Liberia’s National Investment Commission Explains Farmington Hotel Tax Break
Monrovia – The Executive Director of the National Investment Commission, Mr. George Wisner has dismissed widely-held perception that the recent tax holiday granted the recently-completed Farmington Hotel was done selectively to the detriment of other struggling local and foreign businesses in Liberia.
“The land lease between the Roberts International Airport (RIA) and the management of Farmington Hotel is 30 years. But the total duration of the agreement within its entirety is 15 years.
This does not mean that that it is a fifteen-year tax break, it only means that the overall duration of the contract is fifteen years” – George Wisner, Executive Director, National Investment Commission
Speaking to FrontPageAfrica at the weekend, Mr. Wisner said besides Farmington, other local and foreign businesses have also benefited from the waiver as government explore ways to ease restrictions on businesses investing millions of dollars in the country.
Mr. Wisner also clarified that the 30-year issue relates to the land lease between the Farmington Hotel and the RIA management and not 30-year tax break.
“The land lease between the Roberts International Airport (RIA) and the management of Farmington Hotel is 30 years.
But the total duration of the agreement within its entirety is 15 years. This does not mean that that it is a fifteen-year tax break, it only means that the overall duration of the contract is fifteen years.”
Describing the controversial waiver initiative as non-discriminatory, Mr. Wisner said in order for a local business to qualify, they must have an investment of US$10 million or more.
“Once a business approaches the National Investment Commission and we ask you to provide your business model, your technical model and everything including your tax clearance and business model and everything and analyze the incentive that you propose and then we negotiate that term, we send it to the legislature because there are certain tax provisions we ourselves cannot waive.”
Special Incentives – Up to Five Years
The NIC boss said those below, for example, investments below US10 million also enjoy incentives. The legislature has waived that power to the National Investment Commission and the Ministry of Finance to be able to grant. In that way, we are only able to grant you incentive for up to five years.
“We call that one special incentive, for up to five years.”
“So, if you apply and I did all of the economic analysis and everything and I think that it is in the priority sector listed by government to me, I can give you that without legislative approval, I don’t need that, I will just recommend to the finance ministry that this investor qualifies for such things for benefits to be accrue to this country and we give it.”
Mr. Wisner said the benefit can be two ways, either the economic returns that it provides for the country or the social returns.
“There are times we give benefits to investors and it doesn’t make much economic sense but it makes social sense.”
“Like in the case of health sector – Right now, we give duty of up to 100 percent duty waiver to anyone bringing in goods in the health sector. “
“It doesn’t bring much to the country but the social benefits outweigh the economic.”
“So, on those basics, I can give the incentive – and of course the further you are from the capital, are also given serious considerations.
Mr. Wisner named a number of businesses besides Farmington that have benefited from similar waivers.
“Bella Casa has benefited from this in the past, Sam Mitchell has, of course his incentive has expired now, he has asked for an extension on his incentive.”
“But the thing is, as long as this country, as long as we don’t develop our infrastructure and make the investment climate difficult, it is almost impossible for investors to come.”
Mr. Wisner slammed suggestions from some detractors who have insinuated that Liberia is so rich that investors need Liberia more than Liberians need investors.
“Let’s take the iron ore sector for example or the iron ore or mineral sector.”
“The investor comes here and his core business is to extract iron ore and go and sell it on the world market.”
“That’s all that his business is. But he comes to your country, he wants to sign an iron ore agreement but he finds that there is no rail from the mine to the port, to evacuate.
“You are asking him, you will have to build to railroad.”
“The investor has to beneficiate his iron ore, then you say the investor will have to build his own electricity, then you turn around and tell the investor, I don’t have road, part of your agreement, you have to build a 50-mile road for me, that’s not his core business.
“And we are competing with other nations. Ivory Coast is right here, we are competing with them.”
“So, what we try to do at the investment commission is to make sure that we keep the investors cost manageable, to make it attractive until such time so we can seriously look at these things.”
He explained that the tax holiday is necessary because It is an agreement mainly to grant duty waiver and in some areas, tax holiday for some specified length of time to enable the business in the first place to reduce their start-up cost and enable them to be able to recover their losses in a reasonable time.
The NIC boss added that because the Farmington Hotel fall in the government’s priority of development, the waiver made sense.
“We’re trying to develop the tourist sector – and they find themselves outside Montserrado County. So, for the National Investment Commission, the way we apply the incentives, the further away you are from the capital city, we give you more incentives so as to diversify and spread out.
Secondly, because of the infrastructure challenge that we have, because one of the major component of the agreement is this tax waiver on duty on importation of fuel.”
Issue of Electricity Key to Waiver
Mr. Wisner explained that one of the major issues arising out of the civil war has been the issue of electricity and averred that most of the businesses in Liberia have complained that 60 percent of their operation is taken to fuel and one way to develop our energy infrastructure is by expanding.
He stated that while Liberia has not yet reached that level where electricity is accessible to all, it was important to give companies a break.
“It has not reached that place yet. So, people who are outside the city and far away from there, we try to grant them that, for five years, we give you duty waiver on fuel for five years but with a proviso there that when electricity becomes readily available at a cheaper rate you will seize to enjoy such an incentive.”
In the specific case of the RIA resort, he explained that while the hotel was not 100 percent completed, it was necessary because the government was in a jam.
“We entered into some bargain with them because we had this ECOWAS conference coming into the country, it was difficult for us.”
“None of our hotels combined, have two thousand rooms. So, these guys when they approached us, we said look, we are interested in government using our facility.”
“So, they said Ok, but we sent your incentive request and you haven’t acted on it.”
