Policy expert Kodzo Yaotse from the Africa Centre for Energy Policy (ACEP) has warned that increasing electricity tariffs without addressing the systemic revenue losses in power distribution will be ineffective. He argues that the newly added 15 percent Value Added Tax (VAT) on residential electricity will not fulfill its purpose unless there is a significant reduction in the revenue leakages and debt that plague the power distribution sector.
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Further analysis by IMANI Africa’s Franklin Cudjoe reveals that the real effect of the new VAT on electricity could result in a 21 percent increase for consumers, contrary to the government’s stated 15 percent. This has prompted Dr. Yaw Baah of the Trades Union Congress (TUC) to voice strong opposition to the tax increase on behalf of residential consumers. These concerns are rooted in the broader context of the government’s financial strategies, including COVID-19 recovery efforts and obligations to the International Monetary Fund (IMF).
The issue is compounded by the Electricity Company of Ghana’s (ECG) operational inefficiencies, as highlighted by Mr. Yaotse. He points out that ECG’s power losses stand at around 40 percent of expected generation, coupled with significant challenges in revenue collection. To address the fiscal gap, the Finance Minister, Ken Ofori-Atta, has directed that VAT be applied to residential customers who exceed lifeline unit consumption levels, as of January 2024. This move is part of a broader attempt to bolster state revenue in the wake of the pandemic and to meet IMF programme targets.
