By Ahmed Sahid Nasralla (De Monk)
Heavily hit by the Ebola Virus Disease outbreak and declining Iron Ore prices in the international markets, it is indeed difficult and trying times for the Sierra Leone economy in general and the business community in particular. Add the burden of increasing tax obligations to the equation and you get the biggest enemy of the private sector: uncertainty!
This is the ugly picture that emerged from deliberations during a breakfast business forum organized by premier auditing firm KPMG SL recently in Freetown. The core aim of the meeting was to deliver objective and informed analysis on current tax and regulatory issues, particularly the introduction of the two recent Finance Acts, pointing out the relevant amendments to tax laws and their implication on businesses.
Only moments ago- 2011, 2012, 2013- the country’s economy was galloping at a phenomenal speed, growing at 12%, 15%, 20%, to the point where Sierra Leone was rated as one of the fastest growing economies in the world.
But suddenly came the Ebola Virus Disease. Many businesses across many industries scale down operations while others entirely shut down. The Public Health Emergency regulations restricted the movements of people and goods between towns and villages and limited the hours of doing business.
And in the midst of the Ebola crisis, the prices of Iron Ore in the global markets plummeted with devastating consequences on the two biggest drivers of the Sierra Leone economy in the past few years-Africa Minerals SL Ltd and London Mining. This downhill trend continues to affect operations of new entrants- Timis Mining Corporation, Shandong Iron Ore Mining and Tonkolili Mining and Oil Company. The impact on the mining companies extended to contractors and other stakeholders of the industry including the banks and staff members and their families.
Generally, there is decline in transactions and revenue and it’s clearly uncertain when the once booming mining industry will kick-start again, at least in the short term. The projected growth that the government estimated for 2015 has been revised downwards and there has been a massive slowdown in economic activities in and around the country.
As if this is not enough, key amendments to the Finance Act 2015 (and the preceding Finance Act 2013) seem to add to the woes of the business community. Among these are the increases in threshold for Capital Gains Tax from Le1.8 million to Le 3.6 million per annum or per transaction and in the maximum redundancy/termination pay from Le 20 million to Le 50 million, with any excess above Le 50 million taxed at a flat 5%.
There’s also promotion of youth employment, as there is now a 6.5% tax credit on employee PAYE, for Sierra Leoneans 18-35 years old, previously unemployed or working part-time, and employed by a small or medium sized company between 1st December 2014 to 1st December 2015.
Importers of petroleum products must now pay 50% of duty and taxes upon submission of goods declaration, with the Masters of Vessels or Pilots held responsible for any irregularities. In addition, there is a fine of at least Le 200 million and up to Le 500 million and or imprisonment of 1 to 3 years.
The Act further made amendments to the Custom Tariffs Act of 1978, on the HS codes on certain imported items –e.g Port Land Cement 30% and glass bottles of capacity exceeding 0.15 litre and up to 1 litre at 5%.
Under the Mines and Minerals Act, Royalty payments on natural resources were revised as well, with 6.5 % on precious stones from large and small scale mining and 3% from artisanal mines and other minerals.
Furthermore, companies in the country that procure services out of Sierra Leone must ensure the appropriate tax is withheld and paid to the NRA, failure to do so may attract penalties.
For Rental Properties, the threshold has been increased from Le 1.8 million to Le 3.6 million, with the Commissioner-General now empowered to seal off premises for which rental income tax remain unpaid after 90 days.
Failure to make a payment of taxes or penalties due seven days after which such payment should have been made is liable to a rate 3% higher than the specified rate on the amount due.
In the area of interest and penalty regime, the ropes have been tightened and it is now more rigorous than before. Fees for Tax Clearance Certificates (TCC) and business registration were repealed and replaced with new rates: Le 20,000 per individual and Le 40,000 for businesses.
GST invoices issued by registered GST traders shall be printed under the authority and direction of the Ministry of Finance and failure to display a certified copy of GST registration now carries a penalty of Le 5 million and a further Le1 million per day after a taxpayer has been given a written notice and the taxpayer still fails to display certificate. There is a further penalty (liable to a fine of Le5 million) on failure to notify the NRA on any changes to their (taxpayers) registration.
Most businesses are not aware of the relevant changes and how they will affect their operations, observed Dr. Claudius Williams-Tucker, partner, tax KPMG SL.
“If you do a comparative analysis of taxation in neighbouring countries you will find out that it is more difficult to operate a business in Sierra Leone,” said Dr. Williams-Tucker. “The essence of taxes is not to kill businesses, but to help them grow.”
He added that any tax matter that is not proactively handled becomes a cost to a business because that business will incur interest and penalties.
Dr. Williams-Tucker believed there’s need for more forums where the business community can discuss and challenge issues of policy affecting their operations.
“We (the business community) need to be a lot more proactive. We need to engage the Ministry of Finance and Economic Development before these Finance Acts gets through Parliament,” he urged, and appealed to trade groupings such as the Sierra Leone Chamber of Commerce and the Sierra Leone Association of Commercial Banks to be vibrant and to lead such initiatives.
Another key issue that came out in the one day business forum is the minimum wage of Le500, 000 (Five Hundred Thousand Leones), which has already been gazetted. According to an official of the Ministry of Labour, the minimum wage is the base, excluding all other allowances. Most businesses don’t even understand this new employment policy and how it will affect their operations.
“This is because we’ve failed to challenge at the time we needed to engage. We are now only reacting,” noted Dr. Williams-Tucker.
The forum also raised salient questions surrounding the decline of the country’s mining sector, which had formed the base of the economy. Why is the mining industry declining in Sierra Leone but not in Guinea and Liberia, two countries equally hit by the Ebola Virus Disease?
“Is it that it is so expensive to produce iron ore in Sierra Leone or are there other factors involved in that pricing? Have we examined the pricing mechanism in Sierra Leone? Are we substantially different from Liberia and Guinea?” asked the Governor of the Bank of Sierra Leone, Mr. Momodu Kargbo.
The Bank Governor continued: “Is it a true reflection of what is happening in the market? Did we miss some points? Did we sit down to examine the growth? Or did we have time to study the trend?”
According to Mr. Kargbo, ‘we didn’t have time to study the trend’.
“Our mines have closed down because our cost of production is very high, whereas in other countries in the sub-region, production continues even at the depressed stage of the prices of iron ore in the global markets,” he declared.
“We should have seen it coming.”
Even more confusing is the fact that Timis Corporation bought London Mining at a time when Africa Minerals SL Ltd was going downhill.
“How does that sound? We need to reflect on those things. And now there’s a problem. London Mining cannot transport its iron ore through the rails of Africa Minerals. Again what are the arrangements? These are the things that are all built on uncertainty,” explained Mr. Kargbo.
Now driven by uncertainty, at least in the short term outlook, Sierra Leone’s economy is characterized by significantly high cost of doing business, and normally, according to the Bank Governor, where there is uncertainty people hedge.
“Investors hedge. They go elsewhere. That’s the situation,” Mr. Kargbo reasoned.
Credit: Development and Economic Journalists Association-Sierra Leone (DEJA-SL).