As the energy sector in Eswatini continues to face challenges – from uncertainties in sustainable power supply from Eskom to the introduction of cost-reflective tariffs – there is still the pressing issue of the proposed introduction of value added tax (VAT) on electricity.
Last year, the Eswatini Energy Regulatory Authority (ESERA) commissioned the Eswatini Economic Policy Analysis and Research Centre (ESEPARC) to conduct a study on the potential benefits and effects of introducing VAT on electricity in the country, to assist policymakers in making an informed decision based on evidence.
The study was completed in 2018 and on Wednesday (February 13) presented to the Principal Secretary in the Ministry of Natural Resources and Energy, Ms Winnie Stewart, and her team from the Energy Department. The study investigated the potential benefits of introducing VAT on electricity, as well as how such policy reforms on the energy sector would affect the economy as a whole with a focus on households and industry.
PS Stewart said government appreciated the guidance that is provided by the study and that it would assist the policymakers in taking the right direction in terms of making a decision regarding the introduction of VAT on electricity.
“We appreciate ESERA and ESEPARC for conducting the study as it gives us direction on what to consider when advising our principals on the implications of introducing VAT on electricity to the economy, Emaswati, and the business sector which is currently struggling,” she said.
Adding, Director of Energy Ms Thabile Nkosi said such studies are important in informing the decisions made by the government. She said the study will assist government as ongoing discussions with key stakeholders in the country continue.
ESERA Chief Executive Officer Mr Vusi Mkhumane said the study was one of the undertakings ESEPARC has done for the regulator as provided for within a Memorandum of Understanding (MoU) that exists between the two institutions. He said the study came about as a result of the issue that was being mooted to charge the final consumer VAT on electricity.
“Our concern was that the utility is paying VAT on electricity and yet it is currently exempted from VAT charged on the final consumer, hence we wanted to find out about the implications of passing on the charge to the final consumer,” he added.
The study addresses the following pertinent questions:
- Will the benefits of introducing VAT on electricity in Eswatini outweigh the costs?
- How will introducing VAT on electricity affect industrial activity in Eswatini?
- How will it affect the competitiveness of different sectors and the economy at large?
- How will it affect both rural and urban households?
- What is the best position that the government can take?