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How 7.5 % VAT will affect power sector
#1
How 7.5 % VAT will affect power sector
February 6, 2020
 
in BusinessEnergyNews Update



[/url][Image: DisCos-750x375.jpg]

•A power facility

[url=https://thenationonlineng.net/wp-content/uploads/2019/12/DisCos-e1576124711978.jpg]





The Federal Government has started the implementation of 7.5 per cent Value Added Tax (VAT), a development, which is expected to have far-reaching consequences on businesses, including electricity distribution and generation. With implementation of the VAT increase, electricity consumers will pay more for meters and electricity tariff as indicated by electricity distribution companies (DisCos), writes AKINOLA AJIBADE.

 

The Federal Government began the implementation of the 7.5 per cent Value Added Tax (VAT) last week. Indications from the electricity distribution companies (DisCos) are that the cost of electricity meters and tariffs would be appropriately reviewed to reflect the increase as it would affect the cost of purchase of power, electricity equipment and facilities including meters.


Currently, consumers, on the average, pay N26 on electricity per kilowatt (Kwh), and this will go up, as the power distribution companies(DisCoS) spread the cost of 7.5 Value Added Tax on their operation.

Precisely on February 1, this year, the government started the implementation of its 7.5 per cent increase in VAT, which was raised from five per cent in the last quarter of last year.

By implications, businesses that are approved and operate in line with the constitution of the country must comply with it, which is the reason businesses are eager to implement the VAT increase on their operations.

Activities in the power sector were also affected by the development as the sector’s operators import most of their machineries from abroad aside generating and distributing electricity to the consumers.

For instance, the 11 power distribution companies (DisCos) have also joined the race to implement the new VAT rates in their operations. The Abuja Electricity Distribution Company ( AEDC), Ibadan Electricity Distribution Company(IBEDC) and Eko Electricity Distribution Company (EKEDC) have given notice of their plans to adjust cost of their services and meters.


Expectedly, the charges per kilowatts of electricity consumed by individuals or organisations will be more as the implementation begins. Though the full weight of the increase in VAT from five per cent to 7.5 per cent is yet to be felt, the issue, no doubt, must be complied with by Nigerians.

Based on this, The Nation examined the positions of the stakeholders in the value chain to know their compliance vis-a-vis how the increase would affect the sector and the economy.

 

ANED’s position

The Association of Nigerian Electricity Distributors (ANED) is the umbrella body of the 11 DisCos in Nigeria. Its Executive Director, Research and  Advocacy, Mr Sunday Oduntan, said the body has never directed its members on the implemention of the 7.5 per cent VAT, adding that members who do so are just obeying the laws of the land.

In an interview on phone, he said the issue of compliance with VAT  is a must for every business operator.

Oduntan said: “We need to clarify this view. ANED, as an umbrella body of all the power distribution companies, has not issued any statement on the implementation of 7.5 per cent VAT.  The Federal Government is in charge of the administration of VAT and it is the only one that can fix and administer VAT in the country.’’

According to him, activities of the DisCos are subjected to the laws of the country and as a result, the DisCos have no choice than to abide by the laws. “It is only Ibadan Electricity Distribution Company (IBEDC) I know that has unfolded plans on how to implement the 7.5 per cent VAT. But I know that other DisCos would follow suit since VAT is a policy of the Federal Government, which they must abide with.” he added.

 

Power sector subsidies

The Federal Government, Oduntan said, subsidises the cost of electricity that is consumed in the country. He said many people (consumers) do not bother to look at the two sides of the coin when issues about the power sector are at stake.


 

The consumers, Oduntan said, do not consider what the operators do in the sector, vis-a-vis, the roles played by the government in subsidisng the cost of electricity.

 

GenCos’ defence

The Association of Power Generation Companies (APGC), the umbrella body of power generating companies (GenCos), had on several occasions, complained about the rising cost of producing electricity in the country. The body has  complained about the scarcity of gas, a feedstock used in generating electricity.

Its Executive Secretary, Dr Joy Ogaji, said the scarcity is caused by the price of the product, urging the Federal Government to prevail on the Nigerian Bulk Electricity Trading Company (NBET) to rescind its decision to charge the power generation firms additional fees on operation.

Specifically, she said the imposition of 0.75 per cent administrative charges on the firms by the government would compound the firms’ problems. The charges, she said, were for all the gas collated and submitted for transportation to the thermal plants, stressing that they are adding more problems to the thermal operators, not reducing them.

On taxes, Ogaji said, the new increase might affect the firms’ operation, adding that the power generation firms would spread the cost of the VAT on their operation.

An official of one of the thermal plants, who craved anonymity, said the effect of the new VAT on the firms was long-term. Power generation companies, he said, purchase gas to provide electricity.

“Gas market is not the same thing as tomatoes or pepper market where people can go any time and get what they need. That is why users of gas (thermal plant operators) buy the product and keep it in stock until there is the need for it again,” he added. It may be six months or one year, depending on the quantity, which gas suppliers provide to them.

The product, he said, is used over a long period, adding that operators of thermal plants buy gas at prevailing market rates. He said suppliers of natural gas could only spread the cost of the new increase on the product, when thermal plants operators had exhausted their supplies.

 

Other operators

The Chief Executive Officer, PowerCam Nigeria Limited, Mr Biodun Ogunleye, said noted that such policies or directives from that cadre of the government must be abided with by operators of businesses that are concerned.

The activities of the government, Ogunleye said, must be run to record growth and the only way through which the government could achieve this, is impose to levies and taxes on people.

The Minister of Finance, Mrs Zainab Shamsuna Ahmed, who broke the news to Nigerians, said VAT increase on consumables and non-consumables was to drive the earnings of the Federal Government and provide enough money for its capital projects.

 
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