Ghana suspends electricity tax plans after backlash

The Ghanian government has suspended its plans to introduce a 15% tax on electricity after a fierce backlash from trade unions and business owners.

At the start of the year, Ghana’s Ministry of Finance announced that it would be directing the Electricity Company of Ghana (ECG) and Northern Electricity Distribution Company (NEDCO) to levy a 15% tax on domestic consumers.

The government argued that this was a necessary measure to raise additional funds following several years of economic distress sparked by the Covid-19 pandemic. According to the World Bank, Ghana’s fiscal deficit in 2022 was significantly above target at 11.8%, while public debt surpassed 90% of GDP in the same year. By the end of December 2022, Ghana was forced to suspend payments on most of its external debt.

However, the plans caused a public outcry amid rising cost of living pressures and shrinking disposable incomes, with inflation currently running at over 23%. The proposed electricity levy was particularly unpopular given it came shortly after another new tax, which requires Ghanaians to pay an annual fee for the carbon emissions produced by their petrol or diesel vehicles, was implemented earlier this week.

Ghana’s Trade Union Congress (TUC) has planned a strike for next week, with deputy general Joshua Ansah saying that “the government has a lot of options, instead of taxing businesses and workers […] tax is the easiest and fastest way to get revenue, but it burdens your citizens.”

The government has suspended the implementation of the electricity tax to conduct “further engagement” with trade unions, in the hope of avoiding industrial action, but has yet to drop the proposals entirely.

The US Department of State has reported that “major international investors in Ghana have registered concern about increasingly aggressive tax collection policies”. Local business owners in Ghana have expressed concerns that the increasing tax burden could damage their competitiveness.

Nadia Takyiwaa-Mensah, an Accra-based entrepreneur, tells African Business that the tax is causing “deep discomfort” among business leaders.

“In 2022, the Ghanian cedi took a deep dive and businesses therefore took a major hit as the price of goods went up, inflation reached its peak, and people were focusing on essential expenses. We felt the true effects of this in 2023 – during this time we witnessed many businesses close for good as the pendulum had swung too far in the wrong direction and doing business in Ghana was not making economic sense,” Takyiwaa-Mensah explains.

She fears that the government’s new tax proposals could dent into businesses’ bottom-lines even further and could prompt more businesses to close entirely.

“To face the additional burden of 15% VAT on pre-paid electricity causes me deep discomfort as a business owner – there is only so much, as a consumer-based business, that we can pass on to our customers.”

“To take my restaurant businesses as an example – our customers are already paying 22% tax on their food and drink. We are now finding that some of our goods are priced the same as in New York or London, which is absurd,” Takyiwaa-Mensah adds. “We’re potentially going to have to rethink our business model entirely. For others, I anticipate more business closures.”

“It is a step too far – business owners and customers are being overly squeezed.”