THE LIBERIAN GOVERNMENT has submitted an act to the National Legislature to amend the revenue code which would impose new taxes and increase some existing taxes. The move is intended to raise government revenue to meet high government expenditures despite promised austerity in the midst of an economic recession. Global commodity price decline of Liberia’s major exports, iron ore and rubber, means less income from traditional trade sources. Most governments would respond to such situations through economic diversification while cutting back on expenditures. But the Liberian Government response has been to impose more taxes as the solution.
THE PROBLEM WITH such an approach is that in all cases, taxes are transferred to consumers and the private sector rather cuts on its expenditure, such as investment and employment. The bill sent to the Legislature is entitled, “Liberia Tax Amendments Act of 2016, Amending the Liberia Revenue Code of 2011.” The document which is dated May 16, 2016, is justified on the assumption that “the economic and market conditions are changing and require adjustments to tax rates and incentives in key areas.” In many draft legislations which tend to impact the economy, stakeholder consultations are usually held to solicit the input of the affected sectors. However, in the case of the amendments to the Revenue Code, no consultations were held and the proposed tax amendments have come as a total surprise to the business community which is already undergoing hardships. The move once again demonstrates the lack of government sensitivity to the plight of local businesses.
ONE OF THE PROPOSALS of the amendment is the imposition of one cent per minute excise tax on mobile calls. This is in addition to the current 15% GST paid which is more than double the 7% GST rate generally applied. Such a move would not only lead to an increase in the price of telephone calls, but would force telecom companies to end free mobile calls due to imposition of the proposed excise tax. The Liberia Revenue Authority (LRA) in its quest to source additional tax revenue has made a case that the proliferation of free calls is denying the Government much needed revenue. Hence, tax each minute of mobile call and whether or not it is free and revenue will increase. Such a move would certainly end the free minutes because they would not be free anymore. The assumption being that people would continue to make the same amount of calls once free calls are ended and then the government would earn more.
ONE MARKET EXPERT HAS described the move as “ill-advised, and would lead to a decrease in call minutes. Under the current economic hardships, people just cannot afford to make paid calls at the rate of free calls. It would be wicked of the Legislature to impose such an excise tax which would directly and negatively affect the public. Such a move would be regressive and the use of mobile telephones would once again become a tool of a few, something that directly contradicts the principal objectives of the Telecommunications Law, which provides for accessibility and affordability.”
FRONTPAGEAFRICA HAS LEARNED that the LRA is being pressured to pursue this excise tax by GSM service providers who are losing market shares due to market competition, mainly driven by bonus and free call programs. But the imposition of an excise tax would seem to be an interference in the free market which has driven prices down to the advantage of the general public. The end result would be an increase in prices for mobile calls and a presumption of an increase in tax revenue to the government. Such presumed tax revenue is based on the assumption that paid calls will replace free calls, something that is highly unlikely given the prevailing economic conditions in the country.
One consumer reacted to the news in shock. “What? Are you sure they want to stop the free calls? How will we afford to make calls from now on? This is unfair.”
ONE OF THE ANOMALIES of the proposed amendment is a provision which states, “This legislation contains priority amendments identified at the time of submission. Additional amendments, including technical corrections, will be submitted to the Legislature at a later date.” Such a clause reflects the rush nature of the legislation to enable increase in taxes despite the fact that the legislation is incomplete. The amendments also propose to increase taxes on water (35%), non-alcoholic beverages and juices (20%), alcoholic beverages (45%), tobacco products (80%), cosmetics (10%), and locally produced beer (45%). An excise tax of 45% will be added to Club Beer, the same rate as whisky imported from abroad. Businesses granting life insurance will pay a 4% presumptive tax on gross income.
INTERESTINGLY, THE NEW TAX regime has been submitted while the Legislature is debating the National Budget. Some observers are concerned that such timing may encourage the Legislature to add on to the expenditure side of the budget in anticipation of additional revenue, rather than try to balance the budget and institute much needed austerity measures.
THE PUBLIC SHOULD be concern at such measures that are not only rushed, but have not allowed for any stakeholders input that would consider the impact of such measures on a fragile economy such as ours.