By: Augustine N. Myers – The Liberian Government has announced a drastic tax reduction as part of efforts to improve the living standards of the Liberian people and foreign residents beginning January 1, 2011. The tax reduction, according to the Liberian Government is part of its Economic Policy and the Poverty Reduction Strategy (PRS).
As of New Year’s Day, Saturday, January 1, 2011, the following taxes are expected to be reduced: Corporate Income Tax, Personal Income Tax, Luxury Tax, Real Estate Tax, and Special Investment Incentives, among others.
Speaking to the Press at the end of the year, Finance Minister, Augustine Ngafuan said the latest tax reduction is a continuation of the Government’s tax reduction path which began over the last two months.
Previously, an Executive Order in early October 2010 waived goods and service taxes on commercial buses as a strategy of encouraging Liberians to import buses aimed at reducing the high difficulties the commuting populace encounters on a daily basis.
According to the new package, Corporate Income Tax, previously at 35%, has been reduced to 25%; Personal Income Tax, previously at 35%, has been reduced to 25% with a reduction in the brands from eight to four; Real Estate Tax, previously at 7%, has been reduced to 2% with various sub-divisions in the rural and urban land ownerships, Luxury Tax which charged vehicles on the basis of their engineers cubic centers will now charge vehicles on the monetary price with a benchmark of over US$40,000.
Dismissing the notion that taxes was increased by the current government, the Finance Minister added that “the Sirleaf led administration” inherited the 2000 Revenue Code, but stressed that the Liberian Government didn’t increase any tax because the impression has been created that government came and increased taxes.”
He narrated that the government has been encountering this serious issue of what he said is low tax mentality complying with tax burden. He said what Government did was to implement the laws on the book which created the impression that this government has increased taxes.
Minister Ngafuan clarified that at no time the Liberian Government under the Sirleaf’s administration increased any tax, adding that since 2006, Government has not instituted any new taxes.
He pointed out that Government had to solve some complications because according to him, it is the National Legislature that makes laws on taxes.
The strategy, according to the Finance Minister, is that the higher the taxes, the lesser the compliance and vis-à-vis, thus when the taxes are lower, more and more people will be induced to pay taxes and the taxes in terms of generation, will increase and the dollar amount will increase eventually.
He however admitted that there will be a little depression to be experienced initially by the government.
With concerns that the reduction will lead to budget shortfalls, Minister Ngafuan clarified that there will “No Budget Shortfall”.
Explaining further, he said the Liberian Government is not going to suffer any budget shortfall because of pending tax reductions. He said the next question is what happens to the budget. Budget according to him, is planning.
The Liberian Finance Minister said this was anticipated that Government will reduce taxes, that is why, “he further said” ‘when we were crafting the budget for this Fiscal Year, we anticipated that we would reduce taxes’.
According to him, the revenue placed in the budget would have been higher had Government not anticipated the tax reduction. He said the budget has already accommodated these tax reductions and there will be no budget shortfall on account of these tax reductions.
With a heavy reliance on the government’s current highest external budget support which saw the European Union contributing millions of dollars already, financial experts and observers are of the view that the tax reduction will have no impact on the budget.
It is hope that those working in Government’s employ and others, upon receiving their first pay checks at the end of the first month of the New Year (2011), thousands of civil servants and other private sector employees will be seen beaming with smiles because of huge tax reduction that will be reflected on them. This is because the Ministry of Finance has instituted what is being regarded as the biggest New Year’s package that the Ministry has launched, taking effect beginning New Year’s Day.
On the average, a 10% reduction will be effected in almost all of the various levels of tax systems in the country.
Political observers however feel the move of the Unity Party-led Government is belated, and only intended to win public sympathy ahead of the general and presidential elections scheduled for this 2011, when Liberians will be going to the polls to either maintain the Government or vote it out of power.