In a recent development, Cabinet has made the decision to withdraw the contentious 15% Value Added Tax (VAT) on electricity. The move is contingent upon further engagements with the International Monetary Fund (IMF), indicating a strategic reassessment of the fiscal landscape.

This decision comes in the wake of substantial disapproval from Organised Labour, civil society, and various segments of Ghanaian society. Particularly, Organised Labour has issued a stark warning of a nationwide industrial action if the government does not retract the tax.

Initially introduced as a measure to generate revenue for clearing the energy sector debt and enhancing the sector’s viability, the VAT imposition faced growing resistance. The government’s rationale for the tax was to boost the financial health of the energy sector, but it seems mounting pressure, especially from Labour, has compelled a reconsideration.

Notably, the Trade Union Congress is set to stage a demonstration on February 13 against the imposition of this tax, underscoring the depth of public discontent.

Bipartisan calls for the removal of the tax have emerged, with figures such as John Mahama, a candidate from the National Democratic Congress, and Henry Nana Boakye, the National Organizer of the New Patriotic Party (NPP), expressing concerns. Mahama argues that the tax adds to the hardships faced by Ghanaians, while Boakye emphasizes its potential negative impact on the government’s popularity, especially in an election year.

With the decision to withdraw the tax, the government now faces the challenge of engaging with the IMF to restructure expenditures within the existing budget. This is essential to prevent a significant revenue shortfall that could disrupt the fiscal balance. Striking this balance becomes crucial to ensuring financial stability while responding to public sentiment and demands. The unfolding situation reflects the intricate dynamics between fiscal policies, public opinion, and economic imperatives.

Tags: ECG Vat