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Ebola crisis: why tax breaks hurt health systems in Sierra Leone

2 April 2015 - Last week marked the first anniversary of onset of the world's worst Ebola outbreak – a sobering milestone. If the past 12 months have demonstrated anything, it's the extent to which both national governments and global agencies alike were ill-prepared to deal with a health emergency of such magnitude.

Bystanders look at a health worker in protective clothing in Bomi county, Liberia

Although the outbreak is by no means over, the situation is improving slowly in Guinea, Liberia and Sierra Leone, with the Ebola lexicon gradually moving from that of 'emergency' to that of 'recovery'.

As efforts to eradicate the deadly virus continue, the international community now has an opportunity to learn lessons from this unprecedented crisis and take concrete steps to ensure it never happens again. 

Some of these lessons have already been well-documented, including in last week's candid report from Médecins Sans Frontières, who have questioned why the international community failed to prevent the outbreak from spiraling 'so spectacularly out of control'.

There are many potential answers to this question. One that demands further attention is the role of excessive tax breaks given to foreign firms particularly in Sierra Leone, which accounts for nearly half of the 25,000 cases in the current outbreak.

Key questions over the impact of tax incentives on healthcare has been raised by a Sierra Leonean civil society group, Budget Advocacy Network (BAN), who has highlighted key lessons for the Sierra Leone government, foreign investors, the UK government and the European Union.

BAN, a partner of international development NGO Christian Aid, last month released a policy briefing setting out why tax incentives have crippled the country's ability to cope with the Ebola outbreak. Its first lesson for us is that underinvestment in the health sector has left Sierra Leone vulnerable to the spread of Ebola.

In 2001 Sierra Leone committed to invest 15% of its national budget to improving the health sector, as did the other African governments who signed the ‘Abuja Declaration’. However, the country allocated only 6.8% to health in 2012 and just 7.5% in 2013.

The actual health spending that year was even lower than the allocated figure, BAN's findings reveal. Arguably, the amount of funds a country earmarks for health reflects the standards of its medical care.

The second lesson from BAN is that the government of Sierra Leone gives away an excessive amount of revenue in tax incentives to foreign investors, predominantly European and UK-based multinationals in the agriculture, mining, manufacturing and infrastructure sectors.

In 2012, Sierra Leone’s tax exemptions amounted to approximately £158m, which is an astounding 10 times the national health budget for that year.

While private investment certainly has a role to play in the development of countries like Sierra Leone, one has to ask why foreign corporations are allowed to gain so much at the expense of women, children and men in one of the world’s poorest countries.

Companies operating in Sierra Leone need to recognise that the generous tax incentives they receive are shortsighted. For instance, multinationals have been losing their profit margin due to the closure of in-country operations.

If some of the aforementioned £158m had been poured into the health budget, it could have mitigated the catastrophic effects of Ebola, thereby minimising the impact on firms' operations and their profits. It would also have improved the state of public services, for the benefit of both Sierra Leoneans and the foreign workers employed by these companies.

Revenue losses in Sierra Leone undermine good governance and development.
BAN is now calling on the Sierra Leone Government to review its policy on tax incentives and, ultimately, reduce them drastically, so that it can invest in strengthening its fragile health system.

At the same time, the UK Government is being asked to support the Sierra Leone Government to resist pressure to grant mutually damaging tax incentives. The UK's Department for International Development has spent £427m of public funds on its Ebola response in Sierra Leone: arguably, some of this money might have been saved had there been greater investment in country's health infrastructure before the outbreak started.

To reduce such losses, the UK Government needs to follow and implement the recommendations outlined by the IMF, OECD, UN and World Bank in a joint report, ‘ Supporting the Development of more Effective Tax System.

What’s more, the UK Government should encourage all its resident companies operating in Sierra Leone to pay a fair amount of taxes, and ensure that Sierra Leone’s National Revenue Authority is fully involved in the design of any exemptions, to guarantee a more transparent and fairer negotiation process.

The proper implementation of such recommendations would enable Sierra Leone to raise its tax revenues and invest more resources in rebuilding a health system that has been pushed to breaking point over the past 12 months.

Over 3,400 Sierra Leoneans have now lost their lives to Ebola, including medical staff. In the same period, many people will also have died from preventable conditions such as malaria, typhoid and complications in childbirth, due to a lack of available health facilities. People have also lost livelihoods, income and the means to feed their families, while children have missed months of education.

The facts are clear: everyone loses out when foreign multinational corporations receive excessive tax incentives. That’s why we need to put a stop to it. We can only hope the international community sits up and takes note of this lesson, for everyone's sake.

Jacopo Villani is Senior Adviser for Humanitarian Policy and Advocacy at Christian Aid.

This blog first appeared on Devex.

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