DRAFT

BUSINESS AND RENT SURVEY REPORT

MONITORING, RESEARCH & PLANNING (MRP) DEPARTMENT

NATIONAL REVENUE AUTHORITY

SECTION ONE

1.0 INTRODUCTION

With the commerce and business sector booming now in Sierra Leone and the growing

need to liberalize the economy, there seems to be a paradigm shift towards more of

domestic taxation and less dependence on international trade taxes. However, a major

limitation in attaining an effective and substantial revenue mobilization through domestic

taxation is the dearth of reliable and comprehensive database of business entities and

rented property countrywide.

The then Income Tax Department in 2004 conducted a Business and Property Survey

covering the Western Area. Although some credence may be given for such an exercise,

the survey result cannot be considered as being reliable due to the fact that the process of

collecting the data was marred with bias and unscientific methodology. Also, the

Business and Statistics Unit of Statistics Sierra Leone conducted a Business Survey in

2005 covering the entire country. But, the data collected could hardly adequately suit the

needs of NRA. Mindful of the fact that the ultimate quality and success of many

institutions around the world are borne out of the time, resources and effort directed in

research of new concepts, ideas and thoughts that are very central to the planning process

of the activities they undertake. Also, as human resource capacity largely influence the

effective and efficient functioning of every organisation, so does research on issues

fundamental to the vision of an organisation influence the quality of the strategic goals

and mutually reinforcing objectives that guide the business plan of that organisation and

the development of new goals and objectives.

1.2 Objectives of the 2013 Business and Rent Survey

1.2.1 General Objective of the Business and Rent Survey

The general objective of the Business and Rent Survey is to provide NRA management

with up to date data of businesses in the major cities of Sierra Leone.

1.2.2 The Specific Objectives of the Business and Rent Survey

The specific objectives of the Business and Rent Survey are as follows:

determine the number and location of businesses nationwide

determine the category and nature of businesses in each region

determine the legal status of businesses in each region

determine the number of houses/ business premises as well as the amount of rent

payable

determine the amount of withholding tax on rent payable to NRA

ascertain the tax compliance of businesses countrywide

ascertain business prospect in the different regions

determine factors affecting businesses

1.3 Structure of the Report

The report is divided into Three Parts. The first part of this report is organized into Two

Sections. Section one gives a summary background of the Business and Rent and the

survey objectives. Section two covers the sample design and coverage, questionnaire

development, pre-testing and fieldwork, organization of the survey and data collection,

sample achieved and data processing and analysis.

The second part of the report (Part Two), is organized into three sections. Section One

covers the business enterprise survey- which targets all business enterprises operating in

the country (businesses with fixed location and business addresses). Section Two covers

the tenant survey- which targets institutions that are renting properties (MDAs, UN

Agencies, and Non-Governmental Organizations) and Section Three deals with the

Landlord Survey-which targets Landlords of rented buildings in the country.

Part three of this report highlights the summary of the field observation and the findings

from the data analysis. This part also proposes policy recommendations based on the

findings and observations.

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SECTION TWO

2.0 SAMPLE DESIGN AND COVERAGE

The business and rent survey had a total sample of 8235 establishments selected both

from the public and private sectors and allocated among the four regions covered in the

study. Establishments from the public sector were selected purposively; while those from

the private sector were selected using various techniques. For example all the registered

businesses including commercial banks, insurance companies, mining companies were

included in the sample; whereas selection was made for wholesale and retail trade, and

other services (tourism, transportation and communication) construction and

manufacturing establishments based on the size of employees. The TIN registration

database maintained by the National Revenue Authority was used as the main sample

frame for the selection of business establishments included in the sample.

The survey was a nationwide survey, covering the regional towns of Freetown, Kono,

Kailahun, Pujehun, Port Loko, Tonkolili, Bo, Bonthe, Moyamba, Koinadugu, Kambia,

Bombali and Kenema. However, the data collection were carried out mainly in Freetown,

the capital city since majority of business establishments had their head offices based

here in Freetown.

2.1 QUESTIONNAIRE DEVELOPMENT

The questionnaire was developed through a consultative process between the Monitoring

Research and Planning Department and the Domestic Tax Department, wherein staff

from both departments were invited to make meaningful input to the proposed questions

4

designed to capture business and rent information. Some form of pre-testing was done in

order to finalize the instrument. The questionnaire captured information such as:

Business identification

Employment and welfare

Business registration and legal status

Withholding tax information

Record keeping and filling of returns

Financial status of business

Tax status

Business prospect

Problems and solutions

2.2 PRE-TESTING AND FIELDWORK

The training program for enumerators and supervisors was followed by a one day pre-

testing of the different sections of the draft questionnaires by the supervisors in the

Western Urban and parts the Western Rural Area. The questionnaires were later amended

to reflect the observations made during the pre-testing exercise.

