Cabo Verde: State to reduce VAT on electricity, water tariffs from 15 pct to 8 pct

The Cape Verdean government will reduce VAT on electricity and water from 15% to 8%, with a tax waiver of 5.5 million euros, one of five measures to mitigate the effects of the increase in electricity, the prime minister announced.

“This measure with an impact on tariffs will appear in the 2022 State Budget, which will be referred to parliament in the coming weeks,” Ulisses Correia e Silva said on Monday in a statement.

The measure comes in the wake of the increase, of over 30 percent, in electricity tariffs from October, as per the new tariff table set by the regulatory authority, justifying the adjustment with the rise in fuel prices over the last year.

Besides the VAT reduction, the Head of the Government also announced that the social energy tariff would be increased from 30% to 50%, so that families that benefit from social tariffs will now pay less than what they currently pay. “This way we will protect the income of the poorest families”, he said.

Also according to the Prime Minister, as of January 1, 2022, there will be an increase in electricity and water costs for companies, with an effect on the calculation of corporate income tax.

“This is a measure with a positive impact on companies,” noted Ulisses Correia e Silva, who also promised a boost in incentives for home connections of water, electricity and sewage for families that meet the requirements for access to water and energy tariffs.

The Prime Minister also announced investments through the Environment Fund in access to water, toilets, sewerage networks and septic tanks, for families registered in groups 1 and 2 of the single social register. 

“With these measures, the Government mitigates the effects of electricity tariff increases, adds measures for the reduction of water tariffs and invests in access to water, electricity and sewerage for the benefit of the poorest families,” he explained.

The country will also strengthen the institutional and regulatory framework in order to ensure predictability and greater stability for electricity and water tariffs, avoiding large fluctuations in increases and reductions, according to the head of government.

He also stressed that the country’s energy transition, which began before the pandemic, will result in the transition from an energy matrix based on fossil fuels to a matrix with production based essentially on renewable sources.

Ulisses Correia e Silva said that the five measures represented costs of 614 million escudos (5.5 million euros) in tax and investment waivers, in order to mitigate the effect of the international rise in fuel prices.

Prior to the Prime Minister’s statement, the Secretary of State for Finance, Alcindo Mota, explained that the latest tariff update brings prices to 2019 levels and lower than those between 2012 and 2015.

And in 2021, he said, the country will have average prices lower than 2019, considering the weighting by the number of months of the fixed tariff’s validity.

“The 30 percent increase in the price of energy will impact the general level of prices by around 1.0 percentage points, with special incidence on the goods and services of energy-intensive sectors, as a way of passing on costs to the consumer, to protect profit margins,” he explained.

The adjustments to electricity sale tariffs to end customers, for Electra and AEB (Boa Vista Island), “should take effect from 1 October 2021, as a result of the evolution of fuel prices during the period from 1 October 2020 to 30 September 2021,” as well as in light of the “due adjustments arising from previous indexation exercises,” the Multisectoral Economic Regulatory Agency (ARME) said.

Electra’s electricity tariffs will be adjusted by PTE 6.43 (almost six cents) for each kWh billed and in all scales, “corresponding to an increase of the average tariff weighted by the quantities billed in 2020 of 30.53 percent.

It translates in practice into increases ranging from 25.51% in the second scale of normal low voltage, to 37.73% for the single scale of medium voltage, while the tariff for public lighting increases by 35.04%.

The social tariffs for low voltage supplied by Electra, meanwhile, will increase from 25.51 to 35.04% from October 1.

AEB (Águas e Energia da Boa Vista) tariffs, according to ARME’s calculation, suffer an adjustment of 5.80 escudos (five cents) for each kWh billed, in all scales, “corresponding to an increase in the average tariff weighted by the quantities billed of 2020 of 24.55%”.