Freetown, SIERRA LEONE – Acknowledging the significance of preparedness in handling financial contingencies, the Government has unveiled plans to counter any revenue shortfalls by introducing supplementary tax measures outlined in the Medium-Term Revenue Strategy (MTRS).
Outlined in the November 2023 Memorandum of Economic and Financial Policies (MEFP) submitted to the International Monetary Fund (IMF), these measures encompass the accelerated alignment of taxes on capital income (excluding capital gains) from 15 to 20 percent, a proposed increase in stamp duty on immovable property, and further streamlining of GST exemptions.
Addressing the IMF, the Minister of Finance highlighted additional strategies, including pursuing extra budgetary support, realigning spending priorities, implementing administrative cuts (including curtailing foreign travel), and limiting domestically financed capital expenditure.
In the November 2023 Country Report, the Fund Staff highlighted Sierra Leone’s significant revenue collections shortfall against initial projections at the time of program approval, despite a steady rise in primary spending. This imbalance resulted in a sharp escalation of the public debt to GDP ratio.
The Government, however, informed the Fund about positive strides in the country’s public finances in 2023, despite facing challenges due to revenue shortfalls and spending surpassing projections in the third quarter of 2023.
Attributing lower-than-anticipated domestic revenue collection in the first half of 2023 to election-related uncertainty, technical glitches in implementing the Finance Act 2023, a freeze on fuel pump prices for social stability before the June elections, and delays in renegotiating the Rutile Mining agreement, the Government cited reasons for the revenue shortfall.
Total revenue collections stood at NLe4.64 billion (5.9 percent of GDP) compared to the program target of NLe4.80 billion (6.14 percent of GDP). Shortfalls primarily stemmed from underperformance in income taxes, goods and services taxes, and customs and excise duties. However, higher-than-expected collections on mineral licenses, iron ore royalties, Treasury Single Accounts (TSA) revenues, and road user charges helped offset a portion of the deficit, which totaled NLe338 million (0.4 percent of GDP) by the third quarter.
Furthermore, the Government is committed to incorporating tax measures expected to generate an additional 1 percent of GDP in annual tax revenues within the Finance Act 2025. Anticipated support for tax revenues includes a rebound in buoyancy, efficiency gains from automation (ITAS, ECR, computer-aided audits), adherence to the fuel price formula, and revised mining contract negotiations.
However, the projected revenue mobilization trajectory is ambitious, presenting an implementation challenge. Consequently, the Fund Staff recommended strict limitations on earmarking revenues from new measures into separate standalone funds, citing complexities in fiscal policies and heightened governance risks. ZIJ/11/12/2023