2.3 ORGANISATION OF THE SURVEY AND DATA COLLECTION

The business and rent survey was conducted in line with the Income Tax Act 2000, which

makes it mandatory for all business establishments operating in Sierra Leone to keep

proper records of their daily business activities. The Act further stipulates that

information received would be kept confidential and used only for tax purposes. A letter

5

signed by the OIC Monitoring Research and Planning Department of the National

Revenue authority was sent to key business establishments to encourage business

owners/executives to provide the relevant information relating to their business and to

assure them of the confidentiality of the data collected.

Training of enumerators was conducted for two days in the Western Area from

September 2013 at the Saint Anthony Parish Hall Freetown and in the provincial cities of

Bo Kenema and Makeni on October 2013. A total number of 210 enumerators and 30

supervisors were recruited and trained for the data collection exercise. After the training

workshop, the questionnaires were distributed to the supervisors; and the Western Area

was sub-divided into ten zones. Field work commenced on September, 2013 in the

Western Area and on October, 2013 in the provinces and lasted for two weeks. The

survey was designed such that the business premises were visited several times so as to

get the requested information from the businesses. The Coordinators and the Principal

Coordinators of the survey monitored the data collection exercise on a daily basis in the

Western Area as well as in the provinces through telephone and other means to assist

enumerators and supervisors to do their work effectively and diligently. Additional visits

were paid to some business establishment in the Western Area and the provinces to

validate the data collected in each of these establishments.

2.4 SAMPLE ACHIEVED

The business and rent survey targeted 10,000 establishments; out of these establishments

targeted, 8,235 (82.3%) were successfully interviewed. That is, 5,599 business

establishments, 1,929 tenants and 707 landlords were successfully interviewed. The non-

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responses (17.7%) were largely due to delay in retrieving the questionnaires as well as

outright refusal to provide the relevant information.

2.5 DATA PROCESSING AND ANALYSIS

Following the completion of the data collection exercise, the completed questionnaires

were thoroughly checked by the supervisors, for accuracy and completeness before

returning them to the Monitoring Research and Planning Department (MRP). The

returned questionnaires were thoroughly screened to ensure that every section was

correctly and completely filled out and verified against the responses from the

respondents. The data entry exercise was centralized at the Statistics Sierra Leone Head

Office and was done within a month.

The data entry was done using Microsoft Access program and the captured database was

later exported into Microsoft Excel and Statistical Package for Social Scientists (SPSS)

software programs for analysis. The data validation was carried out to ensure additional

quality control. Frequencies and tabulations for analysis were done using SPSS and

Microsoft Excel software programs.

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SECTION THREE

3.0 PRESENTATION AND ANALYSIS OF SURVEY RESULTS

3.1 INTRODUCTION

The Business and Rent Survey questionnaire contained 11 parts, 9 intended to address

business enterprises operating in the country, 1 intended to identify institutions that are

renting properties and 1 intended to target landlords of rented buildings in the country.

Six of the eleven parts covered themes that together addressed relevant tax issues on both

past/current business performance and future expectations. The tenant and landlord

questionnaire were similar in scope but each modified slightly to suit the special needs of

the survey.

Business Enterprise

3.2 Distribution and Socio-economic Characteristics of Respondents

Sierra Leonean Regions differ widely in terms of size and level of economic

development, thus the number of respondents per region was expected to differ

accordingly. Figure 1 shows the number of respondents who completed the business

enterprise questionnaire per region. As expected, the highest number of respondents had

their businesses located in one of the three most economically developed Regions:

Western Area, Eastern and Northern Region. These account for 64, 14, and 12 percent of

respondents, respectively. The lowest number of respondents came from Southern

region(10 percent of total). The results for this region are often differing substantially

from the country averages and results for other regions. Findings for Southern region

have to be interpreted with caution - due to the low number of responses, it is not

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necessarily clear what drives the difference – is it regional specific or lack of

representativeness in the sample.

East 14%

North 12%

South 10%Western Area 64%

EastNorthSouthWestern Area

Figure 1: Distribution of Respondent

Kailahun 2%Kenema 8%

Kono 4%Bombali 6%

Kambia 1%

Koinadugu 1%

Port Loko 2%

Tonkolili 1%

Bo 7%

Bonthe 2%

Moy-amba 1%

Pujehun 1%

Western Area Rural 10%

Western Area Urban 54%

Figure 2: Location of Business

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Respondents’ businesses also differ substantially among the provincial towns in terms of

their location (Figure 2). The provincial percentages range from 1 in Pujehun to 54 in the

Western Area Urban.

