Implementing VAT on electricity consumption will be technically difficult – ECG MD

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The Electricity Company of Ghana (ECG), the implementing agency, has voiced concerns about the law imposing the tax in response to disagreements regarding the government’s decision to impose a new Value Added Tax (VAT) on electricity consumers beyond the lifeline threshold.

The Northern Electricity Distribution Company (NEDCO) and ECG were instructed to begin enforcing the tax in January 2024, but according to ECG, they have not yet done so.

ECG’s Managing Director, Samuel Dubik Masubir Mahama, said on Joy News’ PM Express on Wednesday, January 24, that the organization cannot just reply to a letter from the government, particularly when there are issues with a law that was passed in 2013.

He claims that he found issues with the law’s provision and, in January 2023, he sought the advice of ECG lawyers regarding it.

He provided Evans Mensah, the host of the program, with evidence of his claim by presenting a document bearing the date 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.

According to the ECG MD, the government’s letter requesting that the tax be implemented starting in January 2024 actually offers a chance for additional stakeholder input on the policy.

He shot back, saying the government letter was a directive, when the host pointed that out.

“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 highlighted.

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 carry it out, you will essentially have a debt that needs to be paid off at the end of the day when you are ready to make another purchase. Stakeholder involvement in something like this must be quite high. Thus, he said, “I view this letter more as a letter initiating an investigation into all of this.”

The VAT on electricity has been denounced by a number of organizations and people, and the Trades Union Congress (TUC) has given the government a seven-day ultimatum to remove the tax.


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