West Africa: Liberia Inclined to Illicit Financial Flows

Without reference to ongoing reforms and legislative amendments to the Liberia Earnings Code (LRC), the country is losing thousands and thousands of bucks each and each 300 and sixty five days due to illicit financial flows (IFFs) and a dominant informal financial system.

In accordance to a up to date diagnosis by Dr. Bonokai G. B. Gould, Senior Lecturer on the College of Liberia’s Department of Economics, these challenges are exacerbating the country’s fiscal constraints and undermining financial stability.

In his paper titled, “Evaluating the Liberia Revenue Code: A Strategic Framework for Combating Illicit Financial Flows and the Informal Sector”, Dr. Gould highlighted that the country’s present tax framework, although comprehensive, lacks the structural provisions to successfully form out IFFs and the unregulated informal financial system. These two factors, in accordance to the doc in our possession, is draining important income from the Liberian government, depriving the country of needed funds needed for infrastructure, healthcare, and education.

“Liberia’s revenue losses due to illicit financial flows and the informal economy are substantial, representing one of the greatest barriers to national development,” Dr. Gould defined. “While the LRC provides a foundational tax framework, its ability to address these issues is severely limited by weaknesses in enforcement, compliance, and the broader institutional landscape.”

IFFs, which encompass actions like tax evasion, exchange misinvoicing, unrecorded capital flight, and corruption, are estimated to designate Liberia tons of of thousands and thousands of bucks each and each 300 and sixty five days. Dr. Gould pointed out that despite attempts to rationalize tax rates and simplify compliance procedures thru amendments in 2011 and 2020, illicit financial flows proceed to erode Liberia’s fiscal home.

“Despite the establishment of a comprehensive tax framework in the Liberia Revenue Code (LRC) of 2000 and its subsequent amendments in 2011 and 2020, the country’s fiscal space remains constrained. These amendments have sought to rationalize tax rates, encourage investment, and simplify compliance procedures. However, Liberia continues to experience high levels of illicit financial flows (IFFs) and a dominant informal sector. There are two major factors that undermine the LRC’s operational efficiency and the broader objective of fiscal sustainability,” he added.

A document from Global Financial Integrity (GFI) in 2021 printed that Liberia loses more than US$ 200 million each and each 300 and sixty five days due to these unlawful financial movements. Simultaneously, the informal sector, which makes up over 80% of Liberia’s crew, operates largely exterior of the formal tax score, extra exacerbating income losses.

The paper criticizes the Liberia Earnings Code for various severe shortcomings that hinder its capacity to address illicit financial flows and elevate the informal sector into the formal financial system.

“The Code lacks targeted provisions to tackle the systemic issues of tax evasion, offshore tax avoidance, and the pervasive presence of unregistered businesses,” Dr. Gould acknowledged. “There is also a significant gap in the Code’s integration with anti-money laundering laws and international financial transparency standards, which are crucial for combating IFFs.”

Dr. Gould celebrated that the over-reliance on handy resource-primarily based totally taxation, severely from industries akin to rubber, iron ore, and trees, leaves Liberia’s fiscal income vulnerable to external shocks, extra limiting its capacity to generate true earnings. The absence of mandatory reporting of necessary possession, and the failure to put in power automatic knowledge swap protocols, handiest exacerbates the topic.

The shadow financial system in Liberia, which comprises a huge differ of unregistered and untaxed actions, is estimated to listing approximately 61% of the country’s GDP, in accordance to the World Monetary Fund (IMF). This informal financial system is now not handiest a important contributor to the country’s tax gap but furthermore prevents the government from successfully funding severe type tasks.

“The informal sector represents a significant portion of Liberia’s economic activity, but it largely operates outside the formal tax system, contributing to an estimated annual loss of US$ 50-75 million in tax revenue,” Dr. Gould remarked. “This unreported income from micro, small, and medium-sized enterprises (MSMEs) is a major barrier to expanding Liberia’s tax base.”

In accordance to estimates, illicit financial flows and the informal sector mixed chronicle for a staggering 30-35% of Liberia’s doable tax income each and each 300 and sixty five days. With Liberia’s domestic income pegged at approximately US$500 million, this interprets to an annual income loss of between US$150 million and US$175 million.

To address these disorders, Dr. Gould calls for the kind and implementation of a nationwide approach that goes previous the periodic amendments to the Liberia Earnings Code. The proposed approach, in accordance to Dr. Gould, will enjoy to unexcited encompass true reforms, institutional capacity constructing, and technological enhancements. He careworn out that Liberia must amend the LRC to encompass provisions that straight form out illicit financial flows, akin to necessary possession disclosure, and mandatory financial transparency measures aligned with global standards.

Dr. Gould furthermore emphasized the want to give a enhance to the Liberia Earnings Authority (LRA), the Ministry of Finance, and the Financial Intelligence Unit (FIU) to toughen enforcement capabilities and monitoring systems, especially in high-distress sectors like mining, telecommunications, and negative-border exchange. As successfully as, he pointed out the significance of investing in digital tools for tax administration, akin to integrated e-submitting systems, precise-time financial reporting, and automated customs knowledge tracking.

“Without comprehensive reforms, Liberia’s fiscal situation will only continue to deteriorate,” Dr. Gould warned. “The strategic integration of digital infrastructure, legal frameworks, and stronger enforcement mechanisms is key to reversing the losses Liberia faces.”

The proposed reforms, in accordance to Dr. Gould, may possibly well perhaps possibly result in important enhancements in Liberia’s income collection. By curbing IFFs and formalizing the informal sector, Liberia may possibly well perhaps possibly enhance between US$100 to US$125 million each and each 300 and sixty five days internal five years, which would be reinvested into severe sectors akin to infrastructure, education, and healthcare.

“With the proper reforms, Liberia could reduce its shadow economy to less than 40% of GDP, significantly increasing its tax base and providing a foundation for sustainable economic development,” Dr. Gould acknowledged. “These reforms are not just fiscal; they represent an opportunity to build a more transparent, resilient, and accountable system for future generations.”

As Liberia continues to grapple with systemic fiscal challenges, Dr. Gould’s diagnosis underscores the urgent want for comprehensive reform in the country’s tax code and broader financial policies. Tackling illicit financial flows and integrating the informal sector into the formal financial system are now not simply severe for fiscal stability but are needed for Liberia’s long-term type.

“Liberia stands at a crossroads,” Dr. Gould concluded. “The implementation of a national strategy to curb illicit financial flows and formalize the economy is essential for the country’s economic growth, stability, and future prosperity. Without these reforms, Liberia will continue to forgo critical financial resources needed to improve the lives of its citizens.”