Sex

Out of a total of 5,518 valid respondents for the business enterprise, 4,263 (about 77

percent) were male and 1,255 (23 percent) were female. This shows, however, and

supports the fact that businesses in Sierra Leone are largely owned by men. Female

ownership and control is very minimal as shown in Table 1.

Region

Table 1: Respondents Sex

Male

Percent

of Male Female

Percent

of

Female Total

Percent

of Total

West 2667 62.5 887 70.5 355464.4

South 418 9.8 123 9.5 5419.8

East 649 15.2 117 9.2 76613.9

North 529 12.5 128 10.8 65711.9

Grand

Total 4263 100.0% 1255 100.0% 5518 100%

Table 1 showed that the number of males interviewed throughout the country more than

four times greater than female.

Educational Level

The level of education of business owners is significant in the area of administration,

management and control of operation and personnel and also relevant in the areas of

record keeping, finance and accounting and in determining the tax liability at the end of

the tax period.

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The study showed more than three-quarter of the taxpayers interviewed could read and

write. See Figure 3 below:

Did not go to school 35%

Pri-mary 7%

Secondary 33%

Tec. Voc 11%

Univer-sity 12%

Others 2%Figure 3: Educational Status of business owner(s)

That is, about 33 percent of them completed secondary education and 12 percent

completed university education, 11 percent completed technical education, 7 percent only

completed primary education and 2 percent completed other form of education. However,

35 percent could not adequately read or write simply because they never attended school.

Business Identification

Distribution of businesses by industry

Figure 4 shows the distribution of businesses by industry. The result shows that trades

account for the highest percentages (84%) of business establishment canvassed, this is

11

followed by other services (4%). The share of manufacturing is 2 percent, which fell

below other services and hotel and restaurant with a share of 4 percent and 3 percent

respectively.

Manufacturing Tra

de

Communication

Banking

Insurance

Hotel and Resta

urant

Other Serv

ices

Agriculture

Construction

Others

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2%

84%

1% 1% 1% 3% 4% 1% 1% 2%

Figure 4: Industry in which the business is operating

The high proportion of business enterprises operating in the trade industry could be

attributed to the highly selective sampling technique which was skewed towards

capturing small and medium enterprises. Also, amongst the business enterprises that are

engaged in trade activities; significant proportion engaged in retail trade (82 percent)

where as 5 percent and 13 percent engaged in wholesale and both retail and wholesale

trade activities respectively. This is shown in Figure 5.

12

RetailWholesale

Both

0%

10%

20%

30%

40%

50%

60%

70%

80%

90% 82%

5% 13%

Series1

Figure 5: Form of trade activity

The analysis according to activity as set out in Figure 6 below, reveals that the majority

of the respondents operate in sole proprietorship. This is closely followed by partnership

business. Companies have the least representation; however, as this is a specialized area

in taxation, this should not affect the representativeness of the responses received.

Overall, all business activities in the Sierra Leonean economy are represented in the

results received, once again ensuring no significant bias regarding area of activity.

Sole Proprietorship Partnership Company0%

10%

20%

30%

40%

50%

60%

70%

80%

90% 82%

13%

5%

Series1

Figure 6: Area of business activity

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Employment and Welfare

Business Registration and Legal Status

The first step in tax compliance for businesses is registration for taxes. Essentially, all

business enterprises must register for income tax; sole proprietors and the members of

partnerships must register separately for income tax (while companies are automatically

registered for cooperate tax along with income tax). Business enterprises with a turnover

over Le……… are required to register for GST and firms with employees must normally

register for PAYE and Payroll tax.

Overall 52 percent of the respondents reported that they have registered their businesses

with OARG before operating. When respondents were asked if their businesses are

registered with NRA, 53 percent of valid responses reported that they have registered

their businesses with NRA. On the other hand, 48 and 47 percent of the valid respondents

did not register their business with OARG neither NRA respectively but they will at least

to some extent likely to register their businesses. This is shown in Figures 7and 8 below.

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Tables 2 and 3 below focus on the data by region. It appears that businesses in the Western Area and the Southern Region are the ones most oriented toward the registering their businesses with OARG or NRA: Almost 58 percent of the respondents in the Western Area reported they have registered with OARG or NRA, while only 42 percent of the respondents reported they had never registered with OARG or NRA. By contrast, in the Eastern region (which, like the previous two mentioned, is a relatively urbanized region), only 51percent of respondents say they had registered their business with NRA and 48 percent reported they had never registered their businesses. Northern region has low number of registered businesses with both OARG and NRA but roughly 70 percent of respondents reported that they had never registered their businesses.

