By Lawrence Williams
A recent study by the Budget Advocacy Network (BAN) reveals that tax exemptions granted to Sierra Leone’s industry sector, comprising mining, manufacturing, energy, and construction, rose sharply from NLe177 million in 2018 to NLe3.5 billion in 2023, with mining accounting for the largest share.
The study reveals that forgone revenue from tax exemptions in the industry sector alone rose from 39% of domestic revenue in 2018 to 60% in 2023. Whilst actual contributions to domestic revenue stood at 12.81%, foregone revenue stood at 60% in 2023.
A shift from agriculture to industry and services was observed during the course of the study, as the industrial sector GDP surged from NLe8.9 billion in 2018 to NLe35.6 billion in 2023, primarily fueled by mining and quarrying, whilst agriculture’s GDP share decreased from 34.99% to 29.07% within the same period, underscoring the necessity for balanced growth to mitigate risks from external shocks.
Mining dominated industrial sector revenue (82%) from 2021 to 2023, despite disruptions from policy changes and COVID-19, but its contribution to domestic revenue is far less than the value of exemptions it received.
The study found that lack of transparency in implementing tax exemptions, coupled with policy inadequacies and weak monitoring, creates opportunities for misuse of tax exemptions as well as limits the government’s ability to align incentives with development priorities.
The study recommended targeted incentives that focus on high-growth sectors like manufacturing and construction, linking incentives to measurable outcomes such as job creation and technology transfer.
It also emphasizes the aspect of transparency and accountability of tax incentives, stating there should be a mandatory public disclosure of beneficiaries as well as periodic reporting on the impact of tax incentives.
Lastly, it recommended a performance-based incentive framework be developed to ensure only impactful investments receive tax relief by tying exemptions to tangible economic contributions and a unified legal framework be embedded within tax legislation to enhance transparency and reduce discretionary exemptions.