Current revenue policy and administration is faced with a couple of challenges which the New Direction [manifesto] aims to reverse. These challenges can broadly be categorized into policy and administrative challenges
Presidential candidate Rtd Brig. Julius Maada Bio launching manifesto
Firstly, excessive tax relief and exemptions: The proliferation of special reliefs, exemptions and deductions has led to significant narrowing of the tax base and has introduced administrative challenges that create inefficiency and leakages. The total number of reliefs identified and documented by the NRA stand at 148. Of this number, 50.7% are income tax reliefs, 22.3% are GST reliefs, and 20.9% are customs reliefs whilst the remaining 6.1% are other reliefs. In 2015, government estimated to have lost Le837.4 billion (3.8% of GDP) from the 148 reliefs granted by fiscal authorities. A report by an NRA consultant has identified some of these reliefs as structural or administrative and therefore could not be reduced, representing 30% of the total cost of exemptions. They are worth about Le 600 billion (2.72%).
Furthermore, the Income Tax Act grants total relief to the President and 50% relief to the Vice President on PAYE. Additionally the President, Parliamentarians, Ministers and their Deputies and High Court Judges were granted duty free concessions for one vehicle for their personal use during the life time of Parliament.
Except for the President’s privileges under the Customs Tariff Act, the other concessions were granted on the basis of Cabinet conclusion CP23 (96)13. Such exemptions not only undermine revenue they create an unfair tax system that can and has been used to promote political patronage.
Secondly, uncertainty in tax policy environment is engendered by the fact that every year new tax laws and regulations are passed under the Finance Act, sometimes without fully evaluating the success of the previous regulations. This proliferation of tax laws creates uncertainty in the tax system affecting investment decisions. Such action also increases the turnover of business (i.e. entry and exiting of new business) as exemplified by the Telecoms sector. New mobile companies enter the market, only to leave after a few years mainly because of the level of unpredictability of the tax regulatory system affecting the sector.
Thirdly, increased politicization of the revenue authorities has considerably reduced their autonomy and effectiveness thus increasing political patronage and corruption in the administration.
There are a lot of under-declaration and under-invoicing in the tax system, resulting from weak capacity in the tax administration to properly audit businesses. Studies undertaken by consultants of NRA have shown that tax gaps associated with import duty under- declaration for 2015 is estimated at around Le94 billion ($20.6 million).Moreover, GST productivity in 2015 was estimated at 19.26% which is very low compared to the African continental average of 36.5%. If Sierra Leone’s GST collection was in line with other low income countries (at C-efficiency of 38%), the revenue potential from GST could be approximately Le1.17 trillion. Actual GST collection in 2015 was Le593.047 billion given a difference of Le576.953 billion, which implies that about half of GST revenue is not collected.
Secondly, weak capacity generally is a major factor underlying low revenue uptake in Sierra Leone. Inadequate skilled staff, transfer pricing, thin capitalization and inadequate Information Technology infrastructure have all combined to undermine effectiveness in revenue mobilization in Sierra Leone. The tax system also lacks an integrated administration - multiple IT systems, software and high use of disorganized manual systems and unreliable data. Current NRA administration spent Le1.425 billion on so-called corporate social responsibility in 2016 almost trebling the Le502.668 spent in 2015. Such a colossal amount could have adequately covered the cost of training more auditors to carry out specialized audit.
Thirdly, according to the audit report 2016, there is currently a problem of inadequate reconciliation between assessment and actual collection by the NRA, and a great deal of inadequate reconciliation exists between NRA cashbooks and transit bank statements, and between the transit banks and the Consolidated Revenue Fund. The audit report also identified taxes due for collection from individuals, corporate bodies and other institutions by the Domestic Tax Revenue and Customs Divisions of the National Revenue Authority but remained uncollected stood at approximately Le3.8 billion in 2016. Similarly, in 2014 GST Customs and Excise (C&E) revenue of Le280 billion was reported in the ASYCUDA but only Le266 billion was collected, a shortfall of Le13.9 billion. Total receipts of Le191.3 billion were recorded in the VIPS (a software system used to record GST liabilities for both large and medium tax payers) but only Le152.5 billion was reported in the cash book. Thus the GST revenue reported was understated by Le38.76 billion.
Fourthly, taxation is not only about revenue raising; it is also a fundamental part of state building and democratic accountability. Taxes make government more visible and ultimately more accountable. However, without transparency and access to information, citizens are less able to hold governments to account. Without knowing how much tax is being raised and from where, the people are less able to make proposals about how the money should be spent.
The New Direction macro-economic transformation will focus on the following priorities: (i)
Revenue Mobilisation; (ii) Public Expenditure Management; (iii) Public Debt Management and (iv) Exchange Rate Management.
(i) Revenue Mobilisation
The overall objectives of the New Direction for revenue mobilization is to increase domestic revenue from the current 11.1% of GDP to 20% of GDP within 3 years and to build a fair, transparent and accountable tax system that promotes investment and growth. Our key strategy is to push for better taxation collection rather than imposing new taxation. Such efforts hold the potential to stimulate growth and investment whilst also allowing for increased levels of tax collection. Specifically, the following shall be the focus:
Review existing tax laws, agreements, policies and strategies to ensure that they meet the objectives of maximising tax revenue collection as well as impacting on the well-being of all Sierra Leoneans, especially low income earners and small business enterprises
All holders of elective office and political appointees, including the President and Vice President, will pay tax on their earnings to ensure fairness in the tax system
Develop and legislate a National Tax Policy that articulates how the Sierra Leone Tax System will look like in terms of focus, administration and rate changes in the medium term. The new National Tax Policy will ensure the coordination and harmonisation of taxing authorities in the country to avoid the multiplicity of taxes.
Evaluate the on-going tax reforms with a view to enhancing the capacity of the National Revenue Authority (NRA) in tax assessment, collection and reporting through training; developing tax ICT infrastructure, working environment and introducing performance- based remuneration system for staff.
Implement all audit reports findings and recommendations and ensure that every cent collected is paid into the Consolidated Revenue Fund.
Enforce the Fiscal Accountability and Management Act that obligates all MDAs to transfer all funds to the Consolidated Revenue Fund. To this end, the new SLPP administration will immediately commence the implementation of the Treasury Single Account (TSA) system that would allow Government to aggregate receipts from all government sources in order to give a better oversight of public finances, improve cash management and reduce reliance on bank financing.
Mandate the NRA and the Ministry of Finance to upload on a regular basis tax information on revenue collection by sectors, tax rates particularly on frequently imported commodities, assessment and rate of tax compliance by sector
Further strengthen the tax administration core processes, specifically in the areas of filing, assessment and payment and in dispute resolution
Develop the capacity of local councils, particularly the city councils, in revenue assessment and collection
Establish a One-Stop Shop (OSS) that will enable importers to clear goods within 24 hours
Develop a more robust and transparent policy and law for granting duty waivers
Mobilise resources from non-traditional sources such as issuing of Diaspora Bonds within the context of controlling the debt burden, South-South cooperation, public-private partnerships, tourism and Carbon Financing.
Develop and create strategic partnerships with crypto currency and crowd funding platforms through smart contracts using block chain technology to raise funds by pledging unexploited mineral deposits (gold, diamonds and rare earths) and using the funds to reinvest in social programmes like health care and education
Enforce tax laws especially rental income taxation and ensure timely settlement of all tax obligations. For rental income tax, update rental income tax database using the existing database on holding and letting agents, and conduct field audits on rented apartments and houses.
Editor's Note: The above is an excerpt from the SLPP 2018 Manifesto. Elections are scheduled to hold on March 7.