Yes No43%

44%

45%

46%

47%

48%

49%

50%

51%

52%

53%

53%

47%

Figure 8: Is this business registered with NRA?

15

Table3: Is this business registered

with the NRA?

Region Percent

Yes No

West 57.2 42.8

South 53.2 46.8

East 51.8 48.2

North 31.4 68.6

Average 48.4 51.6

Table2: Is your business registered

with the OARG?

Region Percent

Yes No

West 58.5 41.5

South 47.1 52.9

East 43.5 56.5

North 26.5 73.5

Average 43.9 56.1

Figure 9 below provide a picture of business sectors registered with either OARG or

NRA. Among respondents in the four regions, the highest registered business enterprises

are those in retail trade, wholesale and hotel and restaurant that is 57, 31 and 3 percent

respectively. Similarly, only 1 percent of respondents in each of the other sectors reported

to have registered with either OARG or NRA.

Wholes

ale

Retail t

rade

Communication

Bankin

g

Insuran

ce

Hotel &

Restau

rant

Other Se

rvices

Agricu

lture

Constructi

on

Mining

Manufac

turing

Others0%

10%

20%

30%

40%

50%

60%

31%

57%

1% 1% 1% 3% 1% 1% 1% 1% 1% 1%

Series1

Figure 9: What activities did you register your business to do?

Figures 10 and 11 focus on employment. As might be expected, among business

enterprises, those with permanent employees are relatively more likely to report

registering their businesses with OARG or NRA for tax purposes than those with

temporary employees. Similarly, among business enterprises, those with below 100

employees were the least likely to report they had registered with OARG or NRA for tax

purposes than those with over 100 employees.

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No Employee

1 to 100

101 to 500

500+

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

43%

38%

13%

6%

Figure 10: How many of your employees are permanent?

17

No Employee

1 to 100

101 to 500

500+

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

44%

40%

11%

5%

Series1

Figure 11: How many of your employees are temporary?

Making profits in 2011

With good and prudent financial management system, accommodating business

environment, right type of customers and the correct human resource management,

businesses are expected to make profit year in year out. However some businesses may

fall short of expectation due to unfavourable circumstances and still continue to be in

operation even though they would not be making profit. Normally, business people are

very conservative about revealing the profitability of their business especially businesses

that do not keep proper records.

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Yes 46%

No 54%

Figure M12: Did you make profit in 2011?

The survey tried to bring out whether the established businesses interviewed were able to

make any profit in 2011. It is observed in Figure.M12....that a very huge number (54%)

did not make any profit in 2011. This implies that 44% of the businesses made some form

of profit in 2011.

Factors responsible for the profit/loss in 2011

At the end of each business year, businesses can either make profit, loss or get at break-

even point. For each of these situations, there are varying factors to be taken into

consideration. The survey critically examined different factors that face the profitability

of businesses throughout the country. A whole lot of factors were highlighted by the

8,235 respondents ranging from high price of products produced/sold to low inflation.

From the alternatives given to the respondents in the interview, it can be observed from

Figure..M11....that 42% did not attribute the profit/loss of their business to any of high

price for product produced/sold, lower cost of inputs, stable exchange rate and low

inflation but rather to other factors that were not specified. High price for product

19

produced/sold and lower cost of inputs accounted for 28% and 16% respectively. The

factor that was least considered by the business owners is low inflation with 4%.

High Price for product produced/sold

Lower cost of inputs

Stable exchange rate

low inflation

Other

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

28%

16%

10%

4%

42%

Figure M11: Main factor responsible for the profit/loss outcome in 2011

Making profit in 2012

Figure.M10....illustrates the amount of businesses that made profits in 2012. Similar

questions on profit making were asked for 2011 but responses for the two periods vary

considerably. In 2011, less than 50% of the businesses reported that they did not make

any profit. However, 2012 shows a different situation in which 54% accepted making

profit whilst 46% did not make profit at all. This figure shows that some of the businesses

that did not make profit in 2011 undertook some improvement measures in 2012.

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Yes 54%

No 46%

YesNo

Figure M10: Did you make profit in 2012?

Factors responsible for the profit/loss in 2012

Like in 2011, a greater percentage (37%) of the respondents reported that their

profits/loss are not certainly linked to high price for products produced/sold, lower cost of

inputs, stable exchange rate and low inflation but are greatly influenced by other

unspecified factors. In a similar sequence, high price for product produced/sold (32%) is

another outstanding factor responsible for the level of profit/loss incurred in 2012. This

was similar to that of 2011 in which high price for products produced/sold was the

second prominent factor. Stable exchange rate (11%) and low inflation (5%) were

considered least among all the factors responsible for the profit/loss in 2012.

