The International Monetary Fund (IMF) has indicated that the Ghanaian government might consider reintroducing the previously suspended 15 percent value-added tax (VAT) on electricity as inflation rates continue to decrease.
This potential move contrasts with current trends in Europe, where some countries are subsidizing electricity costs to alleviate the burden on their citizens.
Initially introduced as part of a revenue-raising strategy to support COVID-19 recovery efforts, the VAT on electricity was put on hold following widespread public opposition. The measure, which was endorsed by the IMF, faced strong criticism from residential consumers concerned about the additional financial strain it would impose.
In a letter dated January 1, 2024, former Finance Minister Ken Ofori-Atta instructed the Electricity Company of Ghana and the Northern Electricity Distribution Company to apply the VAT to residential customers above a certain consumption threshold. Nonetheless, the policy was suspended after Organized Labour threatened a nationwide protest scheduled for February 13, 2024, if the tax was not withdrawn.
The Ghana Statistical Service recently reported a decrease in the annual inflation rate, which fell to 20.9 percent in July from 22.8 percent in June, marking the lowest level in 28 months.
Given the easing of inflationary pressures, the government may be poised to reinstate the VAT on electricity, as suggested by the IMF’s Country Staff Report for July 2024. While the IMF argues that this tax is crucial for Ghana’s economic recovery, its reintroduction is expected to spark renewed debate over the affordability of electricity and its impact on households.
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