Liberia Loses US$300m to Tax Waivers; LRA Calls on Government to Reconsider Incentive Policies
CAPITOL HILL, Monrovia – The Liberia Revenue Authority (LRA) has alarmed that the government loses US$300 million to tax waiver each fiscal year, and as the result- there is an urgent need to revisit the tax incentive policies and monitoring frameworks to safeguard government revenues.
Gerald C. Koinyeneh – [email protected]
The LRA made the call on Tuesday through its Deputy Commissioner General for Technical Services, Gabriel Montgomery at the opening ceremony marking the commencement of public hearing into the draft national budget for fiscal year 2023.
The revenue collection house’s alarming revelation comes less than 24 hours after President Weah announced in his State of the Nation Address that he issued several executive orders in 2022 aimed at easing tariff on goods and services as part of short-term measures to address some of the economic challenges.
Said President Weah: “During the year 2022, I issued eight (8) executive orders, as follows: Executive Order #107 Suspending Tariffs on Off-Grid Solar Renewable Energy Products; Executive Order #108 Supporting Integration and Access to Social Services and Safety Nets for Refugees and other Vulnerable Populations in Liberia; Executive Order #109 Extending Executive Order #100 Exempting the Liberia Water and Sewer Corporation (LWSC) from Customs Duties on Selected Items.”
Other Executive Orders issued by the President include Executive Order #110 Extending Executive Order #101 Repositioning the National Food Assistance Agency; Executive Order #111 Exempting the Liberia Electricity Corporation from Customs Duty and GST on Generation, Transmission and Distribution Equipment, Materials & Fuel; Executive Order #112 Establishment of the National Railway Authority; Executive Order #113 Suspending Tariff on Rice, among others.
However, while tax waiver and incentives are among the Weah’s administration’s popular top short-term economic policies, the LRA, through its Deputy Commissioner General Montgomery, addressing the Joint Budget Committee of the 54th Legislature said the Government’s tax waiver and incentive programs needs reconsideration.
“Mr. Chairman, as we strive to meet the nation’s increasing demand for domestic revenue, we also need to consider the impact that tax incentives and other generous policy regimes have on our revenue basket. Each year, more than US$300M is lost to tax waivers and incentive programs,” he said.
Continuing, he noted, “We believe that incentives can be good if they are targeted towards investment and growth promotion, and that specific requirements for qualification such as local content requirements, and employment are met. There is a need to revisit our incentive policies and monitoring frameworks to safeguard our revenues.”
Forecasting Error Leads to Budget Shortfall
Montgomery, speaking on behalf of the LRA Commissioner General, Thomas Doe Nah to the lawmakers that last year’s gross revenue target as approved by the Legislature was US$786.6M, which eventually grew to $811.6 million due to the introduction of a US$25 million supplemental budget in April.
However, of this amount, last year’s total revenue collected was US$742.5 million, and of that amount on the domestic front, the LRA collected US$605.0 million against a revised target of US$651.6 million, he added.
He said although domestic revenues fell short of its revised target by 7%, actual growth above the previous year- 2021 is US$25.9 million or 4.5%. He attributed the shortfall below the revised target to forecasting error. But he was quick to mention that over the years from 2018 to 2022, domestic revenue has remained on a steady growth path year-on-year, averaging 7.2% per year.
These gains in revenue growth are largely stimulated by smart reforms in revenue administration, he said.
“We have made significant progress in rolling out our electronic fiscal devices, and excise stamps, both of which are crucial in raising revenues and reducing under-declaration and smuggling; our compliance clustering program has also gained traction, as well as the real estate decentralization pilot project in Margibi.”
The LRA, he revealed, also aims to operate at the very frontiers of technology in tax administration; adding that these latest trends in information technology include the deployment of our new Liberia Integrated Tax Administration System. The System is an integrated platform that includes online registration, filing and payment as well as online tax Clarence certificate, he added.
Additionally, he stated that the LRA ASYCUDA system can now boast of a lot of success stories. With the use of the ASYCUDA, Customs administration in Liberia is now able to track the movement of goods, track the supply chain of goods, conduct Time Release Study (TRS), which entails how long it takes to clear a container from the ports, combat evasion, Audit risk profiling Deal with voluminous importation.