21

High Price for product produced/sold

Lower cost of inputs

Stable exchange rate

low inflation

Other

0% 5% 10% 15% 20% 25% 30% 35% 40%

32%

15%

11%

5%

37%

Figure M8: Main factor responsible for the profit/loss outcome in 2012

Increasing the capital of the business

Surely, increasing the capital of existing business should be among the priorities of any

business owner. In essence, increasing the capital has direct link to business expansion

and ultimately resulting to the creation of more profit. In line with this, respondents were

required to reveal their intentions of increasing their capital. Figure.M9.. gives an outline

of whether business owners would want to increase their capital. It was discovered that

88% were interested in increasing the capital of their businesses with only 12% having no

intention of increasing their capital.

22

Yes No0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

88%

12%

Series1

Figure M9: Do you hope to increase the capital of your business?

Means of increasing the capital of businesses

Figure.M7... gives details of some of the means exposed to business owners for

increasing the capital of their businesses. In the previous question about whether

entrepreneurs are interested in increasing their capital, 88% reported having such

intentions. As presented in Figure..M7..41% of the respondents were interested in

ploughing back profit into the business, 39% would want to take loans to expand their

capital and 20% was willing to take loan and plough back profit into the business.

Loans

Ploughing back profit

Loans and Ploughing back profit

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

39%

41%

20%

Figure M7: What are the means of increasing this capital?

23

Increasing profit

Except charitable organisations and few other businesses that are not established for

profit making, but all business owners aim at making and increasing profits. The more

profit a business makes the better it is expected to take care of its overhead costs and

stays in operation. The survey therefore investigated whether the established businesses

interviewed have aim of increasing their profits. Figure.M6....... shows that 88% of the

respondents accepted getting the aim of increasing their profits whilst 12% do not in any

way want to increase the profits of their business.

Yes No0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

88%

12%

Series1

Figure M6: Do you hope to increase profit of your business?

Expanding the business

Except in the case wherein some business owners want to close down business for some

other reasons but all business owners may want to expand their businesses to either other

24

branches or other sectors. The survey therefore required finding out whether the

respondents may actually want to expand their businesses to other sectors or other

branches in the country.

Other branches

Other sectors

Not at all

0% 10% 20% 30% 40% 50% 60% 70%

58%

10%

32%

Figure M5: Do you hope to expand your business to?

As observed in Figure.M5...., 58% of the respondents have hope of expanding their

businesses to other branches in the country whilst only 10% want to expand to other

sectors. It’s a little bit ridiculous to see a reasonably number of entrepreneurs who do not

want to expand their businesses at all either to other sectors or other branches. This group

accounted for 32% of the respondents.

Problems affecting businesses in expanding their capital

Figure M13a gives an overview of the main problems affecting expanding business

capital in the country. A countrywide response shows that lack of loan facilities is the

most awesome problem facing business owners in expanding business capital the

country. This problem accounted for 30%. High interest rate on loans was another factor

highly reported by27% of the respondents. High taxes (11%) and inability to float shares

in capital market (4%) were factors militating against the expansion of business capital in

25

the country. A considerable number (28%) of the respondents attributed their inability to

expand their capital to other unexplained factors.

High interest rates on loans

Lack of loan facilities

Inability to float shares in capital markets

High taxes

Other

0% 5% 10% 15% 20% 25% 30% 35%

27%

30%

4%

11%

28%

Figure M13a: What problem(s) do your business face in expanding your cap -ital?

Problems affecting businesses in maintaining their profits

The problems of maintaining profits are discussed from two fronts; countrywide and

regional basis. On regional front, South, East and North reported declining domestic

demand as the most serious problem affecting their businesses in maintaining profits

whilst business owners in the West were very particular of other factors not specified in

the interview. On countrywide assessment as in Figure M14a, 34% of the respondents

reported that fluctuating international price is the most outstanding problems affecting

maintaining their business profits. Next problem in the sequence is declining domestic

demand with 31%. High taxes and low inflation accounted for 15% and 3% respectively.

It was also observed from Figure M14a that 17% of the respondents attributed their

inability to maintain their business profits to other problems not specified in the

interview.

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Fluctuating international price

Declining domestic demand

low inflation

High taxes

Other

0% 5% 10% 15% 20% 25% 30% 35% 40%

34%

31%

3%

15%

17%

FigureM14a: What problem(s) do your business face in maintaining profit?

