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Economywatch: Easing tax burden on businesses seems a far cry

Sep 19, 2012, 10:48 AM | Article By: Osman Kargbo

In this world nothing can be said to be certain, except death and taxes - Benjamin Franklin

In its 2012 budget, the Gambia government indicates that it is going to pursue a comprehensive tax reform scheme that is geared towards broadening the tax base, simplifying procedures and lowering tax rates, while preserving revenues.

This reform programme is going to be enhanced by the Value Added Tax scheme (VAT) scheduled to be introduced on 1 January 2013.

When the implementation of this tax reform was announced initially, one of the expectations of the people is that the burden of taxation they have been enduring over the years would be minimised or lowered, so they could keep heads above waters and continue in business.

But the VAT is not really out to mitigate or lower the high tax on businesses in the country; rather it is out to lessen the complexity of taxes levied on businesses and people in The Gambia, as it is a form of sales tax levied on the total sales of firms, minus the amount they have bought in from other firms, with the goal of taxing each piece of output once and only once.

According to IMF Mission Chief for The Gambia David Dunn, the VAT scheme to be applied in the country would not increase tax rate; rather it would maintain the same level of tax rate as the general sales tax, which is being applied currently. What the VAT would really do, and by extension the public sector reform, is to make the collection of taxes simple or less burdensome and done in comprehensive manner.

In a briefing of journalists on Monday at the Finance Ministry after the conclusion of his IMF Mission to The Gambia to discuss performance under the country’s macroeconomic and financial programme supported by the IMF, Mr Dunn said: “In line with commitments to ECOWAS (Economic Community of West African States), the Government is committed to replacing the general sales tax with value added tax (VAT) on January 1, 2013, which is expected to lead to a boost in revenue collections. Beyond the VAT, the Government seeks to pursue a comprehensive tax reform that broadens the tax base, simplifies procedures, and lowers tax rates, while preserving revenues.”

Deductions from this statement suggest that even with the VAT and the new general tax reform, businesspeople and businesses would continue to grapple with the high taxation model for which The Gambia is ranked high in the 2011‘World Bank Doing Business Report’.

The fact that The Gambia is a ‘tax-based economy’ was made clear at a recent national economic summit where reports emerged from impeccable sources that The Gambia is rated the second highest taxed-based economy in the world.

Business people in The Gambia are made to grapple with various types of taxes. These include high municipal taxes and incoherent tax regimes, which made the 2011 ‘World Bank Doing Business’ report positioned The Gambia among the ‘8th bottom most difficult countries to do business’.

Many businesspeople in the country have continued to express concern over the numerous taxes enforced on them, and would want some respite when the new tax scheme would be introduced in 2013.

Concerns have also been coming from the Department of Animal Health and Production Service that “the levy of sales tax (of 17%) on poultry inputs such as feed and feed ingredients of day-old chicks, hatching eggs and veterinary drugs and vaccines, remains a serious challenge in the poultry sector”.

According to the World Bank Doing Business Report 2011, The Gambia is ranked 176th in the world, in terms of ease of doing business.

While the Gambia government has finalised replacing sales tax with the VAT, some members of the private sector have expressed fear that the proposed VAT may not work, citing the tense social, economic and political climate it created in other countries such as Nigeria, Sierra Leone and Ghana when it was first introduced in these countries.

The government is therefore advised to lower and harmonise taxes at national and local level.

However the authorities have continued to defend the introduction of VAT in the country’s business milieu, since it has been conceptualised by government few years back, and that a thorough study of its impacts has already been done.

Cutting taxes massively and simultaneously, the government believes, will create a deficit in government’s budget, which may lead to a situation where government will have to lean heavily on other reserves. This may be detrimental to budget planning.