OVERVIEW

After independence in 1961, Sierra Leone’s government began to deteriorate, which led to the abolition of local government in 1972. The centralization of power that re-sulted meant that the rural population was deprived of basic economic opportunities, education, and political participation. All these, coupled with widespread corruption, nepotism, and the marginalization of youths from decision-making, resulted in a bloody eleven-year (1991–2002) civil war that displaced half of the population, caused 20,000 deaths, and destroyed infrastructure and social capital.³

The government, after restoring peace and stability in 2002, undertook a series of institutional and structural reforms with the support of the World Bank, the Interna-tional Monetary Fund (IMF), European Union (EU), the Department for InternaInterna-tional Development (DfID), the African Development Bank (AfDB), etc. Key among the reforms supported by these donors was the rebirth of government decentralization, which led to the enactment of the LGA in April 2004 that established 19 functional local councils. The LGA 2004 was supplemented by the Assumption of Regulations Act No.13 of November 2004 (the Statutory Instrument) that clearly mapped out the devolution⁴ of functions to the local councils for the transition period 2004–2008.

The 19 local councils comprise five city councils, one municipality, and 13 district local councils including the Western Area Rural District Council (WARDC). Each district local council consists of, on average, 10 chiefdom councils. A chiefdom council is a tier of government below the local council that is legally obliged to collect certain revenues and share these with the local councils. Chiefdoms are further divided into sections and villages. The chiefs are hereditary rulers whose local powers have been as-sumed to largely supersede those of officials of the central and local government. They are constitutionally recognized and their influence remains important, particularly in matters of traditional culture and justice.

1.3 Sierra Leone’s Informal Sector

Because of its very nature, the informal economy poses tremendous challenges to researchers attempting to estimate its size, and while they have attempted a variety of approaches, the measurement process remains an inexact science. For example, Feige (1979) declares all forms of measurement flawed in some way. Despite differences in the techniques and results, what clearly emerges from the data is the understanding that the informal economy is surprisingly large in most developing countries and Sierra Leone is no exception.

According to C. Magbailay Fyle,⁵ the informal sector does not only serve the poor and low-income groups of the population but is patronized by all sectors of society. The International Labour Organization and Jobs and Skills Programme for Africa/JASPA (ILO) advisory employment mission report on Sierra Leone from

1990 described the activities in the informal sector as ranging from petty trading to carpentry, blacksmithing, tailoring, gara tie-dyeing, soap making, market women, palm wine tapping, small-scale construction, manufacture of basic tools and capital goods such as axes and hoes, local cement brick making, machinery, and other skill-intensive activities such as watch repair, motor, radio, and television repair, and diverse traditional financial intermediaries such as Rotating Savings and Credit Associations (ROSCAs), locally known as Osusu, and much more. This array of activities suggests that informal activities involve all sectors of the economy.

The actual size of Sierra Leone’s informal sector could not be determined. However, the United Nations Capital Development Fund (UNCDF) report on the Development of a Sustainable Pro-Poor Financial Sector in Sierra Leone (2004–2009) estimated that the informal sector accounts for at least two-thirds of the 935,800 estimated number of households in Sierra Leone. A survey done by the Foreign Investment Advisory Service (FIAS) on Informal Economic Activity in 2005 estimated that at least 80 percent of all businesses operated in the informal sector. For the purpose of the survey, informal-ity was defined as the lack of compliance with legal and procedural requirements for business operation.

Interviews with officials from government, including staff of the National Revenue Authority (NRA), also suggests that formal sector activities account for less than 30 percent of the local economy.

1.4 Problem Statements

A key function of local governments is the finance and provision of local public services.

Over the years, the formal direct taxation of households in Sierra Leone has been limited, comprising less than 30 percent of local own revenues, for service provision. The low levels of formal taxation would suggest that local public goods are primarily financed outside the local community, either through direct provision, intergovernmental grants and contributions from other national and international NGOs. The reasons for this are partly attributed to ignorance or unwillingness of key stakeholders/institutions to meet their obligations and/or to adhere to the principles of decentralization and good governance. This is coupled with unclear provisions in the LGA of 2004 between local and chiefdom councils in revenue collection and sharing, inability of the central govern-ment through the ministry responsible for local governgovern-ment to fully meet its financial obligations in the form of subventions to chiefdoms, and conflicting regulations in the administration of central and local government revenues. More importantly, local councils lack the suitable local tax revenue instruments and do not properly collect the local revenue sources at their disposal as mandated by law and when they do, they find it hard to collect because much of the local economy is informal.

1.5 Objectives of the Study

The objective of the study is to answer the following questions:

How are local taxes administered by local councils in the local economy, much of which is informal?

What is the perception of stakeholders (officials from the NRA, local council officials, street traders’ associations, ordinary citizens that pay local taxes and other levies, etc.) about the administration of local taxes, in terms of effective-ness, efficiency, and equity?

What are the burdens placed on lo w-income informal traders from unofficial as well as official levies?

What are the implications for policy? Are there specific government polices and/

or regulations that might be adopted or changed that would make the chiefdoms more accountable, thereby ensuring a smooth revenue collection and sharing relationship between the local and chiefdom councils?

1.6 Limitations of the Study

Inasmuch as the research tried to address the efficient and effective administration of local taxes in the economy that is presumed to be largely informal, it did not focus on providing data on the size of informal economy in Sierra Leone. Descriptions of the characteristics and size of the informal sector in the context of Sierra Leone was presented through related research on the informal sector and discussions with stakeholders in government, the private sector, and enlightened ordinary citizens.

2. REVIEW OF RELEVANT STUDIES AND THE CURRENT