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Sierra Leone News: We don’t benefit from the taxes we pay – IMF Rep.

If all income earners pay the right amount of tax, the government can collect money to support building roads, schools, government salaries and government services. But, according to the IMF Resident Representative in Sierra Leone, Iyabo Masha, the average African is paying much more than anywhere in the world. “We just don’t get the services.”
Speaking at the launch of Regional Economic Outlook: Domestic Revenue Mobilization and Private Investment 2018 for sub-Saharan Africa (SSA), she stressed, “We all pay taxes in one way or another, but people often wonder what benefit we get from paying taxes.”
According to the IMF Representative, a recent study showed that the average African pays 46% tax unlike the average European or American that pays about 25%. This study was done on the basis of looking at the services that should come with such taxation, which they imputed values for.
“They found out that in Africa you pay for your children’s education and that is not the case for the average families for children in advance economies. You get your own power supply, water from the bowsers and you pay for so many things that are supposed to be publicly provided,” she said.
She added the government is taxing citizens indirectly as they need to provide services so that people will see were there money is going. With effective utilization of such taxes it can increase compliance rate as people will know that the money they pay will provide certain services.
Commenting on illicit financial flow and transfer pricing are said to be related issues, that the IMF have been trying to push through with the National Revenue Authority (NRA) on technical assistance and they we hoped with the new Commissioner General they will move forward with such reforms. “As we want a Sierra Leone that works for the entire country.”
In his presentation on Domestic Revenue Mobilisation in SSA: What are the possibilities? Phillip Kargbo, Director Monitoring Research and Planning (MRP-NRA) said more revenues are required for SSA countries as there is a decline in official development assistance.
“So, because we are realizing a decline in foreign aid, the only thing that can potentially cater for that is if we mobilise more revenues. When you do that, that is the most sustainable way to financing than any other form of financing.”
Adding the crux of it is not to depend on foreign aid to finance the Sustainable Development Goals (SDGs), rather to use domestic revenues, which requires more effort in generating revenues locally.
Debt levels are on the rise in SSA countries and that more needs to be done revenue wise to reduce the vulnerabilities. According to research, mobilising more revenues benefits growth more than cutting expenditures.
Kargbo stated that the country’s Value Added Tax (VAT or GST) is not performing very well, as the productivity of a country’s VAT is based on final consumption on the economy. But with lots of exemptions and compliance rate is a key challenge affect that aspect of the tax collection.
The country, he said, needs to exploit more areas that are taxable, especially on excise taxes, as we only have on alcohol, petroleum, and the recent introduction on tobacco.
“We need to focus on property tax and work with the local councils who are the primary mobilisers of this type of tax. We need stronger regulatory mechanisms to reduce exemptions and also to develop specialized taxes,” he said.
According to the report, excise tax is an underexploited revenue source. In 2015, an average, SSA country collected 1.4% of GDP from all forms of excise taxes, less than half the level in emerging Europe.
There are also wide differences in excise collection across SSA, with several countries like Benin, Ivory Coast, Madagascar, Mozambique, Nigeria and Sierra Leone collecting excise revenues of less than 1% of GDP.
Discussing the topic, Samuel S. Jibao, EU Consultant at MoFED, said that looking at the trend revenue to GDP is still hovering over a very low 10.9% which he says is really not good and that the country needs to do more on VAT efficiency.
“We need to address the issues of excessive exemptions and consolidate our revenue figures in a much better way between the central and local governments. We have a lot of revenue streams and nobody is tracking it, so it undermines the revenue areas” he said.
Property tax in Africa he said is still hovering around 0.5% to 1% of GDP, but Sierra Leone is worst as we are talking about 0.03% in 2015 and 0.04% in 2017, “there is a lot of debate whether it should be centralized but the report is talking about collaboration between local and central governments.”
Collaboration he said must be deepened and formalise, as with the trade liberalisation scheme the country will be faced with lots of multinationals coming over the borders, which means the tax capacity most be improved.
“We will be faced with issues like transfer pricing, thin capitalization, illicit financial flows, as these things are areas where most of these African countries including fragile state like ours are losing a lot of revenue,” said Jibao.
By Zainab Iyamide Joaque
Tuesday June 05, 2018.

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