Value Added Tax (VAT) on industrial consumption of electricity remains a huge disincentive because it affects the liquidity of businesses, the Africa Centre for Energy Policy (ACEP), has said.
ACEP, which is calling for a suspension of the tax on industrial consumers, said the current regime denies businesses the opportunity to reinvest more revenue into expansion.
“Suspending the tax has the potential to improve liquidity of businesses to reinvest more revenue for expansion. This could also be a rebate for businesses that want to expand or those that want to enter into production,” ACEP’s Executive Director, Benjamin Boakye, said in Accra.
Mr. Boakye spoke at a stakeholder engagement on promoting renewable energy in Ghana, and added that scrapping the VAT will also afford businesses, particularly manufacturers, room to stay competitive in the West African market.
Although government in 2017 removed the VAT on the non-residential consumers of electricity, it failed to do the same for industrial consumers.
In September 2018, for instance, the Association of Ghana Industries (AGI) told the B&FT that businesses were still saddled with having to pay more relative to their competitors elsewhere.
According to the AGI, although there were some reductions in tariffs at the beginning of last year, its analysis shows that the cost of energy is still not only high but also inefficient – which it said makes domestically-produced goods uncompetitive.
“For industry, energy constitutes a major cost component of the whole cost structure; therefore, you would want to have an efficient energy system – a reliable one, wherein there is regular supply of energy so that you can produce at very competitive prices,” AGI’s CEO, Seth Twum-Akwaboah, said at the time.
Realising the need to scale renewable energy penetration, government in 2011 passed the renewable energy Act to promote the uptake of renewables.
As part of the law, a target of 10 percent renewable energy in the generation mix of the country by 2020 was set.
However, the target period has been reviewed and extended to 2030, which according to ACEP raises fundamental questions about the ability or commitment of the country to achieve the new 2030 target.
“The importance of renewables to Ghana is both economic and ethical. Ghana has potential solar energy, bioenergy, wind and others. These sources could reduce the dependence of the country on imported hydrocarbons which also has implication for stability of the cedi,” Mr. Boakye noted.
He added: “We also have a responsibility to the environments to adopt cleaner energy sources so as to protect the earth for future generations. May I say that we have written enough, let us switch to implementation?”