A new report highlights the huge amount of revenue that one of the poorest countries in Africa loses each year through tax breaks for multinationals. In 2011, Sierra Leone spent more on tax give-aways than on its development priorities, with mining firms the biggest beneficiaries.
The following year, the tax exemptions amounted to more than eight times Sierra Leone’s health budget and seven times its education budget.
Despite the country’s strides in re-establishing security and democracy 12 years after the end of civil war, more than 50 per cent of its citizens still live below the national poverty line.
The report, Losing Out, is based on research by the Budget Advocacy Network (BAN), the National Advocacy Coalition on Extractives (NACE) and Tax Justice Network Africa (TJNA), with support from Christian Aid, ActionAid and IBIS.
Abu Bakarr, Co-ordinator at BAN, questions both the size of the exemptions and the way in which contracts have been awarded. “In recent years, Sierra Leone has worked hard to exploit its large deposits of iron ore, diamonds, bauxite and rutile, with the government keen to persuade mining companies to invest,” he said.
“At the same time, foreign companies have been encouraged to take over huge tracts of land for agribusiness. This has resulted in too many tax incentives being granted to companies behind closed doors, at the discretion of a very small number of ministers and officials, with limited involvement of Parliament, let alone the public.”
Cecilia Mattia, Co-ordinator at NACE, added: “Without public scrutiny, it is impossible for elected parliamentarians, the media and civil society organisations to determine whether such deals are really in the country’s interests.”
Developing country governments have frequently offered incentives in the belief that they attract foreign investment. However, the report says there is little evidence that they work. Instead, organisations such as Tax Justice Network-Africa have long argued that they instead lead to a ‘race to the bottom’ between countries competing for investment.
In the mining sector, says the report, the government abolished customs duties on capital equipment, made companies exempt from payment of a tax on goods and services and offered major reductions in corporate income tax to two recent British investors, London Mining and African Minerals.
London Mining was granted a six per cent income tax rate for the first three years of operation, compared to the statutory 30 per cent. African Minerals had to pay 25 per cent.
In the agribusiness sector, the government now gives all investors a 10-year holiday on corporate income tax payments and reductions on customs duties. Swiss company Addax Bioenergy, however, received a 13-year exemption from income tax.
“Hosting foreign investors requires government investment in infrastructure, while local people often face pollution, land-grabs and forced resettlement,” added Alvin Mosioma, Director of TJNA.
‘Society can benefit from the employment investors bring but mining and agribusiness provide few jobs. So instead, we should benefit from the taxes the investors should pay.’
The report calls for a review of all mining contracts and tax incentives, with the aim of reducing the tax give-aways, with the process overseen by the Sierra Leone Parliament and wider public.
It also argues for speedy implementation of a revenue management Bill that would require the government to reveal all tax exemptions.
The report makes clear that it is not alleging that criminal activity has taken place. All the companies named in the report were given an opportunity to respond to its contents. Only one, London Mining, replied saying that its agreement with the government was in line with international best practice.
It said it has been operating for less than two years in Sierra Leone and has paid royalties, rents and other taxes, although it does not expect to make a profit “in early years” because of high start-up costs and high levels of investment.
Source: Christian Aid