Cabinet drops 15% VAT on electricity, moves to engage IMF on potential deficit

Sources close to the government have confirmed that cabinet, at a meeting held on Friday 2 February 2024, has unanimously agreed to drop the previously approved policy of charging 15% value added tax (VAT) on electricity.

This means that power consumers will no longer be required to pay the controversial 15% VAT on top of their bills.

The government has also agreed to initiate a conversation with the International Monetary Fund (IMF) to come to a consensus on how it can make up for the revenue shortfall occasioned by the decision to drop the VAT on electricity policy through additional spending cuts.

What is clear is that even though the proposal to charge 15% VAT on electricity was previously approved by cabinet, and also by Parliament, the reaction of the Trades Union Congress (TUC) and others to the proposed policy has led to a serious rethink and the decision to reverse it.

As to what the final decision on the policy will be, as in if it is to be completely scrapped, Asaase News sources familiar with the cabinet decision said that this will become clearer after engagements with the IMF.

“The position currently is that the 15% VAT on electricity is off, and it is likely it could either be off totally or significantly slashed,” the Asaase News sources said, on condition of anonymity.

TUC directive

Organised labour held a meeting on 2 February and decided to hold a nationwide demonstration on Tuesday 13 February to push the government to withdraw the directive to the Electricity Company of Ghana (ECG) and Northern Electricity Distribution Company (NEDCo) to implement a 15% VAT charge on residential electricity consumption.

“In view of point one, notice of the intended demonstration will go to the [Inspector General of Police] and all the 16 regional commands on Monday 5th February 2024,” said a communiqué issued by the TUC after the meeting.

“All members of organised labour groupings in both the public and private sector are to put on red bands at work from Monday, 5 February 2024 to Monday, 12 February 2024,” the statement from organised labour said.

“Directives on the route of the demonstrations and all other communications will be duly communicated by the leadership of organised labour.

“Organised labour groups are expected to communicate in writing to their employers on the actions to be taken. If the directive on the VAT is not withdrawn after the demonstration, organised labour will meet and take a decision on when to initiate a nationwide strike again,” the TUC statement further said.