Online Publications From DAI Subscribe

Winter 2017

Liberia Moves to Reduce Donor Dependence by Improving its Ability to Invest in Itself

Liberia has endured much turmoil in recent decades. Civil wars in the 1990s and 2000s saw the mass destruction of dams, bridges, power lines, and other infrastructure. Many of Liberia’s best and brightest citizens emigrated. Suffering from a large budget deficit, its government developed a deeper dependence on foreign aid. Furthermore, the Ebola virus epidemic of 2014–2015 killed more than 4,800 Liberians and terrified the country.

Yet, after all this, people today in Liberia generally look forward with hope.

And they have reason to do so. Liberia’s donor dependence could increasingly turn to self-reliance—if a second-year program by the U.S. Agency for International Development (USAID) continues its recent success. The program’s goal—improve Liberia’s ability to pay for its own development—coincides with a broader movement by developing countries to mobilize domestic resources.

At its outset in May 2016, the Revenue Generation for Governance and Growth (RG3) project engaged the Liberia Revenue Authority (LRA) to jointly benchmark Liberia tax policy and administration against international good practices. As a result, RG3 identified critical gaps and set the stage for tax reform in Liberia. Just one year in, the LRA has already achieved some impressive results.

Great Progress So Far

Demand for improved domestic resource mobilization and accountability is arising from both the government and taxpayers. Early on, the LRA and RG3 team ramped up taxpayer engagement by increasing the number of taxpayer inquiries to the LRA call center tenfold through aggressive mobile text-messaging outreach. LRA and RG3 conducted an innovative text-based taxpayer perception survey as well as a cost-of-compliance survey using computer-assisted telephone interviewing.

The LRA established a centralized data processing center that has already processed information from thousands of tax returns into LRA databases, improving transparency for taxpayers encompassing some 70 percent of revenues and generating crucial information—on topics such as wages, employment, and property ownership—to inform audit selection and improve revenue forecasting.

Taxpayers gained a strong ally in the form of a newly established Taxpayer Advocate’s Office. Already, the office has repeatedly stood up for taxpayer’s rights—in areas such as customs clearance and verification of tax compliance—thereby reducing opportunities for corruption.

When the LRA allowed taxes to be paid for the first time through commercial banks and their branches, as much as $7.3 million in taxes was paid using this method though August 2017—leading to the first electronic tax payments wired to government coffers and the first, albeit rudimentary, email-based electronic filing.

LRA and RG3 interventions have also increased compliance. The number of tax payment transactions increased by some 48 percent in March–August 2017 compared with the same period in 2016, which is expected to lead to increased revenues for the government.

LRA and RG3 are close to launching the first mobile tax payments. And finally, in close cooperation with the Ministry of Finance and Development Planning (MFDP), RG3 has developed a revised draft excise tax legislation that should help pave the way for a significant revenue increase.

Based on a productive first year and the benchmarking exercise, RG3 has established the following objectives for the next phase of the program:

  • Improve risk-based audit selection so that LRA auditors focus on taxpayer cases that are most likely to yield revenues;
  • Develop microsimulation models to forecast revenues and analyze potential policy outcomes;
  • Introduce e-filing to further reduce cash transactions between tax officers and taxpayers;
  • Launch mobile payments;
  • Analyze pros and cons of decentralizing real estate tax revenues, so local property taxes pay for local services;
  • Automate payment reconciliation so compliant taxpayers are certified as such;
  • Automate LRA management reports to improve decision making; and
  • Introduce excise stamps to generate revenue.

The Liberian government has been a positive partner in tax reform, and we are hopeful that will continue for two more years under RG3—and beyond—under the newly elected president, former international soccer star George Weah. The government has great upside in terms of revenue generation and, in turn, expenditure management. While Liberia has suffered a great deal over the past two decades, we believe 4.5 million Liberians are eager to see through the tax reforms that will make government more accountable and productive.


Photo of Alexander Kitain and Charles Coon Photo of Alexander Kitain and Charles Coon

DAI's Alexander Kitain, left, is Chief of Party for the Revenue Generation for Governance and Growth program. Senior writer Charles Coon is editor of DAI's Developments newsletter.