Integrity Watch Liberia (IWL) Official Release of Tax Incentives Research Findings unveils significant loss in Liberia’s domestic revenue.
The research institution Wednesday, April 10, 2024, presented summary findings on Tax Incentives and Implications for Domestic Revenue Mobilization (DRM).
The Pro-Advocacy organization reported that over 15 million United States Dollars are being generated annually among sand and quarry mining companies without proper impacts on the lives of Liberians due to tax incentives in the sector.
Although IWL acknowledges that tax incentives play a significant role in attracting both domestic and foreign investments, particularly within the extractive industries, but notes that their effectiveness in stimulating economic growth while ensuring robust domestic revenue mobilization (DRM) has been a subject of debate.
Presenting the report at the Capital Building, Integrity Watch Liberia Executive Director Harold M. Aidoo pointed out the cost of Tax Incentives to meet the concerns of policymakers. In their report, Aidoo said Liberia has experienced substantial revenue loss due to tax expenditures, amounting to USD 133.7 million and USD 116.6 million in 2015 and 2016 respectively.
These tax incentives, averaging about 30% of revenues and 6% of GDP annually according to the Executive Director represent untapped potential crucial for supporting national policy agendas.
The report highlights the contribution of the extractive sector, thereby accounting for a significant portion of tax expenditures, constituting 36.5% of revenue collected from the sector over twelve years.
“Concessions make up the majority of tax expenditures, indicating a reliance on special tax regimes to attract investment in the industry”.
The IWL report which points to challenges and recommendations indicated that the current tax incentive regime presents challenges to Domestic Revenue Mobilization, including potential revenue leakages, lack of transparency, and exploitation of loopholes by investors.
To address these challenges and enhance domestic revenue, Integrity Watch Liberia proffered recommendations to include amendment of investment laws to align incentives with national priorities and restrict incentives granted only by the Liberia Consolidated Revenue Code.
The report also recommends setting clear economic conditions for issuing incentives and evaluating investments’ benefits and necessity for national development.
Integrity Watch Liberia through its ED informed the Legislature that strengthening oversight mechanisms to prevent abuse and misuse of incentives, including regular audits and establishing special authorities is paramount.
The head of Integrity Watch Liberia added that another important factor to consider is the enhancement of revenue collection through the automation of taxation systems to ensure efficiency and transparency and reevaluation of existing incentives to limit their duration and scope, ensuring they contribute effectively to national development goals.
The ED believes mandating transparency in contracts regarding tax incentives, facilitating public accountability and informed decision-making is key to improving revenue from the mining sector.
“Strengthening tax legislation to prevent exploitation of loopholes by investors and ensure fair and equitable taxation” he noted.
Meanwhile, the report captures four (4) Implications tax incentives have had on Domestic Revenue Mobilization
Integrity Watch argued addressing the challenges associated with tax incentives is crucial for enhancing DRM in Liberia.
“Implementing the recommended reforms can help maximize revenue mobilization, promote sustainable economic growth, and ensure effective utilization of fiscal incentives to drive national development. By aligning tax incentives with national priorities and strengthening oversight mechanisms, Liberia can strike a balance between attracting investments and maximizing revenue for social and economic development“, Harold Aidoo told the legislature.
The implications he noted are based on findings that highlight the importance of a balanced approach to tax incentives, one that promotes investment while safeguarding the country’s fiscal interests and ensuring equitable distribution of benefits for all stakeholders.
