Assessing the Role of Tax Policy in Addressing Poverty Alleviation in Liberia 2006-2012

Paper details:Proposed Thesis Topic: Assessing the Role of Tax Policy in Addressing Economic Growth and Poverty Alleviation in Liberia 2006-2012INTRODUCTION
Liberia is endowed with minerals, tropical forests, arable land, and abundant water resources. The exploitation of these resources allowed Liberia to enjoy a rapid rate of growth during the 1960s and 1970s. At this time-in March 1998 –however, the country is devastated, following two decades of poor economic management and political instability, and fourteen years of civil war.
The 1990-2003 civil wars, reflecting the fractionalization of the forces, engendered the complete collapse of governance, disruption of economic activities, and dislocation of approximately one half of the country’s population. The country’s capacity for economic policy making has been seriously eroded. During the civil war, government revenue plummeted. In 1987, revenue amounted to US$197 million, compared with US$12 million in the last four months of 1997. This extreme erosion in the revenue base mainly reflects the sharp downturn in the economy, with GDP having fallen to about ¼ to 1/3 of the pre-war level, but also the practice whereby taxes were assessed in U.S. dollars but paid in Liberian dollars which, although officially as parity, traded as a steep discount (currently in the range of L$40-50 PER US$1). As a result of the collapse in revenue, government expenditure has fallen dramatically. Total expenditure dropped to

Problem Statement

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Contextual Background to the Problem
Liberia’s pre-crisis tax system was based on three main pillars: the income tax (with about third of total revenue), taxes on imports (with another one-third), and excises (with about 20 percent). The domestic tax burden-measured as a percentage of GDP –was then approximately 25 percent. This tax revenue was enlarged by important nontax resources, notably maritime revenue (accounting for about 4 percent of GDP) and dividends from public corporations (2 percent of GDP) Altogether, Liberia’s public sector was thus in a relatively comfortable position with revenues of about 30 percent of GDP, of which a substantial part-at least one sixth-was imposed on foreigners.
The civil war has dramatically changed this picture. By 1997, total tax revenue had fallen to roughly 10 percent of its pre-conflict level, although the fall in total government revenue was less steep due to more steadfast revenue from maritime operation (which remains at about 85 percent of its pre-war level). Interestingly, the share of income taxes in total taxes remained roughly the same. However, excises fell disproportionately; the same is true for nontax revenue.
These developments are mainly the result of a breakdown of economic activity-and hence taxable capacity-in Liberia, but also the reflection of a tax system that had become dysfunctional over the years. One important aspect of the latter relates to the fact that taxation had been based on the faction of a one-to-one exchange rate of the Liberian dollar to the U.S. Dollar-a regulation that had been introduced officially in 1982. This led to the practice that taxes were assessed in US dollars, but paid in Liberia dollars notwithstanding the fact that the Liberian dollar had depreciated considerably during the civil war, exceeding at some point L$89 per US$1. As a result government receipt eroded substantially.
Rationale/Justification/ Knowledge gap ( why the study is important and what is missing in previous studies)
The Liberian government over the last two decades has embarked upon enormous tax reform policy dating back to the administration of President Samuel Kanyon Doe to the present government of President Ellen Johnson- Sirleaf.
Tax policy is part of the overall policy in Liberia which sets the stage for government success in its drive to confront the many development issues on hand. In view of this overall policy, two aspects appear to need special attention; transparency and reliability of the rule of law, and the need for development and reduction of poverty. The Liberia’s government used to participate in the exploitation of the country’s natural resources through profit sharing with the mining industry and royalties in the form of minimum payments for the extraction of minerals (for instance, per ton of iron ore) according to specific agreements with the mining industry. However, as the consequence of the war, mining came to complete stop until the rehabilitation of the sector in which some of the world’s mining giants are playing vital role.
In the past, exporters of raw materials had to surrender 25 percent of their foreign exchange earnings to the National Bank of Liberia (now Central Bank of Liberia), but this surrender requirement was repealed. There is still a stumpage tax on the production of timber as well as severance fees, industrial incentive fees on unprocessed logs for export, a forest product fee and a reforestation fee. These taxes and fees are highly unwieldly and do not produce much revenue, nor do they provide the necessary incentives to protect the environment and to encourage the economic use of natural resources. The tax policy shows some level of weaknesses and compromises as the system is almost defunct of natural resource taxation even with the establishment of the Liberia Extractive Industries Transparency Initiative (LEITI) a transparency and anticorruption agency of government.
At present, there is not much done to address the tax policy regime in relations with the investment menace the country faces as the result of tax evasion, tax avoidance, smuggling, corruption, kickbacks and political interference from political leaders and top government officials. There is no consensus on which determinants are most important in the implementation of the policy.
During the last three years, the Liberian government has experienced budget short falls due to the inadequacy of tax revenue thus causing government to not meet up with most of its development agenda which also put government into borrowings from international financial institutions like the WB, IMF, AfDB, Kuwaiti Fund, and Saudi Fund among others.
In furtherance, all these concerns and challenges towards the tax policy regime recognized the need to establish performance standards. The performance standards would enable the government to measure performance against revenue generation and the expenditures on development and the fight against poverty. Since government is the agent of state policy it has the moral duty and obligation to develop its human needs which includes improving access to health care, education, enhancing the status of women and other marginalized groups, shaping development policies in agriculture and rural development, and promoting open and participatory governance.
The World Bank support to Liberia’s poverty reduction strategy is predicated upon the rebuilding of core functions and institutions, rehabilitating infrastructure and facilitating growth. The government over the last four years has started putting in place policies to harness development and accelerate growth and reduce poverty but has lag behind in implementation due to failure to collect needed revenue due the state.
Therefore, this paper seeks to argue on why the Liberian government has not address the tax policy issue in this direction with the aim of fostering economic growth and addressing poverty in the country.
Objectives
RESEARCH QUESTIONS
Method
My thesis project will consist of five distinct sections: First, I will provide an introduction or overview of the Liberia “tax policy regime” that will provide background information that will include the problems and challenges of the tax policy of the country. Second, I will review relevant and related information such as the Revised Revenue Code of 2011, Public Financial Management Act of 2009, the Act, Mission and Vision of Liberia Revenue Authority. Thirdly, I will evaluate the advantages and disadvantages in the implementation of the tax law in relations to growth and the reduction of poverty in Liberia. Fourthly,
( I AM THINKING OF DESKTOP RESEARCH BUT DON’T KNOW IF I CAN COMBINE BOTH FIRLD WORK WITH DESKTOP FOR THIS TOPIC. KINDLY FIX THIS SECTION WITH THE APPRIORIATE METHODOLOGY CONSIDERING WHAT I WROTE ABOVE
Literature Review and Theoretical Framework (specify theory(ies) that will be adopted
USEFUL References ( KINDLY MAKE USE MOST OF THE REFERENCES BELOW ESPECIALLY THE FIRST TEN (10). ANY OTHER REFERENCES ARE ALSO WELCOME

1. Revenue code of Liberia 2011
https://www.liscr.com/liscr/portals/0/revenue%20code%20of%20liberia%20with%202011%20amendments%20included%20-%20011212.pdf

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