The government in Sierra Leone faces the perpetual challenge of enhancing the welfare of its citizens through judicious economic policies. As a result, the government is always eager to provide the revenue necessary to finance government activities. The pressing issue is that Sierra Leone is buffeted with revenue generation challenges and thus runs a deficit budget every year. The low revenue generation has prompted several adjustments to the tax regimes to maximize revenue. Despite the efforts exerted to build an effective tax system, significant challenges remain in boosting revenue generation. The government is still grappling with the challenges of digitizing revenue collection that will ultimately boost revenue, weak mechanisms of streamlining opaque tax exemptions that hinder efforts towards increasing revenue generation and corruption brought about by the interactions between taxpayers, tax enforcement agencies, and the political elites.
As taxation no doubt provides the resources necessary to finance government activities, it also has important implications for economic growth, inequality, and governance. Several tax policies have been promulgated, including the latest 2024 Finance Act. The 2024 Finance Act made several tax adjustments to increase revenue and fund the government’s numerous development programmes. Implementing the new finance Act will likely boost domestic revenue from NLe 14.9 billion in 2024 to NLe18.9 billion in 2025.
Recent changes to the tax structure in Sierra Leone raise significant concerns about their potential impact on the nation’s vulnerable populations. Also, the sudden increase in taxation on essential commodities like rice, cooking gas, cement, iron rods, alcohol and beverages, and plastic products could impose substantial hardships on ordinary citizens. For instance, the new tax levy on rice imports is set to rise from a current rate of 0 to 5% in 2024 to 10% in 2025. Given that rice is a staple food in Sierra Leone, this adjustment will likely lead to increased prices, making it even more difficult for low-income families to afford basic necessities.
Similarly, the tax hikes of 10% on cement and 20% on iron rods, along with a 5% increase on cooking gas, will further escalate the costs of essential goods that are crucial for everyday living and construction projects. While the government has expressed its intention to boost revenue in order to finance public expenditure and development plans, it must exercise caution in its approach to taxation especially when considering commodities that directly affect the livelihoods of the poor and vulnerable in our society.
Furthermore, the Finance Act 2024 which has ushered in new import duties on essential goods like rice, cooking gas, and construction materials, will raise the cost of living for Sierra Leoneans. Additionally, the expanded digital service taxes may limit access to global services, while increased withholding taxes and contractor levies could hurt local income and businesses. New excise duties on items like plastics might raise consumer costs indirectly. Overall, these measures, aimed at boosting revenue, could deepen poverty, slow economic growth, and increase inflation by 2025, risking a severe financial strain on households already facing economic hardship.
Going forward, policy revisions are needed to promote balanced growth in Sierra Leone. The economic challenges faced by the population are significant, as such, it is essential to address these issues proactively. To prevent severe financial strain, revisions to the Act should focus on balancing revenue needs with citizens’ ability to bear economic burdens. Failing to achieve this balance could lead to increased poverty and inequality, further worsening conditions for struggling households. Therefore, the government must adopt a comprehensive and sustainable policy framework that fosters economic stability and protects the well-being of its citizens, ensuring a safer future for all Sierra Leoneans.