Losing Out: Sierra Leone's massive revenue losses from tax incentives

Added 24 Apr 2014
This report by Eurodad member Christian Aid is the first attempt in Sierra Leone to analyse the government's 'tax expenditure'. It shows that these revenue losses are extremely large. This means the government is spending far less than it could on the country's urgent development priorities, such as health, education, and agriculture.

Sierra Leone has come a long way since the end of its civil war in early 2002. It has re-established security and democratic governance, implemented a decentralisation programme and launched its third poverty reduction strategy (the Agenda for Prosperity). The country has recorded impressive real GDP growth rates during 2007-11: an average of 5.3 per cent. The economy’s growth rate of 15.2 per cent in 2012 was faster than that of any other country in sub-Saharan Africa for that year.

Yet despite this growth, insufficient resources are flowing to Sierra Leone’s people, around 53 per cent of whom live below the national poverty line (which rises to 66 per cent in rural areas). In particular, the country is struggling to raise enough revenues to fund its development needs. For this task, tax revenues are fundamental. Taxes collected from companies and individuals fund the key public services, such as education and health, needed to promote the welfare of the population and to reduce poverty. Taxation can also be used to redistribute wealth – by taxing the rich more than the poor – which is important in a country like Sierra Leone where inequality is high.

The tax incentives being granted by the government are one of the major reasons for Sierra Leone’s low tax revenues. Too many tax incentives are currently being granted to companies. The major incentives include waivers on customs duties and payments of the Goods and Services Tax, along with reductions in the rate of income tax payable by corporations, which are being granted supposedly to attract foreign investment. 

Yet a critical issue is to balance the need to attract such investment with the need to raise sufficient revenues to reduce poverty. This report shows that Sierra Leone is currently not getting this balance right, and that the government is being far too generous to foreign investors at the expense of developing the nation. 

Read the full report here or click on the download button below.