When Tax Hits Home: Institutional Barriers to Decentralisation in Freetown

A newly proposed tax reform could quintuple Freetown’s budget for the delivery of much-needed urban services. Yet, a political stalemate may endanger the city’s push for more transparency and progress. Braima Koroma, Dr Joseph Macarthy and Yasmina Yusuf from the Sierra Leone Urban Research Centre spotlight the country’s current state of decentralisation.

In Freetown, there has been little progress to realise decentralisation. However, the importance of decentralisation cannot be emphasised enough – it is essential for public service delivery as well as increasing democratic participation in city-making. Devolved responsibilities increase effective local participation, after all, and in order for decentralisation to work, a number of structures and systems need to be in place. In Freetown, many structures and institutions that support decentralisation efforts are still lacking, despite the efforts to overcome them.

However, a newly emerging tax debate has now provided an opportunity to push for greater decentralisation, with the potential to lead to a more efficient and inclusive governance system.

Urgent Need for Tax Reform

The need for a tax reform in Freetown is indeed apparent. Revenue mobilisation is critical for local councils to carry out their operations, which is recognised in the 2004 Local Government Act (LGA). The ongoing delay in disbursement of funding to local government is a major challenge in Sierra Leone and has wide-reaching consequences. In fact, this was one of the primary reasons for a newly proposed tax reform, according to the capital’s Mayor Yvonne Aki Sawyer. She argued that she could not rely on the unpredictable transfer from the central government to ensure sufficient urban services, which are critical during the pandemic and beyond.

Indeed, although the LGA 2004 stipulates that the process should be carried out every five years, property tax has not been reformed for the past two decades. Yet, without sufficient fiscal capacity, local government cannot fulfil their responsibilities as outlined in the 2004 LGA.

The New Freetown City Rate

The newly proposed Freetown City Council (FCC) Property Tax Reform (known as city rate in Freetown), was due to be launched in June this year. If successfully implemented, it will bring in five times more revenue this year to the FCC, allowing the city to fund much-needed services for its residents. The urgency is clear: since the Mayor’s appointment, over 70 per cent of the FCC budget has relied on external donors and aid, worsening the aid dependency already characterising the country. Aid dependency continues to foster a culture of paternalism and is generally considered problematic for sustainable development.

The reform has however faced an unexpected stalemate. While there is little disagreement on the need for tax reform in Freetown and across Sierra Leone, there has been considerable disagreement between the Ministry of Local Government and the FCC on the approach and timing of implementation. The Ministry of Local Government has argued that the tax reform process, led by the Office of the Mayor, should have been more consultative, ahead of any implementation. Another contention has been the perceived ill timing due to the pandemic.

In addition, the fiscal difficulties local governments such as the FCC face, are exasperated by the fact that they have weak control over human resources and other administrative aspects of urban service delivery.

Recent Progress Towards Decentralisation

Despite these challenges, recent progress has been made towards effective decentralisation. Over 15 years after the enactment of the LGA in 2004, only 43 of the 79 functions are fully devolved. The current government has committed to deepening decentralisation by devolving all outstanding functions. It is against this backdrop that the Inter-ministerial Committee, chaired by the Vice President on March 7 2019, agreed that further 28 of the 36 outstanding functions would be devolved to local councils with immediate effect.

This includes, for example, strategic local plans, issuance of building permits, and preparation of land use plans – and with such planning and building control, these specific devolved functions placed the FCC in a much better position to achieve sustainable urban development in Freetown.

Moving Forward Despite the Difficulties

While the 2004 LGA provides a legal framework for decentralisation, the property tax reform discussion highlights that there are still political and practical tensions that remain unresolved, especially related to fiscal and administrative autonomy. Now, with the postponement or potential suspension of the implementation of the property tax reform, there is concern that this could be counterproductive for decentralisation. It could indeed erode tax compliance and the overall trust in the reform agenda, making it more difficult for local governments to deliver the 2004 LGA.

We, the Sierra Leone Urban Research Centre (SLURC), believe that comprehensive reforms in legislation, especially regarding institutional and administrative structures, as well as public finance and human resource management are needed to achieve truly inclusive city-making. This tax reform is now an opportunity to overcome some of the institutional challenges and establish new and much-needed guidelines for:

• effective collaboration and exchange of information between the national government and the FCC to enhance the legitimacy of the process at the local level.
• greater effectiveness and fairness in property tax collection and enforcement, which are crucial to improving tax compliance
• creating a relevant balance between local and central government tax legislations
• investment in raising public awareness of how the valuation system works and explaining the link between property tax reform and long-term urban development, to prevent public resistance to what may seem to be arbitrary valuations.

SLURC thus urgently calls for additional efforts to improve the prospects of decentralisation, create conditions for a greater impact on service delivery, ensure reasonable autonomy and the capacity of the FCC, and help mitigate countervailing pressures from the national government. There is a need for clarity on the provisions, roles and responsibilities of the various actors that will implement the 2004 LGA. This would alleviate any potential tension such as what has arisen in the process of the current tax reform.

We hope that the review of the 2004 LGA and the 2010 decentralisation policy will make the decentralisation process work, and further strengthen the capacity of the FCC to perform and work towards inclusive city-making.