14 September 2017

Sierra Leone: Ban Calls for Control On Trade Mispricing

Co-ordinator of the Budget Advocacy Network has called on Members of Parliament to make laws that will help control the trade mispricing in minerals and other revenue generating sectors across the country.

Speaking with cross section of members from Finance, transparency and accountability, Mines and Mineral and the Public Account committees, Abu Bakarr Kamara said owing to paucity of data, and the secrecy surrounding the operation of mining companies, as well as the non-availability of comparable transaction data, it is difficult to estimate transfer mispricing using the input method.

"We have used the trade mis-invoicing model to estimate tax revenue losses from illicit capital flight. The Trade mis-invoicing model looks at trade mispricing, namely the overpricing of imports and underpricing of exports on customs documents, which allow the illegal transfer of money abroad (GFI 2015). Data for 2011 and 2012 when there was boom in Iron Ore is not available," he said.

Upon a Study conducted by BAN supported by OSIWA, Mr. Kamara said the value of minerals has been declared at controlled prices which is less than the average market prices resulting to loss of revenue from royalty payment. It also shows that between 2013 and 2015, a total of US$3.69 million was lost in respect of mispricing of iron ore, whilst US$1.28 million was lost due to mispricing in Bauxite trade for the same period, and for 2015 mispricing in Rutile trade resulted to a loss of US$0.773million in respect of royalty payment. Revenue GDP continues to be a challenge- averaging 10.9% of GDP below 15% for LIC.

He explained that on the issue of tax incentives, transfer mispricing and other forms of tax avoidance practices remain channels through which Sierra Leone, like other developing countries, loses huge tax revenue, noting that in the past decade the importance of FDI has grown in Sierra Leone from a low US$8.62 million in 2003 to a high US$950.5 million in 2011.

However, Kamara stated that government transfer pricing rules are largely untested and currently not issued practise note to clarify what approach to follow in the implementation of the section dealing with transfer pricing in the Consolidated Income Tax Act 2000.

He added that as an entry point, the African Tax Administration Forum (ATAF) has developed a practical manual providing guidance on how African countries can implement effective exchange of information, which fiscal authorities in Sierra Leone can benefit from given that the country is a member of ATAF.

He therefore recommended that Civil society should push for the fiscal authorities to require multinational corporations to publicly disclose country reports which should entail their revenues, profits, losses, sales, taxes paid, subsidiaries, and staff levels, as a means of detecting and deterring abusive tax avoidance practices.

He said government should boost customs enforcement by providing appropriate training and equipment to better detect the intentional mis-invoicing of trade transactions with support from Development Partners.

"One particularly important tool for stopping trade mis-invoicing, as it happens, is access to real-time, commodity-level world market pricing information. This would allow customs officials to tell whether a good is significantly underpriced or overpriced in comparison to its prevailing world market normal price," he said.

"The government institute a process of verifying the quality and quantity of exports from the major mining sites, particularly that for iron ore, in order to counter trade mis-invoicing. Ensure that fiscal authorities are able to actively participate in the G20 and OECD-endorsed global movement toward the automatic exchange of financial information with support from development partners. This will require technical assistance in data management and use."

Deputy Chairman of Public Account Committee, Hon. Komba Koedoyoma applauded BAN for the initiative as he stated that illicit financial outflow is now becoming a menace in the African continent and glad that sierra Leoneans are aware of such.

Chairman of the Finance committee, Hon. Hassan Sherriff said they all should come together and champion the drafting of laws that will help NRA to establish a transfer department since it will help boost the revenue generation in the country which will be carried out by MPs through a private member Bill motion.

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