Tax cuts will prolong legacy debt repayment – James Avedzie

Deputy Minority Leader, James Klutse Avedzie, has said that government’s decision to reduce aspects of the Energy Sector Levies will further delay the payment of the web of debt that entangles the energy sector.

While the National Electrification Scheme Levy (NESL) goes down from 5% to 2%, the Public Lighting Levy (PLL) reduces from 5% to 3% per kilowatt hour of electricity charged on all categories of consumers, following Parliament’s adoption of the amendment of the Energy Sector Levies law.

In 2016 alone, the levies raked in GH¢3.3billion, higher than the GH¢3.2billion the erstwhile NDC government projected to receive that year.

The reduction in the levies will cost government about GH¢308 million in revenue losses, which means 60 percent of monies collected under the NESL and 40% of monies collected under the PLL will no longer be available for payment into the Power Generation and Infrastructure Support Sub-Account.

But justifying the need for the cuts on the floor of parliament, Chairman of the Finance Committee, Dr. Mark Assibey Yeboah, said the reductions will bring relief to electricity consumers.

“Government, as part of the 2017 budget statement and economic policy has proposed to reduce or abolish some taxes in order to bring relief to consumers. Pursuant to that commitment, government introduced this bill to amend the energy sector levies Act (2015, Act 899) as part of measures to reduce the energy sector levies imposed on consumers,” Dr. Assibey Yeboah said.

The Committee report further indicated that the reduction in the rates would not have any impact on the current obligations under the debt restructuring arrangements with the relevant creditor banks.

Hon. James Avedzie, however, disagreed, telling the B&FT that: “The payment of the debt or recovery of debt will prolong. So, if it is supposed to take two years to pay back the legacy debt, because of the reduction in the levy, it will take a longer time to pay back.

The owners of the debt have to bear with government, because of the policy government has taken, they are reducing the levy and so government will collect less and for that matter it will take long for government to pay back,” he said.

Introduced in 2015, the primary aim of the levies is to raise revenue to meet the increasing debts owed by major institutions in the energy sector, including the Volta River Authority (VRA), Ghana Grid Company (GRIDCo) and the Electricity Company of Ghana (ECG).

The ranking Member of the Finance Committee also indicated that the delay could also have a hit on the economy.

“If you can’t pay the debt within the shortest possible time and once you cannot recover the full cost of the product, the production of electricity, it will have negative effect on the economy and for that matter, it weakens the government’s strength to pay the debt. It’s the promise government gave to the people; let’s see how much be reduced in the electricity bill from next month. There may be a positive impact but very minimal,”he added.

Already, the government has settled GH¢588 million of the GH¢2.4 billion indebtedness of the Volta River Authority (VRA) to local banks and its suppliers.

This was after an initial deposit of GH¢250 million and two quarterly payments of GH¢169 million in the last quarter of 2016 and the first quarter of 2017.

The government, last year, reached an agreement with the local banks to restructure the legacy debts in the energy sector.