By Mr Jacob Macauley and Dr Victor Moinina
FREETOWN, Sierra Leone – In the bustling streets of downtown Freetown, vendors hawk their wares while traffic crawls through congested lanes. The loud rhythms of construction work echo, as new buildings take shape amid ageing colonial-era structures. This contrasting scene encapsulates the economic realities facing Sierra Leone – a nation rich in natural resources yet burdened by widespread poverty, crumbling infrastructure, and a heavy reliance on taxes to fund its government operations.
Sierra Leone’s economy is a study of paradoxes. The country boasts vast deposits of diamonds, iron ore, rutile, and other minerals that have attracted foreign investment and generated export revenues. However, a legacy of civil war, corruption, and mismanagement has prevented these resource riches from translating into broad-based economic prosperity for its citizens.
“Our natural wealth should be a blessing, but it has often been a curse,” laments Abdul Kamara, an economics professor at Fourah Bay College in Freetown. “The mining sector contributes significantly to our G.D.P., but the benefits tend to concentrate among a small elite, while most Sierra Leoneans remain impoverished,” he furthered. A key factor hampering Sierra Leone’s economic development is its heavy reliance on taxes to fund government spending. Tax revenues account for nearly 16% of the country’s gross domestic product (G.D.P.), one of the highest tax burdens in West Africa. This dependence on taxes stems from Sierra Leone’s narrow economic base and the government’s limited ability to generate income from other sources.
Critics argue that excessive taxation stifles entrepreneurship, discourages investment, and perpetuates the growth of the informal sector, where businesses operate outside the tax net. “The tax rates are simply too high for most small businesses to survive,” says Aminata Conteh, who runs a clothing shop in Freetown. “Either we evade taxes or go out of business.” Proponents of higher taxes, however, contend that robust tax collection is crucial for funding essential public services, infrastructure development, and social programs that can foster long-term economic growth. “Without taxes, we cannot build the roads, schools, and hospitals necessary for creating an environment conducive to business and attracting investment,” asserts former Finance Minister, Jacob Saffa.
Sierra Leone’s government has broadened the tax base and improved revenue collection, including implementing a Goods and Services Tax (G.S.T.) and strengthening enforcement efforts. However, progress has been slow, hampered by corruption, administrative inefficiencies, and resistance from powerful business interests. As Sierra Leone grapples with these challenges, the debate over taxation and its impact on economic growth rages. Some experts advocate reducing tax burdens to spur private sector growth, while others argue for maintaining high tax rates to fund development initiatives.
“There is no one-size-fits-all solution,” says Kamara. “We need a balanced approach that generates sufficient revenue for development, while also creating an enabling environment for businesses to thrive.” As Sierra Leone continues its journey towards economic prosperity, the intricate relationship between taxes and growth will undoubtedly remain a central issue. Finding the right balance could unlock the country’s vast potential or perpetuate the cycle of underdevelopment that has plagued this resource-rich nation for decades.
Sierra Leone’s new airport terminal, a $318 million project funded through a public-private partnership (P.P.P.), has been a source of hope and controversy. Touted as a model for infrastructure development, the sleek new facilities at Freetown’s Lungi International Airport stand in stark contrast to the economic hardships endured by many Sierra Leoneans. The P.P.P. arrangement, spearheaded by the government and a Turkish construction firm, aims to transform Lungi into a modern aviation hub serving West Africa. Plagued by a crumbling terminal unfit for a growing volume of international travellers, officials saw the partnership as a much-needed solution to upgrade facilities without over-burdening state coffers.
However, critics argue that the airport project’s hefty price tag exacerbates fiscal pressures on the cash-strapped government. At a time when Sierra Leone is grappling with rampant poverty, high unemployment, and an over-reliance on tax revenues, some question the prioritization of such an ambitious infrastructure venture. “How can we justify spending hundreds of millions on an airport when our people are struggling to afford necessities like food, water and electricity?” asks Isha Bangura, Director of a local non-profit organization. “These funds could have been better allocated to addressing the urgent needs of the population.”
Indeed, economic hardship is a grim reality for much of Sierra Leone’s populace. Despite modest G.D.P. growth, primarily driven by mineral exports, rising living costs have outpaced wage increases for many citizens. Frequent power outages and escalating prices for utilities like water and electricity have strained household budgets.
The situation is particularly dire in Freetown, where over a third of residents inhabit informal settlements lacking access to basic amenities. “Sometimes we go days without electricity or running water,” laments Mohammed Kallon, a resident of Susan’s Bay slum. “Utility bills keep rising, but our incomes don’t. How are we supposed to cope?” Government officials defend the airport project as a strategic investment to generate economic benefits through improved trade and tourism. They argue that the P.P.P. model mitigates costs for the state while creating jobs and opportunities for Sierra Leonean businesses involved in construction and operations.
“This new airport is a gateway to Sierra Leone and will position us as a regional transport hub,” says former Transport Minister, Kabineh Kallon. “The long-term economic impacts will far outweigh the upfront costs.”
However, persuading citizens beset by daily economic struggles remains an uphill battle. Many view the glitzy airport as an emblem of misplaced priorities in a nation striving to achieve basic development milestones.
As the first flights arrive at Lungi’s new terminal, Sierra Leoneans watched to see whether the promised economic dividends materialize. For many, affording a plane ticket remains a distant dream, overshadowed by the mounting costs of keeping lights on and putting food on the table. Striking the right balance between visionary infrastructure projects and addressing immediate economic hardships is a delicate challenge Sierra Leone has yet to resolve.
