Liberia Loses Over US$300M Yearly to Tax Waivers
--- “Each year, more than US$300 million is lost to tax waivers and incentive programs. There is a need to revisit our incentive policies and monitoring frameworks to safeguard our revenues,” says Montgomery, the Deputy Commissioner General for Technical Services at the LRA.
The Liberia Revenue Authority is losing over US$300 million annually to tax incentives and waivers.
This revelation, which was contained in the presentation of Gabriel Montgomery, the Deputy Commissioner General for Technical Services at the LRA, comes as the Liberia national budget is yet to reach US$1 billion. The 2023 draft budget, which President George Weah has submitted for legislative approval amounts to US$777.9 million — down by nearly US$29 million when compared with the US$806.5 million approved budget for the fiscal year 2022.
US$667.9 million of the proposed budget is domestic revenue (85.9% of the budget amount), while external resources on-budget account for US$110 million or 14.1%.
The drop comes as the country continues to collect minimal public revenues from many large-scale investments as a result of a narrow tax base.
“We are given bigger targets and are pushing ourselves to meet, but there is a need to consider the impact of tax incentives and other generous policy regimes in the revenue basket,” Montgomery told members of the Joint legislative budget committee at a hearing, as he warned of serious serious risk to domestic revenue mobilization if tax waivers policies are not looked at properly.
“Each year, more than US$300 million is lost to tax waivers and incentive programs. We believe that incentives can be good if they are targeted towards investment and
growth promotion, and that specific requirements for qualification such as local content requirements and employment are met,” he said. “There is a need to revisit our incentive policies and monitoring frameworks to safeguard our revenues.”
Montgomery’s disclosure is however not strange as this has been the position of the World Bank and the International Monetary Fund, which in times past have warned Liberia of the risks of tax holidays.
These breaks, which have swelled in the last two decades, have impacted the country’s budget growth negatively in the form of foregone revenues — making the country more heavily dependable on external grants to fund almost all of its development projects, as well as revenue in the form of budget support.
The World in particular has asked the Liberian government to narrow investment tax incentives, remove or streamline duty duty free privileges for lawmakers and other exemptions granted in concession agreements as a means of raising enough revenue to unlock the country’s potential.
Low revenue generation means the government does not have the necessary funds to invest in physical and human capital development at a scale needed to lift the country from its 'least developed' status.
The World Bank, in a report, Liberia Domestic Revenue Mobilization Policy, notes that while tax concessions are a universal feature, the extremely narrow tax base in Liberia as well as lack of scrutiny on granting incentives and the fiscal implications calls for changes in the approach to tax concessions since the practice generates real costs in form of foregone revenues.
One risk factor with tax breaks, according to a 2018 study by the United Nations Department of Economic and Social Affairs Financing, entails significant costs, such as revenue loss, low economic efficiency, increased administrative and compliance costs, and excessive tax planning and tax evasion, which may exceed their benefits and considerably erode the general tax base; and in some cases, few new investments, with a significant cost to the government.
And so, Montgomery did not hold back his words when he told lawmakers that for the country to meet its increasing demand, tax incentives and other generous policy regimes need to be revisited or the country would continue to suffer US$300 million in annual losses.
According to him, the government is waiving almost everything and warned that it is not safe to continue that way. "There is a need to revisit our incentive policies and monitoring frameworks to safeguard our revenues. Domestic revenue mobilization is the lifeblood of our country's development. As donor support is drying up, we will continue to increase our reliance on the LRA to meet even more ambitious targets,” Montgomery noted, as members of the house budget committee listened keenly.