VAT on electricity: No need to implement Finance Ministry’s directive – ECG MD
In the wake of disagreements about the government’s decision to impose a new Value Added Tax (VAT) on electricity consumers beyond the lifeline threshold, the Electricity Company of Ghana (ECG), the implementing agency, has raised concerns about the law imposing the tax.
Although ECG and the Northern Electricity Distribution Company (NEDCO) had been directed to implement the tax from January 2024, ECG has said it is yet to implement it.
Speaking on Joy News’ PM Express on Wednesday, January 24, the Managing Director of ECG, Samuel Dubik Masubir Mahama, stated that ECG cannot merely respond to the letter from the government especially when there are bottlenecks with the provision in the law that was passed as far back as 2013.
According to him, in January 2023, he sought the opinion of ECG lawyers on the provision in the law because he found problems with it.
He proved his claim by showing a document to the Host of the show, Evans Mensah, which had the date of January 10, 2023.
“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.
The ECG MD is of the view that the letter from the government asking it to implement the tax from January 2024, rather presents an opportunity for further stakeholder engagement on the policy.
When the host reminded him that the letter from the government was a directive, he retorted, “It’s a directive, but if you are giving a directive and there are bottlenecks, you don’t go implementing a directive that has bottlenecks. Every directive allows for conversations to be had. ECG itself you have to come to ECG to ask ECG how you are going to implement this. There has to be stakeholder engagement, there has to be some form of sensitization so if you call this as a directive to me, I didn’t treat it as a directive" he emphasised.
According to him, he’s held further interactions with the Energy and Finance 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. Clearly, 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, there are processes that need to be outlined.”
According to the ECG MD, there will 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 actually 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 enquiry into all of this” he reiterated.
Various groups and individuals have condemned the VAT on electricity, with the Trades Union Congress (TUC) issuing a seven-day ultimatum to the government to withdraw the tax.
In a letter dated January 1, Finance Minister Ken Ofori-Atta instructed the Electricity Company of Ghana (ECG) and the Northern Electricity Distribution Company (NEDCO) to implement the VAT, with the goal of generating revenue for the COVID-19 recovery programme.
The government has outlined the rationale for the imposition of a 15 percent VAT on electricity consumption.
This measure is part of the government's COVID-19 recovery programme, aiming to generate additional revenue.
A Deputy Energy Minister, Agyapa Mercer in a media interview on Monday, January 15, emphasised that while it was a challenging decision, it is necessary to settle debts owed to independent power producers.
“Obviously, if you look at the scope of the tax and what it is intended to do—raise revenue to meet some obligations of the government in the energy sector—it will interest you to know that, as we speak, as of July 2023, the amount of money that we owe to the IPPs alone is in the region of GH¢1.7 billion
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