The GST
The introduction of the Goods and Services Tax (G.S.T.) in Sierra Leone has been a contentious issue, with many decrying it as a burdensome “curse” enforced by the National Revenue Authority (N.R.A.). Here’s an examination of the G.S.T. and its impact on the economy and citizens: The G.S.T., a value-added tax of 15% on most goods and services, was implemented in 2010 as part of Sierra Leone’s efforts to increase domestic revenue mobilization and reduce reliance on foreign aid. Spearheaded by the N.R.A., the tax authority has faced criticism for its heavy-handed enforcement tactics, which have drawn parallels to a “curse” plaguing businesses and consumers alike.
The G.S.T. has proven to be an overwhelming burden for small traders and informal sector operators, who comprise a significant portion of Sierra Leone’s economy. Many struggle to comply with the complex tax regulations, lacking the resources and expertise to navigate the system. Failure to pay the G.S.T. or maintain accurate records can result in steep fines or confiscation of goods by NRA officials. “They treat us like criminals,” laments Mariama Bangura, a market vendor selling secondhand clothing in Freetown. “One mistake in our bookkeeping, and they swoop in, taking our merchandise and imposing exorbitant penalties. How can we survive under such conditions?”
Beyond the informal sector, businesses across various industries have raised concerns about the G.S.T.’s impact on operations and profitability. The 15% tax rate, they argue, adds significant costs that are ultimately passed on to consumers, dampening demand and stifling economic growth.
“The G.S.T. has made our products less competitive in the regional market,” says Ibrahim Kargbo, C.E.O. of a local manufacturing firm. “Our neighbours have lower tax rates, giving them an advantage over our goods. The government needs to rethink this policy if they truly want to support domestic industries.”
Proponents of the G.S.T., however, maintain that the tax is a necessary evil for generating much-needed revenue to fund essential public services and infrastructure development. They argue that Sierra Leone’s low tax-to-GDP ratio, hovering around 12%, necessitates measures like the G.S.T. to mobilize domestic resources and reduce reliance on foreign aid.
“We cannot continue to rely on the generosity of donors to finance our development agenda,” states former N.R.A. Commissioner-General Dr. Samuel Jibao. “The G.S.T., while admittedly unpopular, is a crucial tool for ensuring a sustainable revenue stream for the government.”
The N.R.A. defends its enforcement tactics as crucial for combating rampant tax evasion and ensuring compliance. Officials point to increased revenue collection since the G.S.T.’s introduction, as evidence of its effectiveness, despite the widespread public backlash.
As the debate over the G.S.T. rages on, citizens and businesses continue grappling with its economic ramifications. Some advocate for reducing or restructuring the tax to ease the burden on consumers and promote economic growth. Others insist that stricter enforcement and broader application of the G.S.T. are necessary to level the playing field and ensure a fair contribution from all sectors.
Ultimately, finding the right balance between revenue mobilization and fostering an enabling environment for businesses and households will be vital to mitigating the “curse” of the G.S.T. Whether Sierra Leone can achieve this delicate equilibrium remains to be seen, as the nation navigates the complexities of taxation and economic development.
In all this, what is the way out? Overcoming the economic predicament caused by the G.S.T. and tax burdens in Sierra Leone will require a multi-pronged approach that balances revenue generation with measures to stimulate business growth and improve the living standards of citizens. Here are some potential ways forward:
- Comprehensive Tax Reform:
– Conduct a thorough review of the existing tax system, including the G.S.T. rate and structure, to identify areas for reform and simplification.
– Consider reducing or restructuring the G.S.T. to ease the burden on consumers and businesses, particularly in sectors crucial for economic growth and job creation.
– Explore alternative revenue sources, such as property taxes or natural resource royalties, to diversify the tax base and reduce over-reliance on consumption taxes like the GST.
- Formalization of the Informal Sector:
– Implement incentives and support programs to encourage informal businesses to formalize their operations, thereby expanding the tax base and reducing evasion.
– Provide training and resources to help informal traders and small businesses comply with tax regulations, record-keeping, and administrative requirements.
– Consider gradual tax incentives or exemptions for newly formalized businesses to ease their transition into the formal economy.
- Targeted Investment in Economic Development:
– Channel a portion of tax revenues into strategic investments that stimulate economic growth, such as infrastructure development, job creation programs, and support for critical industries.
– Prioritize investments in sectors with high growth potential and the ability to generate employment opportunities for Sierra Leoneans.
– Develop public-private partnerships to leverage private sector expertise and resources in infrastructure and development projects.
- Improvement of Public Services and Governance:
– Enhance the delivery of essential public services, such as education, healthcare, and utilities, to improve the quality of life for citizens and create an enabling environment for businesses.
– Strengthen governance and anti-corruption efforts to ensure tax revenues are utilized efficiently and transparently for the benefit of the population.
– Build public trust in the tax system by demonstrating tangible improvements in service delivery and accountability.
- Capacity Building and Taxpayer Education:
– Invest in training programs for tax officials to improve their professionalism, customer service, and adherence to fair enforcement practices.
– Implement nationwide taxpayer education campaigns to raise awareness about tax regulations, compliance requirements, and the importance of contributing to the nation’s development.
– Establish accessible channels for taxpayers to seek assistance, file grievances, and provide feedback on tax policies and procedures.
- Regional Cooperation and Harmonization:
– Engage with neighbouring countries and regional economic blocs to harmonize tax policies and promote a level playing field for businesses operating across borders.
– Learn from other West African nations’ best practices and successful tax reform initiatives.
– Collaborate on measures to combat tax evasion and illicit financial flows undermining domestic resource mobilization efforts.
Overcoming Sierra Leone’s economic predicament will require a delicate balance between generating sufficient revenue for development and creating an enabling environment for businesses to thrive and citizens to prosper. By implementing a comprehensive strategy that addresses the root causes of economic hardship, Sierra Leone can leverage its natural resources and human capital to achieve sustainable, inclusive growth.