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Revenue & tax administration in Sierra Leone; before and after 2007

Revenue & tax administration in Sierra Leone; before and after 2007 thumbnail

In my last article, I wrote that the formulation of policies by any government will help determine the path of development. The formulation of a policy that led to the creation of the National Revenue Authority is one among several that Sierra Leone took immediately following the end to her decade long civil war in 2002. Prior to 2002, there was no central system through which government revenue could be collected and accounted for, as there were two separate government revenue collection entities, namely the Customs and Excise Department and the Income Tax Department.

Before the establishment of the National Revenue Authority, revenue collection was at a level of 20% and as such, the NRA “together with other proposed new tax laws, was expected to improve on the country’s “revenue collection from its current  (2002)level of 20% to nearly 80% of expected earnings from income tax and customs duties.”(See Inaugural address by President Tejan Kabbah on the State Opening of Parliament, 12 July 2002, on: http://www.sierra-leone.org/Speeches/kabbah-071202.html).

In a bid to address the economic challenges that the country was faced with at the time, the government of Sierra Leone, under the leadership of President Kabba (h), through an Act of parliament, created the NRA to ‘formulate and implement plans for developing and maintaining effective, fair and efficient revenue collection system….’ among other functions, as prescribed in section 12 of the NRA Act, 2002. This saw the merger of the Income Tax Department and the Customs and Excise Department, into one centralized body, known as the National Revenue Authority. Section 27 of the NRA Act mandates that all revenue collected be placed into the Consolidated Revenue Fund. Since its creation in 2002, this has always been the case. The same act also dictates, that when it comes to how the agency gets it own fund, they are entitled to only 3% of total revenue collected  yearly(See section 24 of the NRA Act 2002)

One of several functions of NRA is that of revenue collection for government. (See section 12 of the NRA Act 2002). At the height of the civil war, Sierra Leone became over-dependent on foreign sources for even its budgetary needs to run the government.  It derived up to 60% of its national revenue from donor partners.  However, with the advent of the NRA in 2003, this dependency was reduced to 40% by 2009, with the remaining 60% provided by the National Revenue Authority.  This primary function of revenue collection has been of great achievement for the authority since it was created a decade ago. By 2003 following its commencement of operations by NRA, Le 277,881 billion was collected against a target of Le 258,209 billion. This trend continued in 2004 but saw a different twist when the institution started experiencing a shortfall in 2005, unto 2008. By 2009 the Authority started exceeding given targets and collected Le 700,328 billion against a target of Le 668,343 billion. This positive development has not taken a downward trend. In 2011, the institution had a target of Le 1,321,370 trillion and a total of Le 1428,781 trillion was collected. As of 2011, the revenue collected in terms of Gross Domestic Product is 14.9%, as compared to less than 11.5% from 2003 to 2007. In fact revenue collected in terms of Gross Domestic Product in 2005 was 11.1% as out of a target Le 405,223 billion, only Le 389,132 billion was collected. In 2006, revenue as of GDP was 11.0%. Even as the institution keeps contributing immensely to Sierra Leone’s economy, it is reported, that their half yearly revenue performance is above targets by 11.4%. (See table of domestic revenue performance 2003-2011)

This impressive performance by the NRA in recent years, when thoroughly examined may have resulted due to multiple factors; robust mechanisms in its revenue collection efforts, such as embarking on compliance and enforcement strategies; the intensification of the NRA’s field audit; distress actions like the sealing of offices of business places of defaulters; the imposition of penalties on taxpayers for non- positive results and s the right message to tax defaulters  have all  been of help to NRA’s exceptional performance  in recent years.  Above all, there has been the political will on the part of government, with a general leadership role provided by President Koroma.

