Ghana May Reinstate Electricity VAT. The International Monetary Fund (IMF) has indicated that the Ghanaian government might reinstate the previously suspended 15 percent Value-Added Tax (VAT) on electricity if the country’s inflation rate continues its downward trend.
Ghana May Reinstate Electricity VAT : Public Outcry Led to Suspension
The VAT on electricity was initially suspended due to widespread public outcry, with many Ghanaians concerned about the additional financial burden, particularly on residential consumers.
The suspension came after Organised Labour threatened nationwide protests, arguing that the tax would exacerbate the existing hardships faced by citizens.
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IMF’s Conditional Support
In its July 2024 Country Staff Report, the IMF noted that the Ghanaian authorities are committed to implementing the VAT when inflationary pressures ease further.
The report highlights that the implementation of the VAT on residential electricity, which was expected to generate 0.17 percent of GDP, was put on hold due to strong social resistance. However, the government is prepared to revisit this decision if economic conditions become more favorable.
Historical Context and Government’s Response
The VAT on electricity was originally proposed as a part of the revenue-generating measures under the IMF-supported COVID-19 recovery efforts.
A directive from the Ministry of Finance in January 2024, signed by former minister Ken Ofori-Atta, instructed the Electricity Company of Ghana (ECG) and the Northern Electricity Distribution Company (NEDCo) to implement the VAT for residential customers exceeding a certain consumption level.
Following the suspension of the VAT in February 2024, the Ministry of Finance announced that it would engage with key stakeholders, including Organised Labour, to explore alternative approaches to bridging the fiscal gap without imposing undue hardship on the population.
Recent Inflation Trends
The Ghana Statistical Service recently reported a significant decline in the inflation rate, which dropped to 20.9 percent in July 2024—the lowest level in 28 months.
This marks a continued improvement from June’s 22.8 percent, indicating a potential shift in economic conditions that could lead to the reintroduction of the VAT on electricity.
Potential Impact and Future Considerations
As the government contemplates the reintroduction of the VAT, it will need to carefully consider the potential economic and social impacts.
While the tax could help address fiscal challenges, the authorities will likely weigh this against the risk of renewed public discontent and the broader implications for economic stability.
This development is a crucial one to watch, as it could set a precedent for how Ghana navigates the delicate balance between revenue generation and social welfare in the coming months.
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