ACEP reveals two outcomes from Gov’t’s VAT imposition on electricity consumption
Policy Lead, Petroleum and Conventional Energy at the Africa Centre for Energy Policy (ACEP), Kodzo Yaotse, has intimated two ramifications of the Government’s imposition of VAT on electricity consumption in the country.
Asserting that the VAT imposition on electricity consumption will not achieve Government’s desired objectives, Mr Yaotse noted the move by the Government will lead to illegal consumption by citizens further compounding revenue challenges for ECG.
“Imposing VAT on electricity tariffs will not achieve the desired objectives. Instead, two outcomes are likely; the first is power becomes too expensive, leading to illegal consumption, further compounding the revenue challenges.
“The second is that consumers seek cheaper alternatives outside the grid, like solar, adversely affecting the power distributor, ECG,” he remarked.
Mr Yaotse further argued that, any effort to increase electricity tariffs not complemented by resolving the revenue leakages and debt accumulations at the distribution level will be an exercise in futility.
Adding that, from September 2022 to June 2023, electricity tariffs rose by about 100% with only a 4% reduction in Q4 2023, and despite the efforts by the Government to tackle liquidity challenges in the energy sector, available evidence indicates a worsening revenue situation in the sector.
Government, has mandated the implementation of Value Added Tax (VAT) on households exceeding their prescribed lifeline power consumption levels, effective January 1, 2024.
In a directive that underscores the government’s drive to bolster revenue streams, the Electricity Company of Ghana (ECG) and the Northern Electricity Distribution Company (NEDCO) have been instructed to collaborate closely with the Ghana Revenue Authority (GRA). The objective is to ensure the seamless imposition and collection of VAT on consumers who breach the established consumption thresholds for lifeline units.
Citing the legislative underpinning for this move, the Minister invoked Sections 35 and 37, along with the First Schedule (9) of Act 870, signaling that the initiative is firmly rooted in existing legal frameworks. This regulatory clarity aims to preemptively address potential ambiguities, ensuring adherence to statutory guidelines.
This strategic fiscal adjustment emerges against a backdrop of evolving economic imperatives, as Ghana seeks to optimize its revenue collection mechanisms.
“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 I” January 2024, in line with Section 35 and 37 and the First Schedule (9) of Act 870.
“By a copy of this letter, GRA is requested to ensure that it liaises with ECG and NEDCO for the transfer of the revenues collected from the implementation of VAT on the subject matter as part of its domestic VAT collections,” stated the Finance Ministry.