Size of initial capital to start a business

The initial capital to start a business is among the priority factors any entrepreneur may

consider in setting up a business. The survey covered eight thousand two hundred and

thirty-five (8,235) established businesses countrywide. As shown in Figure.M3.., 27% of

entrepreneurs started business with amount ranging from Le250,001 to Le500,000. It can

also be observed that 24% of the established businesses started with initial capital of less

than Le100,000. This in essence shows that many entrepreneurs especially sole traders

would not want to reveal the initial capital of there businesses

Less than Le 100,000

Le 100,000 -Le 250,000

Le 250,001-Le 500,000

Le 500,001 - Le 1 Million

Le 1 - Le 5 Million

Le5 - Le 25 Million

Le 25 - Le 75 Million

More than Le 75 Million

0% 5% 10% 15% 20% 25% 30%

24%

25%

27%

17%

3%

2%

1%

1%

Series1

Figure M3: What was the size of the initial capital when you started this business?

27

Only 1% of the established businesses was started with an initial capital of more than

Le75 million. A total of 6% of the businesses were started with amount of Le1 million

and more.

Main source of capital to start a business

One of the main factors affecting the setting up of a business in Sierra Leone is how to

raise up the initial capital especially for indigenous businesses. The fact the income of the

average Sierra Leonean is low, there is a higher tendency for savings to be low. Many

people do not want to go for bank loans to start a business due to the bureaucracy in

getting the loan and high interest rate on loans. The survey revealed that 66% of the

initial capital to set up a business is from personal savings. The next highest (19%) source

of capital is from loans from relatives/friends. As seen in Figure..M1.., only 10% starts

business with bank loan whilst 5% accounts for loans for other sources.

Personal Savings

Bank Loan

Loan from relatives/friends

Others

0% 10% 20% 30% 40% 50% 60% 70%

66%

10%

19%

5%

Figure M1: What was the main source of capital for this business?

Other sources of capital to start a business

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Figure M4 shows the level of other sources of capital available to the business owners in

the country. It was observed that 48% of business owner started business with capital

raised from their personal income. The next highest source of their capital was from

support from relatives with 20%. The response shows that only 14% raised their capital

from bank loans which appears too small. Loans from friends and other unexplained

sources of capital were least considered as reported in Figure M4.

Personal Income

Bank Loans

Loan fromfriends

Support from relatives

Others

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

48%

14%

11%

20%

7%

Figure M4: What other sources of capital do you have?

Payment of rent on business premises

The culture of paying tax in Sierra Leone still remains a difficult endeavour for tax

collection agency. This is particularly true of small businesses and other businesses in the

informal sector. It is therefore another complicated task to get information on the

payment of rent either from the tenant or the landlord. The tenants are afraid of divulging

information on the amount of money they pay as rent on the suspicion that they will be

asked by their landlords to quite the premises. The landlords on the other side are

conscious of the fact that rental tax is dependent on the amount of money they collect as

rent.

29

The survey therefore sought to find out whether the business people pay rent on their

business premises, the amount paid as rent and time of payment.

Yes 76%

No 24%

YesNo

Figure M2: Do you pay rent for this business?

Thus, business owners interviewed were asked whether they actually pay rent on their

business premises. The response shows that a greater number of business owners (76%)

pay rent on their business premises whilst 24% said that they do not pay rent at all for

their business premises.

Problems affecting the expansion of capital of businesses in the country

Naturally, most entrepreneurs would want to expand the capital of their businesses as

much as they can. Expansion of capital to a greater extent has direct connection with the

expansion of the overall business. However, capital expansion is not always possible due

to certain disturbing factors. The NRA is not only interested in collecting taxes from the

business people but also in the expansion of established businesses in the country. The

expansion of businesses directly increases business income thereby providing the

environment for more tax revenue collection from business entities. Therefore the survey

30

investigated some of the problems facing the business owners in expanding the capital of

their businesses in the four regions of the country.

Table..M13.....highlights some of the main problems affecting business expansion in the

country on regional bases. Lack of loan facility is the most outstanding difficulty facing

business expansion countrywide. On the average, 36.6% of business owners reported that

lack of loan facility is the most prominent problem affecting the expansion of their

capital. High interest rate on loans accounted for average of 27.2% of the problems facing

business expansion. Responses from the four Regional show a varying degree of

problems affecting business expansion. The leading problem in the East is the high

interest rate on loans as reported by 32.1% of the respondents. Unlike the East, lack of

loan facilities is the most acute problem facing capital expansion in the West, South and

North regions. The least considered problem is the inability to float shares in capital

markets which accounted for an average of 3.5%.

