Economist Calls for VAT Removal on Electricity to Stabilize Power Sector

Power Systems Economist Dr. Elikplim Kwabla Apetorgbor has recommended the removal of Value Added Tax (VAT) on electricity consumption and supplies to the Electricity Company of Ghana (ECG), as well as the indexation of tariffs to exchange rates, as key measures to improve the financial stability of Ghana’s power sector.

Dr. Apetorgbor also emphasized the importance of operational efficiency, optimized natural gas utilization, and leveraging idle generation capacity for regional exports.

He believes these combined actions will enhance competitiveness and sustainability across the electricity supply value chain.

Ghana’s power sector is grappling with the dual challenge of unaffordable electricity for consumers and financial instability across the value chain.

ECG’s inability to meet its financial obligations is attributed to non-cost-reflective tariffs, operational inefficiencies and energy losses, exposure to currency depreciation, and unfavorable fiscal policies like VAT.

Dr. Apetorgbor highlighted the experiences of other countries, citing Nigeria’s utility collapse due to poor tariff structures and Kenya’s success in reducing losses through operational reforms. He stressed the urgency of addressing Ghana’s systemic issues.

He argued that removing VAT would allow ECG to retain more revenue, enabling the Public Utilities Regulatory Commission (PURC) to adjust tariffs for full cost recovery.

He pointed to Rwanda’s removal of VAT on industrial electricity in 2019 as a successful example.

Dr. Apetorgbor also advocated for an automatic tariff adjustment mechanism linked to exchange rate fluctuations, citing South Africa’s quarterly adjustments as a model to stabilize utility finances. He emphasized the need to protect ECG’s revenue from currency depreciation.