Tax breaks for international mining and agribusiness companies in Sierra Leone have cost the west African country hundreds of millions of dollars in lost revenues, according to a group of non-governmental organizations.
In a report published Tuesday, international and local organizations working in Sierra Leone warned of a perilous “race to the bottom” as governments in the region scramble to lure foreign investment. They said tax breaks for investors have done little to help the country’s poorest people, draining resources needed for critical public services.
In 2012, tax incentives primarily for just six firms amounted to 59 percent of the entire government budget – more than eight times greater than spending on health and seven times higher than the amount spent on education.
“The scale of revenue losses is alarmingly high,” according to the report, which stresses that no evidence has been found of illegitimate activity by the companies named. “The government is being far too generous to foreign investors at the expense of developing the nation. Mining companies, in particular, have been granted excessively large tax incentives.”
Using figures obtained from the National Revenue Authority, NGOs estimate that the government lost $224 million (£134m) to tax breaks in 2012, equal to 8.3 percent of gross domestic product. In the future, the public purse could lose much more. If existing trends continue, the report said, tax write-offs in the country, where roughly 53 percent of the population lives below the national poverty line, could soon exceed $240 million a year.
Alvin Mosioma, director of Tax Justice Network Africa, one of the NGOs that worked on the report, said, “Hosting foreign investors requires government investment in infrastructure, while local people often face pollution, land grabs and forced resettlement … 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.”
“This is a key time for Sierra Leone,” added Joseph Stead, senior economic justice adviser at Christian Aid.
As companies look to come in, said Stead, the government must be careful not to lock itself into bad deals, particularly in mining, where resources will eventually run out. “[With mining] you’ve got one chance to get it right. You don’t get another go at it,” he pointed out.
Tax breaks are often promoted as key to drawing in foreign investment, particularly in poor countries, but the report found evidence supporting this claim to be weak. It cited IMF research from east Africa that suggests good quality infrastructure and political stability have been more important in attracting investment there.
Read the full story at theguardian.com