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Table M13: What problem(s) do your business face in expanding your capital? (%)

Reason West South East North Average

High interest rate on loans 27.3 26.5 32.1 23.0 27.2

Lack of loan facilities 28.7 44.2 21.5 36.2 32.6

Inability to float shares in capital markets 3.9 3.1 4.9 2.3 3.5

High Taxes 12.5 8.3 9.6 6.5 9.2

Others 27.3 17.6 31.7 31.7 27.1

Problems affecting businesses in maintaining their profit

The most plausible aim of an entrepreneur is profit maximisation. All entrepreneurs

worldwide, Sierra Leone not been an exception aspire for higher profits and how to

maintain that level. In real life situation, attaining an enviable success level may not be as

difficult as maintaining the position. This is also applicable in business life where

maintaining profit level becomes hard nut to crack. Therefore, apart from finding and

retaining the right type of customers, providing value for money, prudence financial

management system, the survey also investigated some of the main problems facing

business owners in the four regions of the country in trying to maintain profits.

Table..M14.... presents an outline on the main constraints facing the entrepreneurs in

maintaining their profits. Among the main obstacles reported by the respondents in all the

regions, declining domestic demand is the most outstanding issue preventing business

people from maintain profits. This on average accounted for 37.2% of the respondents.

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Table M14: What problem(s) do your business face in maintaining profit? (%)

Reason West South East North Average

Fluctuating international price 19.2 16.6 15.3 14.5 16.4

Declining domestic demand 28.2 38.6 39.7 42.5 37.2

Low inflation 1.7 1.5 3.8 4.2 2.8

High Taxes 17.6 14.1 20.4 20.7 18.2

Others 33.1 29 20.4 17.9 25.1

Except for Western Region in which other reasons take prominence, Southern, Eastern

and Northern regions were very much particular of declining domestic demands of the

goods. Since almost all the businesses interviewed deal in goods that are imported from

other countries, fluctuating international price also came out clearly as one of the main

problems affecting the profitability of most businesses in the country. 18.2% of the

respondents attributed their of maintaining profits to high taxes.

3.4 Withholding Tax

3.4.1 Businesses Awarded Contracts

In identifying businesses that pay withholding tax, it becomes imperative for us to

determine the proportion of those awarded contracts against the ones not awarded any

contracts. Ten percentage of businesses were awarded contracts 90 percent of them

were not awarded contracts.

Figure ... is a Pie Chart showing the percentage of businesses awarded contracts during

the study period.

33

10%

90%

Yes No

Figure: Percentage of Businesse awarded contracts.

Figure ... revealed that the bulk of businesses in Sierra Leone are not awarded contracts.

From the 10 percent that are awarded contracts, respondents were asked who awarded

them contracts. Thirty-nine percentage of the contracts were awarded by Government, 32

percent by Non-Governmental Organisations and 29 percent by the Private Sector. Figure

... depicts the percentage of businesses awarded contracts by sector.

34

Government Non-Government Private Sector0%

5%

10%

15%

20%

25%

30%

35%

40%

39%

32%29%

Figure: Percentage of contracts awarded by sector

Figure... indicated that Government is the lead provider of contracts (39%) followed by

Non-Governmental Organisations (32%) and then the Private Sector (29%).

3.4.2 Awareness of Businesses about the 5% Withholding Tax

To determine the knowledge of taxpayers or prospective taxpayers about withholding tax

on contracts, respondents were asked about their awareness of the 5% withholding tax on

contract. It is assumed that all business operators in Sierra Leone are aware of the 5%

withholding tax, yet Figure ... shows that only 24% of the businesses are aware while

76% of them are not aware of the 5% withholding tax on contract.

Figure ... is a pie chart indicating the percentage of businesses that are aware of the 5

percent withholding tax on contracts.

35

Figure.. illustrates that the bulk of businesses that are not aware of the 5 percent

withholding tax, which is great cause for concern.

3.4.3 Payment of the 5% Withholding Tax

From the 24% of businesses that are aware of the 5% withholding tax, respondents were

asked whether or not they pay the said tax.

Figure.. depicts the proportion of businesses that actually pay the 5% withholding tax.

24%

76%

Yes No

Figure: Percentage of Businesses that are aware of the 5% Withholding Tax on contracts.

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Yes 22%

No 78%

Figure.. Percentage of Businesses that paid the 5% Withholding tax.

Figure.. revealed that 22% of businesses paid the 5% withholding tax on contract while

78% of them did not pay the said tax on contract.

