Why must the Domestic Resource Mobilization Strategy (DRM) be considered a Compelling Public Policy Option for Liberia?

By: Samora P.Z. Wolokolie, MBA, MSc., CFE, CA, CPA, FCFIP, FIPA, FFA CTP.
February 15, 2019

Key summaries:
• Low revenue share of GDP – around 14.3% of GDP excluding grants
• Declining grants – 2% of GDP
• Low donor transfers – From 60% to 16.% of GDP
• Donor fatigue
• Government’s emphasis on road infrastructure
• The Government Development Plan – The Pro-Poor Agenda for Prosperity and Development (PAPD) hinges on an effective DRM strategy.
• Enacting appropriate legislation
Domestic resource mobilization is an essential component of sustainable, economic development. It is a process that reinforces the postulation that governance is inherent in the people, and those people have an obligation to formulate laws and policies that would improve their well-being
Just as government exercises sovereign control in other areas, it is a laudable undertaking for government to formulate policies, and design strategies to generate revenue from within its territorial confines.
When the government and its people take cease of generating revenue from within, they take ownership. They enjoy the flexibility of using the said revenue in line with national development plans without the strings of donor restrictions.
Domestic resource generation can be an effective vehicle to solicit donor support. In and of itself, it shows that government is taking proactive steps to raise revenue and not just sitting complacently with an out-stretched hand to the donor community.
When we show genuine commitment to effective tax administration where loopholes are closed, where tax avoidance and tax invasion are discouraged and penalized, we set the basis for the generation of more revenue.
The success of domestic resource mobilization would be imperil if meagre resources that are generated are squandered through irresponsible and wasteful spending. For the public to have confidence to pay their fair share, they must be certain that their tax dollars are used for the achievement of social and economic development.
Donor fatigue is not a cliché anymore. It is a demonstrable fact. No one is even prepare to continuously and perpetually shoulder the responsibilities of others. It is therefore imperative that we are cognizant of this reality and take on the task of looking within and strategizing on how we can support our spending habits using domestically generated revenue.
The world is changing. Countries with the biggest “wallets” are reassessing their support to third world countries.
There are competing priorities relative to the traditional support groups( IMF, World Bank, etc.), and the domestic politics of donor countries is also bringing the idea of direct budgetary support into greater focus and scrutiny.
Highlights of Policy Reform Options to Enhance Domestic Resource Mobilization
Closing loopholes of Revenue Losses – Reducing tax holidays from concession agreements, executive orders and tax exemptions.
Move from GST to VAT (Value Added Tax).
Widening the tax net so as to achieve full substantial coverage, and enforcing established regulations so as to discourage/prevent false declarations and other avoidance schemes.
Comprehensive review of non tax revenue so as to streamline the effective tax rate and burden on taxpayers.
Enact appropriate legislation to amend Excise Law so as to introduce excise stamp and change valuation method from ad valorem to specific.
Enact appropriate legislation mandating the issuance of receipt for every transaction involving the exchange of value so as to curb fraud, waste and abuse.
TAX EXPENDITURES
Tax expenditures include deductions, reduced tax rates, exemptions, preferential tax rates, and in some instances, preclusion from tax liability.
The objective is to encourage foreign direct investments and to promote investments in agricultural, housing, manufacturing and other “under invested” industries.
Tax expenditures are also intended to easy off pressure on investors during the inception phase of their business.
Tax expenditures, especially short term incentives are used in Liberia to attract investment in the manufacturing industry. In all cases, an economic impact assessment is carried out.
If properly and judiciously used, Tax Expenditures can be an effective vehicle to spur growth in the economy.
Because “hard” revenue is foregone in the issuance of tax waivers, it is imperative that tax expenditures should be limited in scope and size.
Over the years tax expenditures have escaped public scrutiny to the amusement of the beneficiaries.
With renewed focus on Domestic Resource Mobilization, Tax Expenditures have come under scrutiny.
Tax breaks usually reward people doing what they would do anyway, however, some tax expenditures may be necessary to help startup operations.
A reckless and loose Tax Expenditure regime is antithetical to the aims and aspirations of Domestic Resource Mobilization, and a major impediment to increased revenue generation.
Projecting the way forward
Our predictive projections pins the fact that for Domestic Resource Mobilization Strategy to achieve its intended objectives, there must be a convergence of a well thought-out road map/Clear strategy, unwavering Political will as targeted and measurable objectives.
A responsible Tax Expenditure framework that is limited, monitored and economically necessary that clearly laid out tax policy and effective and efficient tax administration, among others.

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