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Govt seeks to impose GH₵1 tax on every litre of fuel

Govt seeks to imposed GH₵1 tax on every litre of fuel

admin by admin
June 3, 2025
in Business
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Finance Mnister, Cassiel Ato Forson

Finance Mnister, Cassiel Ato Forson

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Finance Minister Dr. Cassiel Ato Forson has tabled the Energy Sector Levy Amendment Bill in Parliament, seeking to add a GH₵1 tax on every litre of petroleum products.

The bill, submitted under a certificate of urgency, seeks to introduce new taxes on all petroleum products, stirring immediate controversy and anxiety over potential economic fallout.

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If passed, the bill will impose fresh GH₵1 tax  at the fuel pumps in a bid to tackle what Dr Forson described as a “crippling and unsustainable” energy sector debt, which has ballooned to $3.1 billion as of the end of March 2025.

The proposed GH₵1 tax according to Dr. Forson, is not just another fiscal policy measure but an emergency revenue-generation tool designed to rescue Ghana’s energy infrastructure from near-collapse.

He revealed that the debt includes massive arrears owed to Independent Power Producers (IPPs), state-owned enterprises (SOEs), and fuel suppliers.

Chief among the unpaid parties are ENI and Karpowership, two critical players in Ghana’s power generation ecosystem.

The failure to honour financial commitments to these companies has already led to the total depletion of a $512 million International Development Association (IDA) guarantee from the World Bank, alongside a $120 million guarantee from the Ghana National Petroleum Corporation (GNPC), both of which were exhausted in 2024.

Dr. Forson disclosed that the government now needs an additional $632 million to restore these guarantees and maintain energy sector stability.

“To help raise additional revenue to fund the needs in the power sector, the government is proposing an increase in the ex-pump price of petrol, diesel and related products,” the Finance Minister told Parliament.

40% in taxes and levies

Currently, Ghanaians pay up to 40% in taxes and levies on petroleum products at the pump, according to the National Petroleum Authority’s (NPA) official pricing formula.

Of this amount, taxes constituted approximately 18%, while levies accounted for about 22%.

Although officially classified separately, many observers—including economists and policy analysts—argue that levies are essentially another form of taxation, designed to generate additional revenue for the government under various labels.

A closer analysis of the NPA’s pricing structure reveals just how much consumers are charged per litre of petroleum product under these levies.

The taxes and levies

The Energy Debt Recovery Levy alone adds 49 pesewas per litre, while the Road Fund Levy imposes another 48 pesewas.

The Special Petroleum Tax contributes 46 pesewas, and the Price Stabilization and Recovery Levy adds 14 pesewas.

Other charges include the Sanitation and Pollution Levy at 10 pesewas, the Energy Sector Recovery Levy at 20 pesewas, and the BOST Margin at 12 pesewas.

Additionally, the Fuel Marking Margin costs 9 pesewas, the Energy Fund Levy 1 pesewa, and the Distribution or Marketing Margin 26 pesewas.

GH₵2.35 per litre of fuel are taxes, levies

Together, these ten levies amount to more than GH₵2.35 per litre of fuel purchased, highlighting the significant portion of the pump price that is driven not by the global cost of oil or distribution logistics, but by government-imposed charges.

This reality raises important questions about the sustainability and fairness of Ghana’s fuel pricing framework, especially at a time when the cost of living continues to climb and disposable incomes remain under pressure.

A cushioning Cedi — or a temporary illusion?

In a move likely aimed at preempting public backlash, Dr. Forson assured lawmakers and the general public that consumers would not immediately feel the financial pinch.

He pointed to the strong performance of the Ghana Cedi in recent months as a cushion that would absorb the impact of the proposed levy.

“Mr. Speaker, I repeat,” he emphasised with gravity, “the impact will be absorbed by the gains made from the strong performance of the Ghana Cedi and this will mean that consumers will not have to pay extra for the price of petrol and diesel beginning today.”

According to simulations run by the Finance Ministry, the expected rise in petroleum prices would be neutralised by current foreign exchange trends, at least in the immediate pricing window.

Yet, analysts are already warning that this relief may prove short-lived. The stability of the Cedi — recently bolstered by improved foreign exchange inflows, strong gold exports, and tight monetary policy — may not hold indefinitely. Should the currency weaken, the cost of fuel at the pumps would likely rise, triggering inflationary pressures across the board.

Implications for prices and the broader economy

Even if the current levy doesn’t result in an immediate increase in pump prices, the very introduction of a petroleum-based tax has broader economic ramifications.

Transport unions, which operate on narrow margins, may still preemptively adjust fares in anticipation of future price hikes.

Any upward movement in fuel prices would cascade across multiple sectors — from agriculture to retail to construction — and intensify the cost of living in a country already battling high inflation and sluggish wage growth.

Furthermore, inflationary expectations could be re-anchored upward if businesses and consumers perceive the levy as a sign of more aggressive taxation to come.

Such sentiment can erode purchasing power and undermine recent gains in macroeconomic stability.

The Ghana Statistical Service recently reported a modest decline in headline inflation to 22.9% in April 2025, from a high of 34.1% in late 2024.

That fragile recovery now faces a potential reversal depending on how the petroleum levy plays out in real market terms.

Dedicated energy funding or hidden burden?

Dr. Forson stressed that GH₵1 tax is not a general revenue-raising tool but a targeted measure.

Proceeds will be ringfenced exclusively for the procurement of fuel and the sustenance of the power sector.

Ghana’s current electricity tariffs, he explained, do not reflect the actual cost of fuel used in power generation — a structural imbalance he said must be corrected to avoid total collapse.

“The current electricity tariffs paid by consumers do not include the cost of fuel used for power generation. This has created a financing hole that jeopardises our ability to keep the lights on,” the Minister said.

The strategic goal, he added, is to secure a long-term, uninterrupted, and reliable electricity supply — a prerequisite for economic recovery, investor confidence, and industrial expansion.

Political and social blowback

Despite the government’s assurances, the bill has provoked fierce opposition from some Members of Parliament and civil society groups.

Critics argue that it is unconscionable to introduce a new  GH₵1 tax petroleum tax in a country where many households are already grappling with high utility tariffs, stagnant incomes, and joblessness.

Minority MPs questioned the urgency of the bill and called for broader consultations. Outside Parliament, public sentiment is palpably uneasy.

On social media, the hashtags #FuelTax and #EnergyLevy quickly began trending, with many users voicing concern over the government’s repeated return to petroleum taxation as a fiscal crutch.

The Energy Sector Levy Amendment Bill is, in many ways, a fiscal lifeline thrown to a sector in crisis.

But it is one tied precariously to the volatile currents of the foreign exchange market.

If the Ghana Cedi holds, the impact may be muted. If not, consumers may soon see the fallout at the pumps — and across supermarket aisles, transport terminals, and electricity bills.

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Tags: Dr. Cassiel Ato ForsonIndependent Power Producers
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