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Saturday, February 15, 2025

Liberia Proposes Sweeping Tax Reforms That Nearly Ousted Kenya’s Rulers

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President Joseph Boakai and cabinet are preparing to implement a series of comprehensive tax reforms similar to what was introduced in Kenya that sparked violent protests that nearly toppled the East African nation’s government.

The tax hike was agreed with the International Monetary Fund to bolster government’s financial health amid declining external revenue.

These changes are poised to significantly impact consumers, businesses, and multinational corporations operating in the country.

With urgent financial constraints looming, the Boakai administration plans to introduce multiple new taxes, enhance existing tax rates, and expand the tax base. The goal is to finance escalating government activities, which are increasingly vital in an economy grappling with stagnant foreign direct investment and a struggling private sector.

According to a recent report from the International Monetary Fund (IMF) concerning Liberia’s request for a 40-month extended credit facility, this revenue mobilization initiative is set to commence in 2025. The IMF outlined ambitious projections for the government, which aims to generate an additional 2.3% of GDP in annual revenue by 2027 through new tax policies and improved revenue administration.

Tax Measures

 To achieve these fiscal objectives, the government is exploring various strategies, including:

  1. Reduction of Tax Expenditures – a significant cutback on tax incentives currently provided to corporations, especially multinational companies, to streamline tax compliance and broaden the tax base.
  2. Harmonization of Excise Taxes – Aligning the excise tax base and rates for both domestically-produced and imported goods to ensure fairness and competitiveness across the marketplace.
  3. Increase in Goods and Services Tax (GST) – here   the administration plans to raise GST rates on selected goods and expand the tax base to incorporate a broader array of services, moving towards a transition to a Value-Added Tax (VAT).
  4. Strengthening Revenue from the Natural Resources Sector –  the  authorities aim to enhance compliance and collection from the natural resource sector by shifting from an ad-hoc concession system to a more structured framework that equitably distributes risks and benefits associated with mining projects.
  5. Expansion of the Real Property Tax Base – strengthening the administration of real property taxes to ensure better fiscal resources and enhance capital investment in crucial projects.

Industry sources indicate that these reforms will particularly affect multinational corporations by stripping away numerous tax holidays and incentives previously enjoyed.

As the government consolidates its tax policy, firms may face higher operational costs due to increased taxation, which could influence their long-term investment decisions in Liberia.

The Boakai administration’s plan comes at a critical time, as the Liberian economy struggled to attract direct foreign investments and other pressing challenges.

Despite concerns from the business community regarding the impact of new taxes and reduced incentives, government officials believe these steps are essential for creating sustainable revenue streams that can support future economic growth.

Without these adjustments, they warn, the government would struggle to fulfill its obligations and deliver on key public services.

Expected to Commenced in 2025, businesses, investors, and consumers in Liberia are urged to prepare for this potential financial changes that would affect almost every sector of the economy.

Mirroring Kenya

Liberia’s proposed tax reforms is likened to Kenya’s infamous Financial Bill 2024 that led to deadly protests for nearly 60 days as explained below by the International  Crisis Group expert Meron Elias.

Frustration among Kenyans with the state of the economy and the government’s perceived insensitivity to the plight of citizens has been brewing for years, but the sudden street action caught authorities by surprise.

President Ruto won an against-the-odds victory in a closely fought election in August 2022, promising to tackle the cost-of-living crisis and place “hustlers”, or poor, hard-working Kenyans, at the heart of his policy priorities. Ruto had served as deputy president in the previous administration led by President Uhuru Kenyatta, but he claimed that he was sidelined from decision-making.

On taking office, he encountered state finances in a parlous condition. Kenya’s national debt stands at around $80 billion, about three quarters of its annual economic output, and 65 per cent of annual revenue goes to repaying the country’s debt.

The administration’s response has been to cut several subsidies put in place by Kenyatta, notably those on fuel. Myriad other measures to raise revenues followed in 2023, including a 5 per cent increase in income tax for high earners and a 3 per cent housing levy (designed to raise funds to construct low-income housing), collected from both employees and employers.

Most of these policies fall under a set of reforms that Kenya has agreed to implement with the International Monetary Fund (IMF).

Publication by the National Treasury in May of further revenue-raising measures for the 2024-2025 financial year galvanised public anger.

The proposals initially contemplated imposing a 16 per cent VAT on bread and introducing an “eco tax” on products viewed as harmful to the environment, a levy that would have raised the price of items such as sanitary towels, nappies, packaging, plastics and tyres.

These proposals drew fierce, widespread opposition, although the government insisted the measures were essential to finance public spending.

 Frustration among Kenyans with the state of the economy and the government’s perceived insensitivity to the plight of citizens has been brewing for years, but the sudden street action caught authorities by surprise.

President Ruto won an against-the-odds victory in a closely fought election in August 2022, promising to tackle the cost-of-living crisis and place “hustlers”, or poor, hard-working Kenyans, at the heart of his policy priorities.

Ruto had served as deputy president in the previous administration led by President Uhuru Kenyatta, but he claimed that he was sidelined from decision-making. On taking office, he encountered state finances in a parlous condition.

Kenya’s national debt stands at around $80 billion, about three quarters of its annual economic output, and 65 per cent of annual revenue goes to repaying the country’s debt. The administration’s response has been to cut several subsidies put in place by Kenyatta, notably those on fuel.

Myriad other measures to raise revenues followed in 2023, including a 5 per cent increase in income tax for high earners and a 3 per cent housing levy (designed to raise funds to construct low-income housing), collected from both employees and employers.

Most of these policies fall under a set of reforms that Kenya has agreed to implement with the International Monetary Fund (IMF).

Publication by the National Treasury in May of further revenue-raising measures for the 2024-2025 financial year galvanised public anger. The proposals initially contemplated imposing a 16 per cent VAT on bread and introducing an “eco tax” on products viewed as harmful to the environment, a levy that would have raised the price of items such as sanitary towels, nappies, packaging, plastics and tyres.

These proposals drew fierce, widespread opposition, although the government insisted the measures were essential to finance public spending.

Its majority in parliament appeared to guarantee the government would have its way. But an unlikely source of dissent soon emerged. Historically, opposition leaders have taken the main role in rallying supporters to reject government policies.

This time, apparently using the springboard offered by social media platforms and without being steered by political leaders, young Kenyans mobilised to express their discontent. The hashtag #REJECTFINANCEBILL2024 gained prominence over the weekend of 15 June, with many calling for protests to press their case.

On TikTok, dozens circulated videos outlining the harm government policies were causing. On 18 June, ahead of the Finance Bill’s second reading in parliament, thousands took to the streets.

The movement at first drew praise from the general public for the way it conducted itself peacefully, in striking contrast to past opposition-led agitation that has sometimes taken the form of riots.

Demonstrators also came from a wide array of ethnic groups and regions, and their highly articulate, issue-based demands sparked intense debate in the national media, as well as on social media, about the state of the economy.

Despite the wave of public sentiment against the measures, the National Assembly voted on 20 June to move the legislation to the next stage, with 204 of 349 members of parliament voting yes and 115 no.

Decrying the outcome as a betrayal, many protesters called for even larger demonstrations on 25 June.

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