It was then Mr. Wisner said that the government moved to grant the hotel the waiver.
“We had to give them some extra incentive like the fuel thing, the other one is the presumptive tax that we gave them.”
“Actually, this is a controversial issue, the presumptive tax because most businesses are even knocking on government doors, LRA to do away with the presumptive tax but we still have it there.”
The NIC boss acknowledged that the presumptive tax is a killer for business but the NIC’s hands are tie on the matter.
“I admit that but I’m not a revenue person, I’m an investment person and my role is to promote investment, to protect the investor and to protect the government.
But the presumptive tax is LRA and the government ask you that in lieu of the profit you are going to make, you advance government that tax.
So, for them, they will say, we need a presumptive tax waiver. But what we did normally under the law, the revenue code, the government can grant presumptive tax delay or waiver for five or six years but I granted it for seven years.”
“I granted it for seven years because the hotel is out of town but more than that, any other thing are things that we have given to other groups.”
He explained that in some special circumstances, NIC has been able to accommodate local businesses.
“Recently, this other group, Muson, it is one hundred percent Liberian-owned, but it is also in Marshall.”
“If you look at the agreement, they have a more favourable incentive than this RIA – and it is deliberate. It is deliberate because they are Liberians. They are Liberians, so I granted them seventeen years.”
Rebranded NIC Developing Sector
Pressed as to why the NIC has not been aggressive in creating awareness regarding these incentives which has drawn Farmington Hotel into controversy, Mr. Wisner said:
“I must admit that we have not done as much as we would like to do in terms of raising public awareness and consciousness, I’ve been at NIC now for three or four years, one of the things that I busy myself in the first two years, I mean the NIC – I don’t want to denigrate my predecessor but the NIC had reduced itself to just negotiating concessions but the NIC is more than that, the NIC is about developing the private sector.
So, the first one or two years, we recreated the NIC, rebranded it and created a new department called private sector and investment commission department.”
Mr. Wisner said the department has been working actually with Liberian businesses through the chamber of commerce, the Liberian Business Association to make them aware of some of these taxes but the reason that some Liberians are not benefiting is not only because of the lack of awareness, but it is because of the bar set for benefiting from taxes.
Mr. Wisner said he hopes that the laws can be reformed in the future but as it is now, the law is what it is.
For any business looking to apply for incentive to the NIC, if you are a foreign business, you’re supposed to have a business value of about USD one million before you apply.
“Your business must be worth one million. For Liberian businesses, it was 300,000 but then our sister institution, the Ministry of Commerce advocated the World Trade Organization (WTO) Ascension and under WTO rules we cannot discriminate foreign and local businesses. So, we were caught in a very difficult situation.
Already with US$300,000 Liberians were not benefiting.
“How many Liberian businesses can show the value of US$300,000.
“So, we had to revise it to protect both. So, the bar went up a little, now its US$500,000 whether you are a foreigner, you are a Liberian, and everybody under the WTO rule had to be treated fairly.”
As a result, Mr. Wisner said, the foreign businesses, particularly the Lebanese are at an advantage.
“It’s going to be these guys that have been benefiting from the country because George Haddad has been here for long, Haddad is able to show you a business of even four or five million but you just starting a newspaper, coming for incentive, you will not be able to show me a balance of five thousand.”
“It pains us but we find out that both are enjoying but the number of foreigners in our country enjoying special incentive more than double the number of Liberians because the foreigners can access it. It is not intentional but it is the law.
“Until the law changes, that’s what is before me at the National Investment Commission.
If one Lebanese fellow applied for it and met all the criteria, if I don’t grant it, he can take me to court and say I’m treating him unfairly under the WTO rule. If a Liberian applies and doesn’t reach those criteria, it becomes a problem for me.”
Local Content Strategy Essential
This is why he says the NIC has in recent months, adopted a new strategy, targeting local content which compels foreign firms coming to do a specific kind of business in Liberia to first inquire whether there are Liberians in that business because Liberians suffer two things: Lack of access to finance and technological limitations.
One group that has benefited a lot from the policy is the Muson group.
“At least we can boast that we’ve promoted about four or five Liberian businesses that did not have the money.
In the case of Muson, a South African businessman came, but Joe Mulbah has been in the business forever.
You know he got the contract for that SDA building opposite Dominion. He’s been in it, he has land and everything.
So, when these guys came, they did not want to run around with our land laws and all that other stuff, so we just linked them up with Joe Mulbah.
Joe Mulbah told them, I’m an architect, I’m a construction engineer, I have land in Marshall, you can come in and we can form a link.
So, what NIC did was form a newly-created department, help Joe Mulbah, create a business plan and give him advise to develop it and to help him collateralize his business and he has an equity.
In the end, it’s a business worth more than 70 million. Does he have that money?
No! But the foreign firm from South Africa has the US$70 million.
So, we link them up. I think he has about eleven or twelve percent of the business, so that’s the way to do it. We did the same things with GLS, the Global Logistics Services that now won the contract for RIA.
While he says the laws are imperfect, Mr. Wisner says he is still holding out hope that the next administration will make changes.
“We’re at the WTO, we can’t turn back, and we just have to find innovative ways. So, this is one innovative way. “
“Hopefully, the next regime can past the local content policy that will require foreigners coming here to use certain percentage of local content whether it is shareholding or whatsoever as it is done in other countries.
“But the law does not grant me that power and I cannot enforce it.”
“So, it is not just an awareness issue, it is an issue of the law itself that prohibits Liberians.”
“In as much as we want to help Liberians, if they do not reach that criterion, we cannot do much.”