The International Monetary Fund has hinted that the Ghanaian government may re-implement the suspended 15 per cent value-added tax on electricity as inflation continues its downward trend.
This is at a time when some European countries are subsidising electricity to cushion citizens from high prices.
This tax, introduced under the revenue-raising measure towards COVID-19 recovery programmes by the government of Ghana and supported by the IMF, was placed on electricity and paused after a public outcry.
The residential consumers, who stood to lose the most, raised fear of financial burdens as the tax was met with criticism.
The Ministry of Finance, in a letter signed by the former minister, Ken Ofori-Atta, dated 1 January 2024, had directed the Electricity Company of Ghana and the Northern Electricity Distribution Company to apply the VAT above some threshold level for residential customers.
However, the government shelved the VAT upon threats of nationwide protest by Organized Labour on February 7, 2024. The protest was to be on February 13, 2024, should the policy not be fully withdrawn.
The Ghana Statistical Service reported that the annual inflation rate dropped to 20.9 per cent in July from 22.8 per cent in June, hitting a 28-month low.
With these inflationary pressures loosening, the government is likely to reinstitute the VAT on electricity, according to the Country Staff Report of the IMF for July 2024.
While the IMF argues that the tax is necessary for Ghana’s economic recovery, the decision will likely reignite public debate over the affordability of electricity and the broader impact on households.
