FINANCE MINISTRY CONDUCTS NATIONWIDE EXCISE TAX AWARENESS
As part of efforts geared towards harnessing the government of Liberia’s revenue generation effort, the GoL through the Ministry of Finance and Development Planning (MFDP), Department of Tax Policy has embarked upon a nationwide Tax Awareness Campaign.
The exercise, according to authorities at the State Economic House, is intended to bring tax administrators and economic stakeholders in the country up to date with the nation’s tax programs via consultative and interactive meetings, capacity building, and sensitizations.
The nationwide exercise is being coordinated by the Head of the Department of Tax Policy at the MFDP, Robert Quaye Dwuye.
Speaking to The Cyclone Newspaper on Friday, February 11, 2021, at his MFDP Office, Director Dwuye disclosed that in continuation of the exercise, the Government of Liberia is expected to implement the excise tax stamp beginning July 1, 2021.
According to him, the initiative will result in alcoholic beverages and tobacco products that will be imported into the country carrying approved revenue stamps before sales throughout the length and breadth of Liberia.
Director Dwuye intimated that the 31-day nationwide awareness campaign recently held, was a joint exercise of the MFDP, LRA, and USAID RG3.
The team successfully created awareness to various tax business offices and the business community in 9 of Liberia’s 15 political subdivisions, including those with border posts.
During the exercise, tax stakeholders were informed that as of July 1, 2021, anyone caught selling alcohol and cigarettes without the approved stamp from the Liberia Revenue Authority (LRA) will strictly be acting in violation.
The MFDP Director said businesses that may still have alcohol and cigarettes in stock up to July 1, 2021, should call the hotlines (0770572572 and 0888572572) to ensure full disclosure and compliance.
Director Dwuye further disclosed that the Government of Liberia’s decision to implement the Excise Tax Stamp is intended to fight smuggling and supply of fake products on the Liberian market.
He noted that the GoL intends to also utilize the “Whistle Blower” Act with reward to encourage citizens to report non-compliant-related incidents.
The MFDP Director who sounded optimistic about the exercise used the occasion to commend his boss, Finance Minister Samuel D. Tweah for his farsightedness and dedication to what he termed as resultful economic governance management of the Liberian economy under the PProPoor Agenda for Prosperity and Development (PAPD).
According to him, the Excise Stamp will hugely boost the government’s revenue. He assured that the policy, when implemented, will project GoL revenue growth from 15 million in the first year and up to 30 million USD in the succeeding years.
Comparing the current contribution of Excise Tax to GDP which stands at 3.8%, the Excise System to be executed is expected to result in a 5.1% annual increment.
Excise Tax Reform in Liberia
The Government of Liberia (GOL) has embarked on a comprehensive excise tax reform program with support from the USAID/Liberia Revenue Generation for Governance and Growth (RG3) Project.
Excise Tax Policy
Under Liberia’s prior excise regime, the tax was levied on a large number of items, including biscuits, bread, and eggs, applying ad valorem rates. While taxing these items did not generate significant revenue, it unnecessarily added onerous administrative and compliance costs. Further, the application of ad valorem rates invited the problem of misclassification and under-valuation, opening up opportunities for collusion and corruption. To address these problems, the GOL has introduced the following major policy
changes in the excise tax regime:
• Reduced the list of excisable goods from 57 to 7.
• Converted excise tax rates for tobacco and alcohol from ad valorem (expressed as a percentage of the price) to specific (expressed in dollars per unit of quantity).
• Allowed manufacturers to claim credit for taxes paid on inputs of excisable items.
Excise Tax Law
As indicated in the table below, the excised part of the Liberia Revenue Code (LRC) was poorly designed. There was a lack of clarity regarding the imposition of tax. Some items were taxed through the LRC, some by the Customs Tariff, while still others were captured through regulations issued by the Finance Minister. There was also inconsistency between the LRC and the Customs Tariff. For example, while fuel was not included in the list of excisable items in the LRC, it was included in the Customs tariff, but in practice, it was not being collected. Moreover, there was a lack of consistency regarding the excise tax base in the LRC and no provision in the law for using excise tax stamps to control and track sales.
To address these issues, the GOL in 2017/18 decided to modernize the excise tax law. To this end, the Ministry of Finance and Development Planning (MFDP) and the Liberia Revenue Authority (LRA), with support from the USAID/RG3 Project, prepared a draft bill to replace the existing law. The new excise tax law was passed by the House of Representatives on November 20, 2018, and the Senate on November 28, 2018. It was signed into law by the President on December 14, 2018, and printed into Handbills in January 2019.
An outline of the structure of the excise tax law Chapter 11 of the LRC, before and after the excise tax reform, is presented below.
