The Effect of Tax Reforms on Revenue Mobilization and Economic Growth of Sierra Leone: Evidence from Time Series

Abstract

The fiscal authorities in Sierra Leone introduced series of reforms in the tax system ranging from continual revisions in tax rate to harmonization and instituting new taxes that are relatively easy to collect. Consequently, tax revenue increased for about 367% after the first and half decade of the reforms, but despite this progress, the output of the tax system as measured by the tax-GDP ratio remains very low averaging 11 percent and has not been able to meet the secondary convergence criteria of the ECOWAS monetary cooperation performance target of 20 percent. With the use of the ARDL-ECM, the study examined the effect of tax reforms on taxation and the impact of the inducedreform tax revenue on the economic growth of Sierra Leone using time series data from 1981 to 2018. Specifically, the results of the study indicate that the tax reforms have indeed in the short-run created some positive effects on the Income Taxes, the Goods and Service Tax, and International Trade Taxes but some negative effects on the Non-Tax Revenues in the long run. Generally, the study concluded that although the tax reforms have not created the much-expected effect on tax revenue in the long run, tax revenue has a significant effect on the economic growth of Sierra Leone. Since he government intends to mobilize more revenue but tax reforms should be carefully designed with a comprehensive strategy with a periodic review of tax policies ensuring that privatesector investment is given the enabling environment to thrive.