THE HIGH COST OF ELECTRICITY IS NOT TAX RELATED SAYS ENERGY MINISTER, HON. CHARLES SAVARIN

Roseau, Dominica – October 10, 2008…….  Minister for Public Utilities, Energy and Ports, Hon. Charles Savarin has stated that the removal of the excise tax on fuel and the removal of VAT on electricity would not have a significant effect on the overall cost of electricity in Dominica. The Minister made the disclosure at a Press Briefing by Cabinet recently.

 

According to Hon. Savarin, some persons are of the opinion that the Government can cause the cost of electricity to drop “if taxes are reduced or removed”. The Minister stressed that the high cost of electricity is not “tax related”.

With respect to the Value Added Tax on electricity, Hon. Savarin said that the VAT is not a significant element of the average consumer’s light bill. Further, consumers do not pay VAT on the first 100 units of electricity consumed. Currently, 14, 526 or 56% of total consumers pay no VAT on their electricity bills.

 

Presently Government earns $6 million a year from VAT on electricity consumption on total electricity sales of $49.4 million (2007).

 

In response to persons who have been calling for additional exemptions, Hon. Savarin said: “Providing an additional exemption for electricity would simply result in Government further subsidizing electricity without dealing with the fundamental reason for the high cost. In any event, this would result in a reduction in revenues to the disadvantage of all taxpayers since this additional subsidy would have to be made up from other revenue measures or by reducing the social services provided.”

 

The Minister also spoke of the concerns expressed by some business leaders about the impact of VAT on their businesses.

 

“For businesses, while they have to pay the VAT on electricity, they are entitled to input tax credits for the tax paid. In reality therefore, the VAT should not affect the cost of doing business since VAT paid can be claimed as refunds or credits. It is simply almost dishonest for businesses to complain about the cost of electricity and to place the blame for this on the Value Added Tax.”

 

The Minister also responded to the argument put forward by some for the complete removal of the excise tax on diesel in order to bring about a reduction in electricity bills.  According to him, the 50% reduction in the excise tax announced in the 2007/2008 budget resulted in a revenue loss to the Government of $4.2 million. The continued rise in the price of fuel internationally cancelled out the effect of the 50% reduction in the excise tax on fuel since it is the movement in world oil prices that is mainly responsible for changes in average tariffs.

 

The Minister also noted that in the 2007/2008 fiscal year, the 3% customs service charge on petroleum products was removed but still had little effect on reducing the cost of electricity.

 

With respect to DOMLEC, the Energy Minister noted that DOMLEC is the among the highest cost electricity providers in the OECS Region at about US$0.48 per KWH.  In addition, at 17.1 %,  DOMLEC’s energy losses to gross generation are the highest in the Windward Islands, way above GRENLEC in Grenada, LUCELEC in St. Lucia (10.2%) and VINLEC in St. Vincent and the Grenadines (8.6%).

 

Staff costs and other operating expenses account for US$0.14.7 per KWH.  Hon. Savarin also stated that available information indicates there is room for DOMLEC to improve efficiency and  reduce operating costs.

 

 

 

Mr. Savarin also highlighted the role of the Independent Regulatory Commission (IRC). This body is mandated by law to review, revise and regulate electricity rates in Dominica. The Commission was established in 2007. It has reviewed an application by DOMLEC for an increase in the base rate and has rejected the request.  

 

In his remarks, Hon Savarin also revealed some of Government’s initiatives to deal with the high cost of electricity which includes, but is not limited to, the purchase of new and more efficient generators, thus making government a supplier of lower cost electricity to DOMLEC as well as efforts to develop Dominica’s geothermal resources with assistance from the European Union, the Agence Francaise de Developpement(AFD) and other partners and agencies in Guadeloupe and Martinique.

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