President Ellen Johnson Sirleaf is expected to call back the Legislature from their legislative recess to pass laws increasing some taxes and introducing new ones. According to a source within the Presidency, the move is necessary to address the anticipated shortfall in revenue to service the new budget.
The source indicated that President Sirleaf has already discussed the recall with the leadership of the Legislature, who seem amenable to returning next week. One of the main targets of the tax increases is the telecom sector, where the Government is expected to impose new taxes on all calls, including international calls.
According to the recent Fifth and Sixth IMF Review Mission, despite the “Successful elimination of the Ebola Virus Disease, the [Liberian] economy is still not recovering. GDP in 2016 is now projected to contract by 0.5 percent, mainly due to continued weakness of commodity exports, including lower-than-expected gold production, and the impact of the United Nations Mission to Liberia (UNMIL) withdrawal. Inflation is also rising due mainly to the pace of depreciation of the Liberian dollar in the past months, and is expected to reach almost 9 percent on average this year.”
With the contraction of the Liberian economy and the rise in inflation, that means less jobs and increase in the cost of living. The Government’s response to this problem is to increase the tax on the Liberian people. Most sound economists would actually propose measures to stimulate economic growth such as reducing taxes, increasing investment incentives, and austerity in government spending.
The telecommunications sector is one of the sectors targeted for tax increases. According to a telecom insider, “the Government wants to impose taxes on international calls and all calls made within the country. They want to make telecom companies pay for the free calls they are offering.
If they succeed, this would be the end of the popular 3-Day call promotion that many Liberians depend on. The cost of making international calls will also go up. Government officials will not be affected by these increases because they get free monthly allowance of scratch cards.”
The measures were originally proposed by Lonestar/MTN Chairman and Presidential candidate Mr. Benoni Urey who called on the Government to impose taxes on free calls as a way of raising government revenue. Urey’s suggestion was severely criticized by Liberians with radio talk shows overloaded by calls from concerned callers.
Many callers threatened that Urey’s quest for the presidency would certainly come to an end if he continued with such a suggestion. Coincidentally, Mr. Urey has never mentioned the proposed tax since the controversy erupted.
According to an industry expert, “the whole premise of the Government is faulty. The assumptions for the tax increase is that revenue will increase with increase in taxes. There is nothing farther than the truth. Increase taxes will mean higher cost to the consumers, who have a limited purchasing capacity. Essentially, consumers will call less to adopt to the increase in cost.
As for international calls, most consumers are now using such apps as Whatsapp, Viper, and Facetime to make their international calls. With the increase in the cost of international calls, one can expect an increase in the use of such free apps which would surely negatively impact sales and revenue. Lastly, it is illegal and preposterous to expect to collect taxes where there are no sales, thus no revenue or income.”
Other targets for taxation include alcoholic beverages and tobacco products. However, concern has been raised that the proposed increase in taxes on alcoholic beverages is unfair because the same increase is proposed for both imported and locally produced products. One case in point is the local brewery that produces beer.
Monrovia Brewery employs many Liberians and even provide income opportunity for even more Liberians through its value and supply chains. Applying the same taxes on Heineken and Club beer for instance would undermine the competitiveness of a local industry that is already challenged with high cost of electricity, water, and a small market.
The Administration’s attempt to increase taxes at a period of economic recession will be the first major challenge for the newly elected Speaker of the House of Representative, Emmanuel Nuquay. Speaker Nuquay has already been labeled as an ally of the Executive, but the increase in taxes by the House when all their members will be up for re-election next October may be a risky move, especially when it leads to the cancellation of a popular program such as the telecom’s free 3-day promotion, something that is even used by legislators.
Urey has already learned his lesson and as a resident of West Point put it, “they better know what to play with, and what to leave alone. We the poor people depend on this 3-day call and anybody who cause us to lose it will face the consequences come elections next year.”