Sierra Leone should review its tax system to prevent migration of investors, the country’s Central Bank Governor has said. Professor Kaifala Muana Kallon was quoted on Monday saying while tax is crucial to raise revenue; it will be counter-productive if it drives away investors.
He said the ideal thing to do is to normalize it and bring it at per with what obtains in the rest of the sub region.
“We need to raise revenue, but at the same time we must make sure that we do not divert investment to other countries,” he told the country’s most popular breakfast show program that airs on Radio Democracy in Freetown.
Professor Kallon was speaking in the context of an ongoing public debate around the state of the economy which has been going through torrid times amidst a worrying level of depreciation of the local currency, the Leone, against the US Dollar.
Business people have complaint of high tax, with some saying they could stop their businesses if the government doesn’t act.
Last month the capital, Freetown, went without bread, the most popular breakfast diet, for about two days, due to a strike action by bakers who say they were demonstrating against high prices in imported flour.
The importers, on the other hand, blame the high price on tax.
Professor Kallon noted that when compared to the rest of the region, Sierra Leone’s tax revenue relative to GDP was quite low.
He said that’s partly the reason why the country’s commitment to the structural adjustment of the International Monetary Fund required it to raise its taxes.
But, he stressed, this must be done in a way that it doesn’t force businesses out of the country.
“The message I have been giving to government is that we have to normalize our taxes, particularly import duties with neighboring countries. If tariffs are higher than others people can transit to those countries,” he said.
Kallon also spoke on fiscal discipline, which he said the country needed to put under control the current economic hardship.
Kallon assumed the position of Governor of the Bank of Sierra Leone in August, 2018, following the sacking of his predecessor, Dr Patrick Conteh, with the change in leadership of the country.
The new government of President Julius Maada Bio has come under sustained criticism for failing to handle the issue of the Leone’s depreciation.
When Bio assumed office one year ago, in April 2018, the Leone was going for a little over Le5000 to a Dollar.
Today, it is going for about Le9000 to a Dollar.
This is all despite over three Dollar auctions by the central bank, among other short term measures.
The emphasis among economists has been that the country hadn’t been able to meet the excessive demand for the Dollar among business people.
But the Bank Governor said their experience in the Dollar actions in the last few months have proven this notion wrong.
He said after three foreign currency auctions, it has not changed anything about the depreciation.
“What that is telling us is that the traditional factors that affect the exchange rate are no longer the case…Fiscal imbalance is the final solution,” he said.
