…Most Progressive Tax Introduce in Sierra Leone
By Mohamed Konneh
Progressive tax involves a tax rate that increases (or progresses) as taxable income increases. It imposes a lower tax rate on low-income earners and a higher tax rate on those with a higher income. This is usually achieved by creating tax brackets.
The income tax system in the US is considered a progressive system, although it has been growing flatter in recent decades. For 2022 and 2023, there are seven tax brackets with rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%. There were 16 tax brackets in 1985.
Advantages of a Progressive Tax
On the pro side, a progressive tax system reduces the tax burden on the people who can least afford to pay. That leaves more money in the pockets of low-wage earners, who are likely to spend more of it on essential goods and stimulate the economy in the process.
A progressive tax system also tends to collect more taxes than flat taxes or regressive taxes, as the highest percentage of taxes is collected from those with the highest amounts of money.
Sierra Leone Finance Act 2023
The new finance Act 2023 introduced by the government of Sierra Leone set to recoup losses and making companies to pay 3% of their turnover on sales. The Minister of Finance, Ahmed Fantamadi Bangura during the passing into law of the new finance act said Government is committed to domestic revenue mobilization, in light of improving economic aspirations, payment of salaries and building confidence in growth amidst multiple crises across the world.
He said the act support Government’s efforts to improve domestic revenue collection of various taxes that have no adverse effect on the welfare of the vulnerable people.
The new tax, will ensures companies pay 3% of their turnover/sales as Corporate Income Tax (CIT), even if they make a loss.
Companies are now required to pay the higher of the normal CIT calculated on the profit of 25% or the MAT. Loss-making companies must pay 3% of their turnover, even though they did not make a profit.
This is the most progressive taxation ever introduce in Sierra Leone and many might be asking how.
Corporate entities/companies operating in the country as per law only pay taxes when they make profit. They’ve have always got away with this, so every year they declare loses just to avoid pay their corporate income tax.
With this type of tax regime companies will continue to take advantage of government with weak tax regime by declaring losses every year. Sierra Leone Brewery a case in point. They have operated for the last 20 years but always declare losses.
Corporate companies according to records, year-in year-out continue to declare losses preventing them from paying the corporate income tax. Corporate entities also have a tax break of five years and no sooner the five years elapsed they transform into another company so as to start afresh. By so doing they avoid paying taxes to government.
Let take for example Celtel mobile company, they’ve change management for almost five times now. From Celtel to Zain, to airtel and now Orange mobile company.
The same for mining companies. From Africa Minerals to Shandong, and now Leone Rock metal Group.
London Mining has also change management for a record three times, they are now called Marampa Mines Limited. All of these changes attracted tax free regime because any time management of corporate entities change a new tax regime is negotiated which gives the new management a five-year tax break.
So, government is now saying all corporate entities must pay 3% on their turnover/sales. Weather you make profit or not, give us something. This is progressive taxation. The three percent is what corporate entities want to kick against which in real sense does no harm them or their operations.
The Sierra Leone parliament on 4th April, 2023 debated and passed into law, the Bill entitled: ‘The Finance Act 2023″, for the economic growth and development of Sierra Leone.
The new act provides for the imposition and alteration of taxes, to give effect to the financial proposals of the-Government and to provide for related matters for the Financial Year 2023. The new tax regime according to tax experts is not contentious as Government development is predicated on taxation. It is only through taxation the State would achieve growth.
Tax expert Alfred Akibo-Betts, no sooner the act came into being said with the technological evolution of digital services, the country now sees the need to expand its definition of taxable supplies in the Finance Act 2021 to include more digital services.
In the Finance Act 2023, digital services liable to GST have been expanded further to include all forms of Satellite TV and digital content such as Netflix will attract GST at 15% and Digital gambling services will also attract GST at 15%. If the ordinary citizen is paying taxes what is wrong with corporate entities. This is progressive taxation.