Gov’t replaces electricity VAT with foreign income tax

Ms. Julie Essiam, Commissioner-General, Ghana Revenue Authority (GRA)

By Joshua Worlasi AMLANU [email protected]

In response to a GH¢1.8billion revenue gap caused by the decision to halt the value-added tax (VAT) on electricity, the government has announced plans to implement a tax on the foreign incomes of resident Ghanaians.

The move comes after public backlash led the government to abandon the VAT on electricity earlier this year. The VAT had been part of revenue measures outlined in Ghana’s agreement with the International Monetary Fund (IMF).

“We will specifically speak to the measure that is replacing the VAT on electricity,” said Julie Essiam, Commissioner-General of the Ghana Revenue Authority (GRA). “The new measure is a compliance measure on foreign income of resident Ghanaians.”

Ms. Essiam explained that this measure is already in Ghanaian law, but its implementation and application have not been effective in the past.

“The difference is that its implementation and application have not been implemented effectively,” she said. “So in order for us to implement this measure, we have gone through, with the aid and assistance of the OECD, going through credible and sustainable processes and structures to ensure that when we implement this measure, the sustainability of this measure is going to go beyond 2024 in our revenue numbers.”

The Finance Minister, Dr. Mohammed Amin Adam, said the government had to look for alternative revenue measures after abandoning the VAT on electricity.

“And so we had to look at alternative measures to generate more revenue to fill in that gap,” Dr. Adam said. “And so for those alternative measures, some of which were announced in the Budget Statement of 2023 and also 2024, but were not effectively implemented. And so, now, we are determined to effectively implement these measures to generate the desired revenue to fill in the gap created as a result of the suspension of the VAT.”

Dr. Adam explained that the government’s decision to suspend the VAT on electricity had consequences for the country’s fiscal framework, and the new tax on foreign incomes is an effort to avoid missing key fiscal targets under Ghana’s IMF programme.

“Now what this means is that when we take a decision as a government with borders on our fiscal framework, there are consequences,” Dr. Adam said. “And the consequences could persist unless we are proactive enough to find ways to fill in the gap and avoid those consequences. One of the consequences could be that you miss out on the fiscal target, and the IMF programme then suffers.”

The Finance Minister warned that the government would be aggressive in pursuing tax evaders to ensure everyone pays their fair share.

“We are also pursuing reforms within the tax administration to ensure that proper assessments are done and people pay the right taxes that they have to pay to the state,” Dr. Adam said. “We are going to go after them.”

Ms. Essiam expressed confidence that the new tax on foreign incomes will be a sustainable and credible measure to replace the lost revenue from the VAT on electricity.

“So this is the measure that, together with GoG and the Ministry of Finance, is going to take place, or is going to replace the GH¢1.8billion,” Ms. Essiam said. “… We’re not [just] hopeful, we’re confident on the sustainability of this measure and its credibility to replace the GH¢1.8billion.”

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