Gov’t suspends controversial 15% VAT on electricity

Government of Ghana has officially suspended the planned implementation of the 15 percent Value Added Tax (VAT) on domestic electricity consumption. The Ministry of Finance has directed the Electricity Company of Ghana (ECG) and the Northern Electricity Distribution Company (NEDCO) to put the charging of the levy on hold. This decision was announced in a press statement issued by the Ministry of Finance on February 7, 2024. The suspension is intended to allow for extensive dialogue and to gain the support of industry players and labor unions, who have expressed serious concerns about the impact of the VAT on consumers and businesses.

The Ministry’s statement instructed ECG and NEDCO to suspend the implementation of the VAT directive while further engagements with key stakeholders, including organized labor, take place. The government had initially directed the imposition of the tax policy on electricity customers above the maximum consumption level specified for block charges for lifeline units, effective January 1, 2024, in order to support the country’s Medium-Term Revenue Strategy and the IMF-Supported Post-COVID-19 Program for Economic Growth (PC-PEG) with the aim to mobilize revenue. However, this move was met with opposition from various interest groups who criticized it as punitive and poorly-thought-through.

Reports suggested that the government was considering engaging with the IMF to find a consensus on the anticipated revenue shortfall and possibly suspend the VAT on electricity. The Ministry’s release expressed the expectation that these engagements will lead to innovative, robust, and inclusive approaches to bridging the fiscal gap while bolstering economic resilience.

Organized labor had planned a nationwide demonstration on February 13, 2024, urging the government to withdraw the directive to implement the 15% VAT on residential electricity consumption. Members had also signaled the possibility of a nationwide strike by wearing red bands at work earlier in the week if the VAT directive was not withdrawn after the demonstration.