turn will feed into your taxes. You should be going after the billions of uncollected property taxes and people getting away [inaudible], being exempted, not even the more important ones.

“The mines have millions of exemptions and these are the ones we should go after rather than going after the ordinary producer and consumer when it comes to electricity,” Dr Adei said on Accra-based Joy FM.

Commenting on the same issue on Accra-based Citi FM, Mr. Joe Jackson, Director of Business Operations at Dalex Finance described the move as “harsh” and argued that it disproportionately burdens low-income families.

According to him, the current lifeline threshold, set below GH¢50, is too low to effectively shield vulnerable consumers.

“Don’t be deceived by the fact that the tax comes after the lifeline. The lifeline is so low that it barely makes a difference. This effectively translates to over 20% added to your electricity bill, and that’s harsh for struggling families.”

“The government does need money and that is not in dispute because we have crises of cost on our hands and any tax that comes again and is an indirect tax will hurt the poor more than the rich and so it is not enough. The general population is suffering.

“I go for the government raising more money but I am always insisting that that has to be done through direct tax and not through indirect tax at a time when the general population is suffering.”

Source: https://energynewsafrica.com