VAT On Electricity Consumption Will Be Difficult To Implement–ECG MD

Mr. Mahama said that apart from the fact that there was no stakeholders’ consultation before the planned imposition of the VAT, ECG’s system had not been adjusted to allow the charging of VAT on electricity consumers.

Ghana’s Minister for Finance, Ken Ofori-Atta, in a letter written on January 1, 2024, directed the Electricity Company of Ghana (ECG) and the Northern Electricity Distribution Company (NEDCO) to charge VAT on residential consumers who consume electricity above lifeline. 

According to the Minister, the VAT forms part of the Covid-19 recovery program.

 “As part of the implementation of the Government’s Medium-Term Revenue Strategy and the IMF-Supported Post Covid-19 Programme for Economic Growth (PC-PEG), the implementation of VAT for residential customers of electricity above the maximum consumption level specified for block charges for lifeline units in line with Section 35 and 37 and the First Schedule (9) of Value Added Tax (VAT) Act, 2013 (ACT 870) has been scheduled for implementation, effective 1st January 2024.

“For the avoidance of doubt, VAT is still exempt for “a supply to a dwelling of electricity up to a maximum consumption level specified for block charges for lifeline units” in line with Sections 35 and 37 and the First Schedule (9) of Act 870,” part of the letter dated December 12, 2023, by the Finance Minister said.

This has peeved a cross-section of Ghanaians including organised labour who had issued a seven-day ultimatum to the government to withdraw the policy.

Speaking on Accra-based Joy News’ programme PM Empress on Wednesday, Mr Samuel Dubik Mansubir Mahama said upon receipt of the letter, he asked for a legal opinion from the company’s lawyers.

Mr. Mahama, who is also a lawyer, said ECG’s lawyers advised him to seek further clarification and interpretation of the VAT Act to get an understanding of the rationale behind the law. 

“I asked for a legal opinion from the lawyers for ECG, to find out if within the law, this provision is right and in its implementation, what it will mean.

So let’s not take it for granted that even the company ECG or the government itself is not taking proactive measures to close this gap and find a way out of it.”

He told the host that he did not treat the Minister’s letter as a directive because there are bottlenecks, adding, “You don’t go implementing a directive that has bottlenecks.”

He revealed that since the issue came into the public domain, he had engaged the Finance and Energy Ministers to look at the law and what needs to be done about it subsequently.

“Conversations are far advanced. If this thing would have been charged this year, then, by 1st January it would have been charged.

Where we are now, we are finding whether even the law that was passed, what are the restrictions on the law…if it can be passed.

We are finding a lot of interpretations.

“If this law has to go back to Parliament for it to be looked at and reconsidered, then, yes, so be it.

It should be a national consensus, so we need to applaud the TUC [Trades Union Congress] for what they are doing and also be clear that if the thing is not being implemented and the last paragraph said, transfer the revenues collected from the implementation of the VAT on the subject matter as a domestic VAT collection, some processes need to be outlined.”

According to the ECG MD, there would particularly be a challenge in the implementation of the VAT on pre-paid electricity consumers.

“It’s a technical difficulty; it’s a nightmare. How do you go about this?” he quizzed.

“First of all, one of the biggest challenges that will come up is this; are we charging the VAT on residential customers? If yes, are they on pre-paid meters? Yes. So, are you charging per the money or the consumption? Because with pre-paid, the consumption will be known at the end of the day, so I will only know your consumption after you have consumed.

So, if I charge you the VAT when you are about to pay that will not be fair if I am charging on consumption.

“If I am to implement it that means that at the end of the day, when you are about to purchase again you will have a debt that needs to be settled.

There’s a lot of stakeholder engagement that has to go into something like this. So, I see more of this letter as a letter setting in motion an inquiry into all of this,”  he stressed.




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