The Acting Secretary of State to the Embassy in Liberia
202. Dept appreciates well balanced comments Embtel 2261 re effect proposed change Lib income tax rates on Firestone. But it still seems apparent that in its practical effect change is primarily aimed at Firestone since Firestone is only firm now paying really sizeable corporate income taxes in Liberia, and increase from present 14% to 25% wld [Page 499] almost double Firestone tax liability after only little over two years experience under 1950 agreement.2
Lib revenue expectations and rate governmental expenditure since 1950 have been based on continued high world prices rubber despite warnings two years ago these prices might decline. Recent drop rubber prices has left LibGovt short funds and impelled it seek additional revenue by various means. Since Firestone and LibMinCo are the only two important sources revenue, conclusion inescapable LibGovt will be continually tempted demand changes in agreements with these two firms whenever short of funds.
This tactic certainly not calculated inspire confidence in other actual and potential fon investors in soundness and impartiality Lib tax and fiscal policies. Question also not one of comparing Lib tax rates to Amer rates nor of emphasizing advantages Firestone enjoys under 1950 agreements but rather of seeming inability Lib Govt to project its revenue and expenditures on anything more than very short term basis subj repeated changes and demands for renegotiation recent agreements. This tactic if continued will have adverse effect on full faith and confidence Lib Govt. Dept feels this consideration outweighs question whether Firestone cld pay higher taxes, and also considers as inadmissible argument that increase in Lib tax will not ultimately cost Firestone anything because parent Firestone Co will pay correspondingly less taxes in US.
Dept understands from Christie3 that within next two weeks Lib will receive from Mining Co $500,000 from increased royalties.
Dept recognizes deterioration Lib fiscal structure will adversely effect Firestone and others operating in Lib and is very anxious prevent such deterioration. Although raising Firestone tax rate may solve immed crisis cost involved in repudiating present agreement may be too high in terms prestige and confidence. It offers no long run solution recurring financial crises whose prevention lies in placing Lib fiscal policies on soundest basis soonest. Dept believes any reconsideration Firestone tax agreement shld await estab new budget system.
Dept requests Emb views as to steps needed accomplish this, in addition to obvious one of recruiting and sending out an Amer financial expert to advise PresTubman which Steadman states Tubman agreed to in talks with him last July.
- Not printed; it reported the local feeling that since Firestone had enjoyed the privilege of nominal payments during the time it was seeking to recoup its initial investment, it should no longer cling to this special advantage particularly since the local rate was small in comparison with the tax rates in the United States. (876.11/11–1152)↩
- In April 1950, an agreement had been reached between the Government of Liberia and Firestone whereby the latter would pay an income tax at a starting rate of 12 percent on its corporate earnings. The rate was to go up 2 percent every 2 years.↩
- Landsdell K. Christie was the President of the Liberia Mining Company.↩