In March 2024, President Joseph Boakai issued an Executive Order suspending $0.20 surcharge on petroleum pricing structure to ease the cost of living.
The underpinning assumption for the President’s decision was that lowering the cost of petroleum will have a positive impact on the lives of Liberians, as it will reduce the cost of goods and services, spur productivity and business profitability, as well as increase revenue for the government.
On 21 March this year, the petroleum tax will return. The government of Liberia has reached a decision with the International Monetary Fund to raise taxes as the country faces an uncertain economic future marked by anticipated decline in activities driven primarily by the recent shutdown of United States Agency for International Development that has been pumping millions of dollars into the domestic economy for decades.
Yet, the policy on sweeping tax hikes raises critical questions about the sustainability of such measures. While the intent to bolster the national budget is commendable, the implications for purchasing power, investment, growth, and poverty levels warrant a thorough examination.
In theory, increasing taxes can enhance government revenues, providing essential funds for public services and infrastructural projects. However, in an economy already weakened by external shocks, the impact of raising taxes cannot be overlooked.
With diminished economic activity, citizens may find themselves grappling with reduced disposable incomes, leading to a decline in purchasing power. As taxes rise, families will have to allocate a larger portion of their earnings to fulfill government obligations—a move that ultimately detracts from their ability to spend on essential goods and services.
The potential adverse effects extend beyond individual households. Increased tax burdens can deter both domestic and foreign investment, as businesses may hesitate to expand or commit resources in an environment that appears less hospitable due to higher costs.
This reduction in investment stymies growth prospects and exacerbates unemployment levels, creating a vicious cycle where economic decline begets further hardship.
Moreover, the poorest segments of the population stand to suffer the most from these tax hikes. Individuals already living on the margins of poverty will face tougher conditions as rising taxes and stagnant wages force them to cut back on essentials like food, healthcare, and education. This outcome contradicts the noble aim of fostering national development through increased revenue. Instead, it risks entrenching poverty.
In light of these challenges, a strategic reassessment of how the government collects and utilizes revenues is imperative. Rather than relying primarily on tax increases—a blunt instrument that may exacerbate existing vulnerabilities—the government can adopt more nuanced approaches that foster economic resilience.
Eliminating Waste in Public Expenditure: A thorough audit of government spending should be undertaken to eliminate waste and inefficiency. Redundant programs, administrative bloat, and unnecessary expenditures must be identified and cut to ensure that taxpayer money is utilized effectively.
Merging Public Entities: Many public entities currently duplicate functions, leading to inefficiencies that drain resources without delivering commensurate value. By merging overlapping institutions and streamlining governance structures, the government could achieve cost savings and improve service delivery.
Reviewing Natural Resource Concessions and Agreements: Based on the unexpected economic shock, a reevaluation of existing agreements with natural resource companies and other multinational corporations is vital.
By negotiating more favorable terms that include equitable profit-sharing, enhanced tax levies, and local community benefits, Liberia can harness its abundant resources to foster economic growth without placing an additional tax burden on struggling citizens.
Collectively, these solutions represent a path forward that prioritizes long-term resilience over short-term fiscal fixes. By enhancing efficiency, leveraging existing resources more effectively, and ensuring that growth benefits all segments of society, Liberia can work toward a sustainable economic model that recognizes the challenges of the present while investing in a brighter future.
For the Oracle, while the urgency to raise revenue is undeniable, the method through which the Liberian government chooses to do so will profoundly impact the economy and the well-being of its citizens.
It is essential to adopt a holistic approach that not only seeks new revenue streams but also emphasizes efficiency, equity, and responsible governance. Only through such measures can Liberia hope to mitigate the adverse effects of economic downturns and pave the way toward sustainable development and poverty alleviation.
