Domestic Resource Mobilization and Tax Governance
Liberia has made significant progress in recent years in improving its system of tax administration, and to a lesser extent, tax policy. Liberia currently administers in the GST. Domestic Resource Mobilization is relatively low in international comparative terms at 18.9% of GDP, this means that the need for accelerated Domestic Resource Mobilization in Liberia has to assume a high level of urgency.
In Liberia, this virtuous cycle of taxation and governmental responsibility has yet to be firmly established. Supported primarily through revenues from natural resources and donor support, the government of Liberia has not yet developed adequate capacity to safeguard public resources and effectively deliver services.
The impact of Illicit Financial Flows on Liberia’s ability to mobilize Domestic Resources to finance its development and move its people out of poverty is colossal. IREDD’s work on Illicit Financial Flows within the extractive sector over the past 5 years estimates that around 60 percent of revenue of primary commodities extracted and traded between multinational corporations operating in Liberia are lost due to illicit financial flows. At the core of this of this hemorrhage lie an aggressively abusive transfer pricing and mispricing practices that shifts profits from Liberia to countries with lower tax rates that enable these multinational to hold on to larger portions of their profits thus depriving Liberia of millions of tax revenue that are expatriated illicitly.
Tax secrecy and the non-disclosure of financial reports on country by country basis and cross border transactions of multinational corporations operating in Liberia’s extractive sector undermines tax transparency and further erodes an already shallow tax base that deprives the country of the needed revenue for its recovery. This depletion is further compounded by the country’s blanket tax exemptions for income and import duty up to 50% and 90% respectively of their dutiable values. Under this strategic intervention, IREDD seek to work with the Liberia Revenue Authority, the Ministry of Finance and Development Planning and other relevant governmental agencies and international partners to develop cutting edge interventions to include monitoring, research, reporting and policy advocacy leveraging on the use of ICT to reduce the impact of illicit financial flows and improve domestic resource mobilization in Liberia. We hope that this intervention will result in the formulation and implementation of a tax policy which address specific issues such as transfer pricing, simplification, compliance management, bilateral tax agreements, tax investigation, risk based auditing and digital economy
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