At regional level, most of the respondents did not pay the 5% withholding tax on

contract. Of the four regions in our country, only the South have 61% of businesses that

pay the 5% withholding tax while the remaining regions, that is, the East, North and West

have more 5% withholding tax evaders. In the Eastern Province, only 8.6% of the

businesses operating in that region pay the 5% withholding tax while 91.4% of businesses

there do not pay the tax on contract. Only 28% of businesses in the Northern Province

pay the 5% withholding tax on contracts whilst 72% of businesses do not pay. In the

Western Area, 26.5% of businesses pay the 5% withholding tax while 73.5% do not pay.

On average, only 31% of businesses in Sierra Leone pay the 5% withholding tax whereas

the majority (69%) of them do not pay. Table .. indicates the percentage of businesses

paying against those not paying the 5% withholding tax on contracts.

Table... Percentage of Businesses Paying the 5% Withholding Tax by Region

37

Region

Percent

Yes No

West 26.5 73.5

South 60.6 39.4

East8.6 91.4

North28.0 72.0

Average30.9 69.1

Figure.. shows that almost 70% or more of respondents in all regions have been

unenthusiastic about paying the 5% withholding tax, with those in the Ssouth region

recording the lowest (39.4%). Significant responses were recorded in the north and west

with the east recording over 90 percent for not paying the 5% withholding tax.

On the other hand, of the 31% who pay the 5% withholding tax almost half is recorded in

the south; 7% in the east and the north and west had over a quarter of respondents paying

the 5% withholding tax

3.4.4 Reasons for not paying the 5% Withholding Tax

Considering how important it is for the authorities to know the reasons for businesses not

paying the 5% withholding tax, respondents were asked why they do not pay the 5%

withholding tax. As shown in Figure..., 6 percent of the businesses covered consider the

amount payable too small to be paid; 7 percent of them do not know where to pay while

87 percent cited various other reasons for not paying the 5 percent withholding tax on

contract.

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Don't Know where to pay

Amount was too small to be paid

Other0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

7% 6%

87%Figure: Reasons for not paying the 5% withholding tax.

Table.. provides an array of reasons for businesses in the different regions not paying the

5% withholding tax.

Table..: Reasons for businesses not paying the 5% withholding tax by Region

Reason West South East North Averag

e

Don’t know where to pay 8.7 30.0 3.8 5.2 11.9

Amount was too small to be paid 6.1 40.0 2.2 9.5 14.4

Other 85.1 30.0 94.0 85.3 73.6

3.5 Record Keeping and Filing of Returns

A good tax system requires taxpayers to keep records of their business transactions over a

given period time, upon which appropriate tax revenue can be determined. Also, filing of

39

returns promotes voluntary compliance and enables tax officials to undertake assessment

and ascertain the appropriate tax the business should pay. Our tax laws therefore provide

for taxpayers to declare their tax obligations through returns filed for tax administration

purposes. Respondents were asked whether or not they keep records of their business

transactions. Figure... presents the percentage of businesses that keep records.

60%

40%

Yes No

Figure...: Proportion of Business that keep records of their business transactions.

In general, Figure ... shows that two-fifth of businesses do not keep records of their

business transactions while three-fifth of them actually keeps such records.

3.5.1 Type of Business Records maintained

The type of business records that respondents keep is of great interest to tax

administrators; hence the question, what records they keep, was posed to them. Figure ...

shows the types of business records respondents keep.

40

Sales

5% W

ithho

lding

Cost of

Sales/P

urcha

ses

Other E

xpen

sesOthe

rs0%

10%

20%

30%

40%

50%

60%58%

18% 15%

5% 4%

Figure.....: What records do you keep at the moment?

This indicates that more than one-half of the respondents maintain records of their sales,

followed by those who keep records on payment of the 5% withholding tax and on the

cost of sales, which stood at 18% and 15% respectively. Records on other business

expenses and sundry items accounted for 5% and 4% respectively.

On the other hand, from the 40% of businesses who do not keep records of business

transactions, the study looked at the reasons for not maintaining records. Figure...

presents an array of reasons given for not keeping records of their business transactions.

41

Business is too small

Don't need to file returns

Other

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

48%

22%

30%

Figure......: Reasons for not keeping business records

Figure .. indicates that almost half of the respondents considered their businesses too

small to keep records a little less than a quarter do not see the need to maintain records as

their business is supposed to file returns. About one-third stated various other reasons for

not keeping records.

3.5.2 Records of Transactions from Start of Business Operations

37%

63%

Yes No

Figure...: Do you have records of business transactions since you started operations?

Figure.. revealed that the majority (63%) of businesses operating in Sierra Leone do not

have records of their transactions from the start of business operations. Hence,

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respondents were asked why they do not have records of their transactions from the start

of operations and their responses shown in Figure..:

Business is too small

Don't need to file returns

Other

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

48%

22%

30%

Figure: Reasons for not keeping records since operation.

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44