“Ehnacing Liberia’s Domestic Resources Mobilization”
The global financial crisis should give government across Africa a new vigor to finding a sustainable way in funding its budget.
By Samora P. Z. Wolokolie, MBA, CFE, CA, CPA, CFIP, CTP.
Recently, global commodity demand fell precipitously. Protectionist and restrictive trade policies soared, foreign investment shrank and foreign aid contracted.
For the past twelve years, the number of financial aids announced will seem to be a solution in themselves towards the economic challenges of Liberia, but in reality, it’s actually the opposite as poverty levels are still high and providing basic social services for all Liberians is still farfetched.
Don’t get me wrong, that aid isn’t essential for nation like ours but aid alone cannot turn Liberia into a country we all dreamt of.
The need to deepen domestic tax revenue mobilization in Liberia is justified for several reasons: it fortifies the existing weak governance, fiscal and capital market institutions; reduces aid dependency and provides more reliable and less volatile fiscal revenues; strengthens social contract between government and citizens, thereby reinforcing citizens’ oversight and supervision of the use of fiscal revenues.
With this, government should shift its focus placing more emphasis on domestic resource mobilization particularly on taxation.
Firstly, a domestic resource strategy is needed to jump start mobilization of revenues internally, something this Pro-Poor government has under its belt.
There are several factors which necessitated the development of the Domestic Resource Mobilization Strategy, low revenue share of GDP (around 14.3% of GDP excluding grants), stagnating domestic debt (around 2% of GDP), declining grants (2% of GDP), low donor transfers (from 60% to 16% of GDP), public debt (middle to high distress) and volatile net remittance flows (US$ 50m net outflow, 2013).
several areas of policy reforms including: addressing of revenue losses with emphasis on reducing tax holidays from Concession Agreements, Executive Orders and Tax Credits and reviewing Section 16 of the Revenue Code. Revenue loss averaged more than US$100m annually.
As part of policy reforms anticipated under the 4-year Domestic Resource Mobilization Strategy, Liberia is moving from GST to VAT while maintaining rate at 10%.
Information is a critical component; the government should and must simplify the Revenue Code for wider understanding and citizens’ participation.
Conducting a comprehensive review of non-tax revenue by the Ministry of Finance and Development Planning so as to streamline the effective tax rate and burden on taxpayers is essential.
The provision of adequate support to the Liberia Revenue Authority, (LRA), as well as enacting appropriate legislation mandating receipt for every transaction involving exchange of value to curb corruption.
With respect to Tax Administration Reforms, the Strategy is looking at Introducing electronic & mobile tax system to reduce compliance costs and increase efficiency, expanding access to LRA services through major infrastructure development, introducing excise stamp and increasing excise tax rate as well as strengthening LRA’s capacities in major areas of international tax audit, large tax enforcement and natural resources management.
The Liberia Revenue Authority’s (LRA) capacities in major areas of international tax audit, large tax enforcement and natural resources management need to be strengthened.
The extractive sector which provided largely for Liberia’s revenue collection over the years have experience a declined.
To address that, a shift should be placed on the Agriculture, fisheries and forestry sector.
Enhancing the mobilization of domestic resources in the Agriculture, Fisheries and Forestry Sector are focusing on market-led agriculture for food security with particular reference to rice production, high value horticulture and other cash crop, the introduction of Agro-pole and incentivizing youth with training and start-up capital as “agri-preneurs”.
The Government’s 4-year Domestic Resource Mobilization Strategy needs to consider the establishment of Precious Mineral Marketing Corporation (PMMC) to add value such as polishing diamonds, develop precious metal sub-sector, facilitate marketing and withhold taxes from buyers and sellers and organizing artisanal miners into corporative for tax purpose.
the proposal to move away from a dual currency regime to the usage of Liberian Dollars only to reduce loss to the US Treasury and combat capital flight averaging about US$ 1 billion a year.
The Financial Sector Reforms must seek to include the introduction of various financial instruments including Treasury Certificates and Diaspora Bonds as well the establishment of Liberia Stock Exchange, Venture Capital and Investment Trusts.
Taxation of the informal economy places workers and business operating outside the reach of the law or public administration. This is a major obstacle to broadening the tax base and the collection of direct taxes. In particular, it poses a wide range of economic challenges not only are taxes not collected, but are also often less productive and there are no labor and social protection schemes for workers.
Quality of tax policies and tax administration:
Complex tax codes and high compliance burdens imposed are powerful incentives for small enterprises to remain informal.
Tax Administration Capacity:
The administrative constraints are such that they limit policy options. The lack of skilled staff appears to be a major impediment to tax collection. Furthermore, despite great progress in adopting Information and Communication Technology to increase revenue collection, more can still be done in Liberia.
The already shallow tax-base is eroded further by excessive granting of tax preferences by the past regime, inefficient taxation of extractive activities and inability to fight abuses of transfer pricing by multinational enterprises has got to be major impediment.