Building a Fair, Transparent and Inclusive Tax System in Sierra Leone

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Building a Fair, Transparent and Inclusive Tax System in Sierra Leone

Introduction 

Building an effective tax system is among the most pressing challenges facing any state, as taxation provides the resources necessary to finance government activities and has equally important implications for economic growth, inequality and governance. 

Despite this reality, tax debates have tended to remain the preserve of a narrow, technocratic elite, while 

broader, popular engagement has remained very limited. This report provides an overview of the political 

economy of the tax system in Sierra Leone in order to support more extensive and informed public debate 

and advocacy around tax issues. It draws on a combination of official data, published sources and, most 

importantly, a wide array of interviews conducted with policy makers and other stakeholders in June–July 

2010 (see Appendix 1). Debate about tax issues has tended to focus overwhelmingly on generating additional revenue in a way that is also supportive of economic growth. This is a hugely important goal, but it is equally important to focus on building tax systems that are fair, transparent and inclusive. These goals are important in order to encourage broader development gains, and because they are essential to enhancing tax compliance and the legitimacy of the tax system.Sierra Leone faces particularly acute challenges in pursuing this goal. Not only were the economy and tax administration devastated by the civil war during the 1990s,but even prior to the civil war the tax system in Sierra Leone was among the weakest in the world. 

Against this background, significant progress has been made over the past decade, as the government 

has implemented substantial policy and administrative reforms. However, levels of tax collection remain low 

relative to other countries in the region, and below levels achieved by similar post-conflict countries (Table1). While only very limited research exists on the specifics of these different cases, it is important to note that all four countries in Table 1 have pursued similar trajectories of policy and administrative reform. As such, weaker than expected performance in Sierra Leone appears to be explained by the politicisation, and limited effectiveness, of implementation, particularly since 2004-2005. This message is reinforced by the disconcerting fact that the past five years have witnessed stagnation and even decline in revenue collection as a share of gross domestic product (GDP), reflecting the persistence of corruption, politicisation and poor tax 

enforcement among elites. There is thus an urgent need for public pressure for reform.

Table 1 : Tax as a percentage of GDP in Sierra Leone and other low-income, post-conflict countries

Region  2004 2005

Sierra Leone 11.2% 9.88%

Liberia 12.9% 13.2%

Mozambique 11.3% 10.8%

Ethiopia 11.6% 10.8%

Source: Data from assorted International Monetary Fund (IMF) 

Statistical Appendices.

The remainder of this report is structured as follows. 

Chapter 2 provides an overview of why taxation matters for development outcomes. Chapter 3 explores 

the history of taxation in the country in order to set the social, political and economic context for current 

reform efforts. Chapters 4 to 6 then turn to analysing the political economy of the contemporary tax system, 

focusing, in turn, on central government taxation, local government taxation and minerals taxation. Finally, Chapter 7 presents a series of recommendations for civil society advocacy and engagement. While the 

report presents detailed technical information about the tax system, it is focused on capturing the broad 

political economy of taxation, as political factors hold the key to building a fair, transparent and inclusive tax 

system moving forward.