Also, from the period 2007 to 2011, the institutions has undertaken a number of reforms, aimed at  moving in line with international best practice in terms of providing an enabling tax environment for potential investor and for  the business community in the country.  Within ten years, one could argue, that the institution has come a long way in meeting its primary objective of maximising revenue mobilisation. Granted that much was happened, but comparatively, the year 2011 was a particularly good year for the Authority as for the first time in its history, it reached the one trillion Leones mark in revenue collection. The institution has been implementing a modernisation programme which has led to the introduction of the Taxpayers Identification Numbers(TIN),  the Automated System for Customs Data (ASYCUDA ++) and the Goods and Services Tax(GST ). It also resulted in the establishment of the Domestic Taxes Department (DTD), the enactment of the 2011 Customs Act and the on-going implementation of a 64-point Human Resources (HR) recommendation plan.

It is believed that there has been a steady progress towards the adoption of strategies intended to build an elite and impressive workforce in order to achieve the objectives of the Authority. With the support of a Human Resource Consultant, emphasis is placed on staff welfare and development schemes. Employee rewards and recognition, compensation and benefits, health and safety regulations and anti-discriminatory policies and practices are among strategies embarked upon to ensure an effective and motivated workforce. Considerable progress has been made to reform and modernize tax administration in order to maximize revenue collection and facilitate trade. Most significantly there has been the strengthening of the Internal Audit Department. The introduction of the Automated System for Customs Data (ASYCUDA) slightly over a year ago was in line with President Koroma desire for an improved business environment and importers in the country.

ASYCUDA is a computerized system which enables the Customs and Excise Department to provide timely, reliable and cost efficient service to stakeholders in the clearance of goods and trade facilitation. Though with challenges, the system has brought about greater efficiency and enhancement in the working relationship between Customs Brokers, Clearing and Forwarding Agents and the NRA. The introduction of the Goods and Services Tax in 2010 saw the replacement of seven taxes namely; Telecommunications Tax, Entertainment Tax, Restaurant Food Tax, Hotel Accommodation Tax and Foreign Travel, Professional Services Tax and Sales Tax.  Revenue collected from this tax stream in 2010 alone was Le 249 billion, compared to Le 167.4 billion in 2009, when the seven taxes were managed separately. By 2010/11, with the political support provided by President Koroma, NRA worked towards the formation of the Domestic Taxes Department (DTD). DTD is the result of an administrative arrangement, which merges GST, Income Taxes and Local Excise Unit of the Customs and Excise Department, where taxpayers are segmented and structured on functional bases rather than tax type.  This merger allows greater flexibility, enables better focus on service delivery, and encourages specialization and improved economies of scale. It also helps to streamline and simplify processes and procedures and reduces compliance burden on taxpayers.

The Department for International Development-DFID has been supportive of the NRA’s modernisation plan. This was particularly seen in the reconstruction of customs posts that were destroyed in the border regions during the ten year rebel war, among them the Koindu and Buedu customs posts on the border with Liberia in the Kailahun District. Before the war in 1991, Koindu was a major commercial centre that was the convergence point of major trade routes from Guinea and Liberia linking with Cote D’Ivoire and Burkina Faso. This generated huge customs activities in the Koindu area.  Prior to the war, the revenue collected at the Koindu customs had been the highest besides that from Cline Town Seaport and Lungi Airport .But following the outbreak of the war, the customs posts in the Koindu area were burnt down and consequently seized functioning.  But in 2010, with support from DFID, they were officially launched by the government of President Koroma, through the NRA. (Read: http://allafrica.com/stories/201002081485.html)

In order to further enhance their revenue collection drive and accountability,   banks were empowered by the NRA to collect revenues for them (NRA) at Customs and this largely helped in making the tax payment process easier and faster. (Read: Another giant step forward: Taxes to soon be paid to NRA through banks By Abraham Karl Samura http://www.sierraexpressmedia.com/archives/25900). So, indeed President Kabba (h) established the NRA but it is President Koroma that has given true meaning to its very existence, in terms of performance and delivery. With this outstanding progress the institutions has kept scoring over the years, it is but prudent to stated, that much will continue to happen following President Koroma’s re-election in November.

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