Government May Reintroduce VAT on Electricity Amid Falling Inflation – IMF Says

The International Monetary Fund (IMF) has signaled that the Government may reintroduce the suspended 15 percent value-added tax (VAT) on electricity if the downward trend in inflation persists.

The VAT, initially intended as a revenue-raising measure under the IMF-supported COVID-19 recovery plan, was shelved earlier this year following widespread public opposition.

In its July 2024 Country Staff Report, the IMF disclosed that the government remains committed to the tax’s implementation once inflation stabilizes at a more manageable level.

“On the revenue side, implementation of VAT on residential electricity (expected yield 0.17 percent of GDP) was suspended due to strong social resistance. The authorities are committed to implementing this measure when the inflation dynamics are more conducive,” the report noted.

The VAT on residential electricity, which was initially announced as part of efforts to bolster fiscal revenues, faced immediate backlash, particularly from residential consumers and organized labor groups.

The opposition culminated in the government’s decision to suspend the tax on February 7, 2024, after Organised Labour threatened nationwide protests.

The Ministry of Finance, in its suspension notice, acknowledged the need for further stakeholder engagement to explore alternative fiscal strategies.

The Ministry expressed hope that these discussions would yield “innovative, robust, and inclusive approaches to bridging the existing fiscal gap, while bolstering economic resilience.”

The prospect of reintroducing the VAT on electricity comes amid a recent slowdown in inflation.

The Ghana Statistical Service reported that annual inflation had eased to 20.9 percent in July 2024, the lowest rate in over two years, down from 22.8 percent in June.

This decline could provide the government with the necessary economic conditions to revisit the tax, as hinted by the IMF’s latest report.

Source:norvanreports.com