IMF urges Gambia to introduce Value Added Tax

The International Monetary Fund has urged The Gambia to pursue a comprehensive tax reform, centered on the introduction of Value Added Tax (VAT) by 2013. In a report prepared by the staff team of the IMF following a discussion that ended in June, this year, with the officials of The Gambia on economic developments and policies, the IMF stressed that a broad based VAT has proven to be a reliable revenue source in many countries throughout the world, including sub-Saharan Pic: Executive Director of IMF  Africa. A shift towards a more consumption based tax system with improved tax payer services could form the cornerstone to a more enabling environment for business and investment in The Gambia. However, it could be recalled that Hon. Abdou Colley, Minister of Finance and Economic Affairs, while delivering the 2010 budget speech said The Gambia has planned the introduction a Value Added Tax system on or before January 2013. IMF Country Report of The Gambia maintained that preparing for a successful launch of VAT, “requires that existing systems and policies are improved.” This includes an overhaul of the small business tax, further roll-out of self-assessment, the establishment of a tax refund system, and improvements in taxpayer services. Additional steps include widening the base of the current sales tax and enforcement of excise taxes on domestically produced goods. Capacity constraints in tax administration will guide policy choices to ensure that a new tax system can be run efficiently within the resource constraints faced by The Gambia Revenue Authority (GRA). “Complementary measures are needed to make the tax system efficient and friendlier to tax payers,” the report noted, while adding that several “nuisance” taxes—taxes with low revenue potential but high administrative and compliance costs—could be abolished. This would free resources at the GRA to pursue more revenue-relevant activities and improve the tax environment for the private sector. It further maintained that tax payer services could be improved by the establishment of a tax and customs tribunal. The Gambia’s tax system undermines the business climate, yet revenue is volatile and remains below the regional average. The country’s domestic revenues account for only about 15% of Gross Domestic Product (GDP).  The volatility of the revenue is partly because of fixed retail fuel prices and varying tax collection priorities. Poor scores on tax compliance and tax payer services are an important reason for the low ranking of Gambia’s business climate. The authorities’ response The report stated that The Gambian authorities agreed that the country’s tax system is in need of reform. It says the authorities clearly stated their commitment to the introduction of a VAT in the context of their membership in ECOWAS. However, the report indicated that the authorities have yet to decide on the timing of the preparatory intermediate steps to be taken. “They (Gambian authorities) did note that the GRA is in the process of implementing the collection of excise taxes on domestically produced goods, both as a revenue measure and to meet World Trade Organization (WTO) commitments. They also stressed their long-term goal of reducing corporate income tax to enhance the competitiveness of The Gambia within the ECOWAS region,” the report further explained.