A call for more support to LRA
Speaking further, the LRA Deputy Commissioner General called for more support to the LRA to boost revenue generation.
He said: “As we all know, Mr. Chairman, domestic revenue mobilization is the lifeblood of our country’s development. As donor support is drying up, we will continue to increase our reliance on the LRA to meet even more ambitious targets. As we are given ever bigger targets and pushing ourselves to meet them, the need for adequate financing of the revenue authority and other revenue generating initiatives need to be prioritized. This is a part of the conversation, Mr. Chairman that we will like for you and your team to critically consider.”
He said the LRA is currently in need of funding for a number of administrative interventions, stating, “our current fleet of cars and motor bikes is in need of revitalization; nearly all of our TBO’s and CBO’s need renovation and upgrade at those facilities. These critical interventions are needed to ensure that the LRA continue its progress of mobilizing more revenue for the provision of public goods.”
The FY-2023 Draft Budget Breakdown
Speaking earlier, the Deputy Minister for Fiscal Affairs, Samora P.Z. Wolokolie, giving the summary of the budget, revealed that the total resource envelope for Fiscal Year 2023 is US$777,943,212.50.
Of this amount, 16% or LRD 20.1 billion is domestic currency, and $656.6 million or 84% is actual United States dollars; while the average annual projected exchange rate by the Central Bank of Liberia is US$1:165.31 LRD, he said.
DOMESTIC RESOURCES
Total projected revenue from Domestic Resource Mobilization (DRM) is US$667.9 million or 86%, while External Resources account for US$110 million or 14%, he outlined.
Revenue assumptions, he said, are supported by the macro-economic and tax policy assumptions that real GDP (in dollar terms) for 2022 is estimated at US$3.51 billion and is expected to reach US$4.9 billion in 2023.
“The statistics speak to the good health of the economy under our stewardship,” he said.
For FY 2023, Minister Wolokolie noted that there are no new tax policy measures underpinning this budget. However, he pointed out that the government intends to further strengthen current tax policies that are already in effect and to present a draft amendment to the revenue code to replace the goods and services tax (GST) with Value Added Tax (VAT) as well as other amendments to strengthen tax administration.
He furthered that tax tevenue, which forms the dominant share of government revenue, is comprised of compulsory transfers to the general government sector. This aspect of DRM, according to him, will account for a little over US$548.1 or 70% of the resource envelope. Comparing this to the previous year, he said, it is an increase of US$50 million or 9% which is a remarkable achievement in the enforcement and implementation of good fiscal policies considering externalities such as the coronavirus and the war in Ukraine.
He outlined that tax revenues are derived from five sources including income and profit taxes which contribute 43%; real property taxes – 1%; taxes on Goods and Services – 12%; international trade taxes – 43%; and social development contributions – 1%.
Non-tax revenues, he added, will account for US$115.3 million or 14.8% of the resource envelope. He said they will be derived from dividends from shares in public shareholdings such as public corporations, banks or other companies – 1.1%; mandatory transfers from state-owned enterprises and regulatory authorities – 7.2%; road funds – 23.4%; rents and licenses for the exploitation of public resources such as forests, minerals, petroleum, etc., fees and licenses for the operations of mobile networks and other telecommunications and radio equipment – 51% and fees for administrative services such as the issuance of passports, work permits, resident permits, birth and medical certificates, police clearances, etc. – 17.3%.
He also said that revenue in transit, which are government revenues paid in commercial banks but are not yet classified as tax or non-tax in the tax revenue administration system (TAS), in the previous fiscal yearend was US$4.3 million. This year it is projected at US$4.5 million or 1% of total resource envelope.
Meanwhile, the Chairman of the Joint Budget Committee, Rep. Thomas Fallah (CDC, District #5, Montserrado County) thanked the officials of the Ministry of Finance and Development Planning and the LRA for living up to their constitutional mandate to report to the Legislature, adding that he looks forward to a fruitful deliberation for the benefits of the Liberian people.
The hearing continues with the Revenue component this week behind closed doors and will be followed by the expenditure aspects wherein line ministries and agencies of government will appear in open hearing to give account of their last year budget and make their case for FY2023 in line with the Financial Management Law of Liberia.