Despite continued reforms and legislative reforms in the Liberian Revenue Code (LRC), the country loses millions of dollars each year due to illegal financial flows (IFFs) and the dominant informal economy.
A recent analysis by Dr. Bonocay GB Gould, a senior lecturer at the Faculty of Economics at the University of Liberia, found that these challenges exacerbate the country’s financial constraints and undermine economic stability.
In his paper entitled “An Assessment of the Liberian Revenue Law: A Strategic Framework for the Fighting of Illegal Financial Flows and the Informal Sector,” Dr. Gould emphasized that the country’s current tax framework, albeit comprehensive, does not have structural provisions to effectively tackle IFFS and an unregulated, informal economy. According to our own documents, these two factors have reduced significant revenue from the Liberian government and deprived the country of the essential funds needed for infrastructure, healthcare and education.
“The loss of revenue in Liberia due to illegal financial flows and informal economy is substantial and represents one of the greatest barriers to national development,” explained Dr. Gould. “Although the LRC provides a basic tax framework, its ability to address these issues is severely limited by weaknesses in enforcement, compliance and the broader institutional landscape.”
IFFS, which includes activities such as tax evasion, trade misadjustment, unrecorded capital flights and corruption, is estimated to cost Liberia hundreds of millions of dollars each year. Dr. Gould noted that despite attempts to streamline tax rates and simplify compliance procedures through the 2011 and 2020 revisions, illegal financial flows continue to erode Liberia’s financial space.
“Even though they established a comprehensive tax framework in the 2000 Liberian Revenue Act (LRC) and subsequent amendments in 2011 and 2020, the country’s fiscal space remains restrained. These amendments seek to streamline tax rates, promote investments, and simplify compliance procedures. They undermine the broader objectives of LRC operational efficiency and fiscal sustainability,” he added.
A 2021 report from Global Financial Integrity (GFI) revealed that Liberia will lose more than US$200 million a year due to these illegal financial movements. At the same time, the informal sector, which accounts for more than 80% of Liberia’s workforce, operates primarily outside of formal tax systems, further exacerbating revenue losses.
The paper criticizes the Liberian Income Act for several important shortcomings that address illegal financial flows and hinder the ability to bring the informal sector into the formal economy.
“This code does not have a targeted provision to address the systematic issues of tax evasion, offshore tax avoidance, and the widespread existence of unregistered businesses,” Dr. Gould said. “There is also a big gap in the integration of the Code with the Anti-Money Laundering Act and international financial transparency standards, which is important in the fight against IFF.”
Dr. Gould said that excessive reliance on resource-based taxation, particularly from industries such as rubber, iron ore and wood, would make Liberia’s fiscal revenue vulnerable to external shocks, further limiting its ability to generate stable income. No useful ownership reporting and failure to implement automated information exchange protocols only exacerbate the problem.
According to the International Monetary Fund (IMF), the shadow economy in Liberia, which consists of a wide range of unregistered, non-registered activities, is estimated to make up about 61% of the country’s GDP. This informal economy is not only a major contributor to the country’s tax gap, but also prevents governments from effectively funding critical development projects.
“The informal sector accounts for a significant portion of Liberia’s economic activity, but operates primarily outside of the formal tax system, contributing to an estimated annual loss of between USD 5,000 and USD 75 million,” Dr. Gould said. “This unreported revenue from micro, small and medium-sized businesses (MSMEs) is a major barrier to expanding Liberia’s tax base.”
Estimates show that the combination of illegal financial flows and informal sectors takes into account a staggering amount of 30-35% of Liberia’s potential tax revenues each year. Liberia’s domestic revenues are fixed at around US$500 million, which means annual revenue losses between US$150 million and US$175 million.
To address these issues, Dr. Gould calls for the development and implementation of a national strategy that goes beyond the regular revision of the Liberian Income Act. According to Dr. Gould, the proposed strategies should include legal reform, institutional capacity building and technological innovation. He emphasized that the LRC must be amended to include provisions that address illegal financial flows directly, such as beneficial ownership disclosures and mandatory financial transparency measures in line with international standards.
Dr. Gould also emphasized the need to strengthen the Liberian Revenue Agency (LRA), Ministry of Finance and Financial Information Unit (FIU) to improve enforcement capabilities and surveillance systems, particularly in high-risk sectors such as mining, telecommunications and cross-border trade. Additionally, he pointed out the importance of investing in digital tools for tax management, including integrated electronic filing systems, real-time financial reporting, and automated customs data tracking.
“Without comprehensive reforms, Liberia’s financial situation will only continue to deteriorate,” Gould warned. “The strategic integration of digital infrastructure, legal frameworks and stronger enforcement mechanisms is key to reverse the losses Liberia faces.”
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According to Dr. Gould, the proposed reforms could result in significant improvements in Liberia’s revenue collection. By suppressing IFFS and formalizing the informal sector, Liberia can recover from US$100 million to US$125 million per year within five years, reinvesting into key sectors such as infrastructure, education and healthcare.
“With proper reforms, Liberia was able to reduce the shadow economy to less than 40% of GDP, significantly increasing the tax base and provide a foundation for sustainable economic development,” Dr. Gould said. “These reforms are not just finances, they represent opportunities to build a more transparent, resilient and accountable system for future generations.”
As Liberia continues to tackle systemic fiscal challenges, Dr. Gould’s analysis highlights the urgent need for comprehensive reforms in the country’s tax laws and broader economic policies. Tackling illegal financial flows and integrating informal sectors into formal economies is not only important for fiscal stability, but also necessary for the long-term development of Liberia.
“Liberia is at a crossroads,” concluded Dr. Gould. “Implementing a national strategy to curb illegal financial flows and formalize the economy is essential for the country’s economic growth, stability and future prosperity. Without these reforms, Liberia will continue to abandon the critical resources needed to improve the lives of its citizens.”
