TAXES AND TARIFFS
Firms, domestic and foreign, are subject to a corporate tax rate of 30 percent (except for mining companies which pay 35 percent). Citizens are subject to taxes of 20 – 30 percent, depending on their income. The common External Tariff adopted by the Economic Community of West African States (ECOWAS) in 2005 set four tariff bands of 0, 5, 10 and 20 percent, with a mean of about 13 percent. There is a diamond export tax of 5 percent and royalty taxes for artisanal license holders, which are 5 percent for precious stones, 4 percent for precious metals and 3 percent for other minerals.
All taxes are collected by the National Revenue Authority, which has three branches: the Income Tax Department, Customs and Excise Department, and Gold and Diamond Office. In addition, a non-tax revenue department collects fines, penalties and royalties, and has officers in government ministries, departments, and agencies. Income-related taxes are collected by the Income Tax Department, whose tasks include tax assessment and collection, implementation of tax laws, and research. All taxes are collected at the national level, with four district-level income tax offices and a head office in Freetown. The Income Tax Department conducts it functions under the framework of the Income Tax Act.
Sierra Leone subscribes to the Customs Cooperation Council Nomenclature, and tariffs are based on a single- column tariff schedule. Imports from other Mano River Union (MRU) members states enter duty free. Duties on non-MRU goods are levied on the cost, insurance, and freight (c.i.f.) value of the goods. Duties range from 0 – 30 percent on luxury goods, with most averaging about 20 percent. Duty-Free items include textbooks, medical equipment, agricultural inputs and machinery. In addition to the customs tariff, all imports are subject to a 15 percent sales tax. Alcohol and tobacco are subject to a 20 percent import duty, 15 percent sales tax, and 30 percent excise duty.
INCENTIVES AND SPECIAL ZONES
As incentives to foreign investors, Sierra Leone offers accelerated depreciation of 40 percent for plants and equipment the first year and 10 – 15 percent for most other items. It also offers a loss carry-forward of 50 percent of the previous tax year’s taxable income.
Investors in the mining sector receive a 100 percent deduction for prospecting and exploration, a 40 percent deduction for the first year of production costs, 10 percent depreciation for research and development, and 10 percent amortization of start-up costs. In addition, individuals can deduct 50 percent of qualifying investments, up to US$ 150,000, from their personal taxes. To encourage investment in rice and timber, a 10 year corporate tax holiday is granted to qualified investors, Tourism investment may qualify for a five year tax holiday, and expatriate tourism salaries may be exempted from the pay-as-you-earn tax for three years.
In keeping with plans to promote export diversification and competitiveness, the government of Sierra Leone plans to establish export processing zones and agro processing units in suitable locations as well as an industrial and economic zone in Freetown.
Fiscal and financial incentives
Sierra Leone also provides other incentives for investors, especially in sectors such as tourism, fisheries, mining, and minerals, as for banks, nonbank financial institutions, and other business activities. These incentives include:
Export licenses are not required for locally produced goods (except gold, diamonds, and a few other goods designated by the government).
Investors in the tourism sector pay a 15 percent corporate tax for the first five years of a new investment, unlike the 30 percent rate charged to most corporations. Some investors may also qualify for tax holidays. In addition, tourism enterprises with up to six employees are exempt from the pay-as-you-earn tax for skills and expertise not readily available in Sierra Leone for the first three years of employment.
The import duty for raw materials, plants, and machinery is 5 percent, and malaria and HIV drugs are exempted. The import duty for intermediate products is 10 percent, while it is 5 percent for vehicles up to 4 years old, 20 percent for those 4 – 10 years old, and 30 percent for those older than 10 years. Tourism enterprises are exempted from import duties for new construction, extension, or renovation, applicable to building materials, machinery, and equipment not easily acquired in Sierra Leone.
The sales tax is zero for plants and machinery, while others are 15 percent at entry and production.