ECG Challenges New VAT on Electricity: Calls for Review and Fair Implementation

In a recent development that has stirred controversy in Ghana, the Electricity Company of Ghana (ECG) has expressed significant concerns over the government’s decision to impose a new Value Added Tax (VAT) on electricity consumers beyond the lifeline threshold. This move, which is part of the government’s COVID-19 recovery programme, aims to generate additional revenue but has faced substantial opposition from various groups and stakeholders, including the ECG itself.

Samuel Dubik Masubir Mahama, Managing Director of ECG, voiced these concerns during an interview on Joy News’ PM Express on Wednesday, January 24. He emphasized that the ECG could not simply act on the government’s directive to implement the tax, especially given the complexities and legal bottlenecks associated with the law that was passed in 2013.

Mahama highlighted the need for a thorough legal review and stakeholder engagement before implementing such a directive. He revealed that in January 2023, he had sought a legal opinion from ECG lawyers regarding the provision in the law, due to perceived issues with its implementation. This proactive approach indicated ECG’s commitment to ensuring the law’s applicability and fairness.

The ECG MD emphasized the need for further discussions and clarifications with the Energy and Finance Ministers regarding the law and its subsequent implementation. He argued that if the law required reconsideration or amendment by the parliament, it should be undertaken as part of a national consensus.

One of the major challenges, according to Mahama, is implementing VAT on pre-paid electricity consumers, which he described as a technical nightmare. The dilemma revolves around whether to charge VAT based on money spent or actual consumption, as the latter can only be determined at the end of a billing cycle. This raises issues of fairness and practicality in the tax’s application.

Additionally, the Trades Union Congress (TUC) has strongly opposed the VAT on electricity, issuing a seven-day ultimatum to the government to withdraw the tax. Their opposition, along with other groups and individuals, underscores the widespread discontent and the potential impact of this tax on Ghanaian consumers.

Finance Minister Ken Ofori-Atta, in a letter dated January 1, had instructed ECG and the Northern Electricity Distribution Company (NEDCO) to implement the VAT from January 2024. The goal was to generate revenue for the COVID-19 recovery program, with the tax set at 15 percent on electricity consumption.

Deputy Energy Minister Agyapa Mercer, in a media interview, acknowledged the difficulty of the decision but stressed its necessity to settle debts owed to independent power producers. As of July 2023, the government owed approximately GH¢1.7 billion to these producers.

The controversy over the VAT imposition highlights the complex balance between government revenue generation and public welfare, particularly in a post-pandemic recovery phase. The ECG’s stance on the issue points to the need for careful consideration of the impacts of such fiscal policies on consumers and the importance of transparent and inclusive policy-making processes.

The VAT on electricity is not just an economic issue; it’s a matter of public interest and social equity. The government’s intent to raise funds for COVID-19 recovery is understandable, but the method of implementation and its impact on ordinary citizens have raised critical questions.

The situation calls for a collaborative approach involving all stakeholders, including the government, ECG, consumer advocacy groups, and the general public. This collaboration should aim to find a middle ground that addresses the government’s revenue needs while minimizing the burden on consumers, particularly those in lower-income brackets.

As the debate continues, it is essential to consider the broader implications of such tax policies on the socio-economic landscape of Ghana. The decision to impose VAT on electricity consumption should not be taken lightly, as it affects the livelihoods of millions of Ghanaians and the overall economic health of the nation.

In conclusion, the ECG’s response to the government’s directive reflects a deeper need for policy frameworks that are not only economically sound but also socially responsible and equitable. The outcome of this situation will likely set a precedent for how Ghana navigates the delicate balance between fiscal responsibility and public welfare in the future.