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VAT aggravates inflation

Apr 15, 2013, 11:29 AM | Article By: Osman Kargbo

Inflation in The Gambia has gone up steeply in the last three months, especially since the Value Added Tax (VAT) was introduced in The Gambia in the wake of 2013, says the International Monetary Fund (IMF).

This was affirmed by a statement a one-week mission of the IMF read to journalists at a press conference held recently at the Central Bank of The Gambia in Banjul.

The statement says: “Inflation, however, has picked up, partly due to side effects from the introduction of the value-added tax (VAT) at the beginning of the year. For example, although the VAT is applied to firms with a turnover of at least one million dalasis, we understand that many smaller businesses also raised their prices opportunistically.”

The implementation of Value Added Tax in The Gambia is part of the tax reforms embarked upon by The Gambia’s Public Financial Management Reforms and ECOWAS Member States. 

But since its implementation in the country in January this year,  prices of goods and services have increased rapidly, even though the nation is made to believe that “the VAT has no cascading effect” and “is good for the promotion of both domestic and international competitiveness”.

The Gambia Revenue Authority (GRA), the institution implementing the VAT, has said the introduction of VAT should not lead to a general increase in the prices of goods and services, but the contrary is what the nation has been experiencing in the last three months.

A press release by the GRA argues: “VAT replaces sales tax at the same rate of 15%.  The general price increases cannot be justified as most of the goods now subject to VAT were previously subject to sales tax at the same rate.

“VAT should only be charged by businesses registered and issued with a VAT registration certificate by the GRA. The registration certificate must be prominently displayed at the business premises. Customers should ensure that businesses without a VAT certificate do not charge them VAT. 

“VAT is not an additional cost for registered businesses, as they are not liable to sales tax payment, and are entitled to an input tax credit for the VAT paid on their purchases, imports and operating expenses. The input tax credit is claimable monthly during the time of tax returns processing.

“Businesses not registered for VAT are not required by law (income & Value Added Tax Act 2012) to charge VAT on their supplies of goods and services.

“Registered businesses are required to issue VAT invoices every time there is a sale of goods and services to VAT registered businesses.  If not provided, customers should ask for their invoices. The VAT invoices must clearly state the amount of VAT that has been included in the total sale price and the VAT registration number.

“Registered retail businesses are required to issue VAT receipt every time there is a sale of goods to VAT customers.  If not provided, customers should ask for their receipt if needed. The VAT receipts must clearly state the amount of VAT that has been included in the total sale price and the VAT registration number.

“All prices of goods and services displayed and quoted by VAT registered businesses must be VAT-inclusive.  VAT should not be an additional charge added to the advertised price nor should the payment of VAT be negotiated over the counter by the customer and sales agent.

“Basic foods like rice, sugar, oil, flour, basic bread, fresh fish, fresh meat, fresh vegetables, maize, sorghum, millet, fruit and infant food, etc. are exempted from VAT.  No business should charge VAT on these goods hence no price increases are expected.”

Despite the argument of the GRA, prices continue to escalate unabated. But to cushion the situation, the Central Bank of The Gambia “has however tightened its targets for reserve and broad money growth to stem potential inflationary pressures and stabilize the dalasi”, which, the IMF mission notes, has continued to weaken against most major currencies.”

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