Sierra Leone News: BAN calls for better taxation – not more
The Budget Advocacy Network (BAN) has called on the country’s revenue authority to push for better taxation not more taxation.
In its Transfer Pricing Report, BAN identified that such efforts hold the potential to stimulate further growth and investment whilst also allowing for increased levels of tax collection.
The huge foreign investment $1.58 billion USD between 2004 and 2014, due to influx of mining companies, the report states, has come with challenges of transfer pricing and thin capitalisation. Such trends put more pressure on the existing limited capacity of tax administrators and policy makers generally in Sierra Leone.
“Another challenge facing revenue administration in Sierra Leone is the high level of participants in the informal sector. Workers and companies operating outside the reach of the law or tax administration are a major obstacle to broadening the tax base and collecting income taxes. Taxation of the informal sector may be labour intensive but could drive broader governance objectives by linking more people and traders to the state.”
Interviews done with officials in the Domestic Taxes Department (DTD) of the National Revenue Authority (NRA) indicated that taxing this sector is a way of building a culture of tax compliance among SMEs.
“One main opposition to the taxation of the informal economy, however, is sometimes raised on equity grounds, as the operators of informal sector firms are frequently low-income, thus making taxation of such firms potentially regressive. And the concerns are exacerbated if efforts to tax this sector also increase the risk of relatively coercive or corrupt behaviour by tax officials, -Joshi, Prichard and Heady – 2012.”
Furthermore, the report talked about the weak capacity of the revenue authority generally characterised by poor governance, which is identified as one of the major factors underlying low revenue uptake in Sierra Leone.
Domestic tax officials at NRA said the lack of published data on staff and competencies undermine the potential of the revenue administration to correctly ascertain the actual declared profit of companies.
More worrisome is the fact that currently, there is no formal structure in place to monitor the potential benefits of tax incentives granted to businesses such as job creation, skills, technology transfer, etc.
“Besides, since these incentives, particularly those granted to mining companies, are granted on an individual basis, not a uniformed legal basis and broad policy framework, decisions to grant these incentives could favour one set of investments or concessionaires over the others.”
This, however, violates the efficiency criteria for any tax system requiring it to be neutral; create neither major distortions in consumption and production.
More importantly most of the agreements, especially those benefiting the mining and commercial agricultural companies, were never made public until recently, agreements widely believed to contain some fiscal stabilisation clauses.