Structure of the Excise Tax Law, Chapter 11 of the Liberia Revenue Code
Before Reform After Reform
Section 1100. Earth and Stone; Asbestos Products
Section 1101. Scrap Metal Exported from Liberia
Section 1120. Alcoholic Beverages
Section 1121. Tobacco and Tobacco Products
Section 1122. Gambling Equipment
Section 1140. Cosmetics, Non-Alcoholic Beverage and Water
Section 1141. Luxury Goods
Section 1142. Sugar in Crystal or Granule Form
Section 1160. Payment of Excise Tax
Section 1161. Excise Tax Returns
Section 1162. Amount Payable
Section 1163. Seizure of Goods and Protest of Seizure
Section 1164. Monosodium Glutamate
Section 1102. Definitions
Section 1103. The Concept of Excise
Section 1104. Taxpayers
Section 1105. Object of Tax
Section 1106. Excisable Goods and Services
Section 1107. Exemptions
Section 1108. Excise Tax Rates
Section 1109. Time of Taxable Transaction
Section 1110. Tax Base
Section 1111 Calculation of Tax
Section 1112. Tax Deductions
Section 1113. Tax Treatment of Exports
Section 1114. Tax Period
Section 1160. Payment of Excise Tax
Section 1161. Excise Tax Returns
Section 1163. Seizure of Goods and Protest of Seizure
Section 1165. Excise Control
Section 1166. Excise Stamp
Schedule I: Excise Tariff
The structure of the reformed excise law follows modern international best practices. Under the new law, tax is levied only through the LRC. No new excise tax can be introduced through the Customs Tariff and/or any regulations on items other than those specified as excisable through the LRC. It provides clearer provisions regarding taxable items, taxable values, and filing and payment requirements. It also includes provisions for the introduction of excise tax stamps that will strengthen the administration of the tax. LRA began implementing the new excise tax law on July 1, 2019.
Excise Tax Administration Under the previous excise tax regime there were no proper control mechanisms, implementing regulations, invoicing procedures, or booking forms. The new detailed excise tax regulations include procedures and guidelines, as follows:
Excise Tax Regulations: These regulations include the registration process, storage, and delivery of excisable goods, computation of excise tax, bookkeeping, filing, and payment process, and provisions relating to losses, refunds, monitoring, enforcement, and the use of stamps. They also specify various forms to be completed by the excise taxpayers.
Administrative Regulations on the Control of the Liberian Excise Tax Stamps Regime: The new procedures and guidelines identify the specific goods subject to excise tax stamps; the type of excise tax stamps; the process of obtaining and returning stamps; the time, place, and process for affixing them; and the processes related to paying and refunding excise tax stamps fees.
Excise Compliance Manual: The Excise Compliance Manual is intended to facilitate the day-to-day work of the LRA officials who are responsible for implementing the excise tax system. It is a comprehensive manual that covers all most all aspects of the operation of the excise system in Liberia, including key risk areas, calculating excise due, registration, production process and record-keeping, storage, losses, and stock discrepancies, liability, and accounting for excise tax, paying the excise tax due, assessment for underpaid excise tax, removing excise goods from a registered premise, exports temporary Importation, credit for excise paid on raw materials, Refunds of excise tax excise tamps, enforcement and penalties, seizure, and planning and performing a verification visit. It contains very schedules to be completed by the excise payers.
Excise Stamps Manual: Excuse Stamps Manual: The Excise Stamps Manual is intended to facilitate the day-to-day work of the LRA officials who are responsible for implementing excise stamps. It is divided into five chapters viz., background, introduction, processes, market control, and transitional provisions. Chapters 3 and 4 are the core chapters of the manual. Chapter 3 provides processes relating to the approval of manufacturers/importers, ordering of stamps, approval of excise stamps, handing over of stamps, and returning excise stamps. Chapter 4 delivers information on market control, which is important to implement the excise tax system properly and effectively, especially in the initial phase of the introduction of excise stamps.
Excise Tax Reform Implementation. To implement the new tax regime properly and effectively, LRA developed a comprehensive excise tax reform implementation strategy. The strategy included training of MFDP and LRA officials on the excise tax system and international best practices. The USAID/RG3 project also organized study tours to the Republic of Georgia and Ghana to observe and learn how those countries had successfully implemented their own excise tax regimes.
In addition, an extensive public outreach program was launched in six counties of Liberia, viz. Montserrado, Nimba, Bong, Margibi, Grand Bassa, and Grand Cape Mount. The program included visits to schools, public squares, and markets, where face-to-face question-and-answer sessions were organized with local residents. Targeted outreach activities were conducted with a total of 68 customs and tax officers and 116 individual wholesalers, dealers, and retailers across these counties. Radio programming was also conducted as part of the outreach.
As part of this nationwide campaign, excise tax educations materials were prepared and published. They include: Excise Stamps FAQs, Excise Tax Brochure, and Why Excise Tax Reform? In addition, an excise tax tariff poster with the list of excisable items and the applicable rate was published for dissemination.
One of the important aspects of the excise reform is the provision for the introduction of excise stamps in order to tighten the implementation of excise tax. Excise stamps are expected to:
• make smuggling more difficult,
• simplify declaration and reduce the misclassification of excisable goods,
• minimize revenue leakage,
• control the import of counterfeit/sub-standard products,
• generate more accurate data on the sale and trade of excisable items, and
• generate much-needed revenue for Liberia’s development.
Preparation for the introduction of excise tax stamps is in its final stage. LRA has signed a contract with the Madras Security Printers to supply excise stamps. Excise stamps have been designed by the MSP and approved by the LRA. The excise operating system has also been designed and approved and MSP officials are on the ground to complete the remaining activities that are required for an early introduction of excise stamps.
As a result of these recent reforms, the Liberian government is fully aligned with modern excise tax regimes implemented around the globe. Liberia’s modern excise tax law now focuses on a few traditional excise tax careers, levied with specific rates, to generate much-needed revenues. The Liberian market will soon be seeing excise stamps on their cigarettes and liquor that will be used to control smuggling, reduce incentives for under-declaration and misclassification of excisable products, and identify leakage in excise tax revenues.