Gambia widens tax base

Gambia National Assembly members have given their full support to the enactment of a law to broaden the country’s tax base.
 

The enactment of this law has been done to ensure maximum collection tax to increase tax revenues and reverse the current decline in government’s budgeted revenue.

The ratification of the Income and Value Added Tax Act 2012, by parliamentarians, replacing it with the Income and Sales Tax Act, No. 19 of 2004, means the country’s tax system will be further enlarged to include those that are hitherto untaxed since the bill states that a product will be taxed whenever value is added to it.

Moving the motion for approval by the parliamentarians on 27 June, the Minister of Finance and Economic Affairs, Abdou Kolley said enacting law on VAT and its subsequent introduction in January 2013 is one of the vital public financial management reforms currently being undertaken by the Government of The Gambia.

“The VAT rate is set at 15%, the same rate as that of sales tax, which it is replacing,” he said.

Within the current sales tax system, most items have set a rate of 15% tax, with the exception of the telecommunications industry, where the sales tax is set at 20%.

The finance minister said:  “With the rate to be set at 15%, the introduction of VAT might lead to losses in revenue towards the purchase of telecommunications credits (scratch card credits), whereby government was previously earning 20% sales tax on every scratch card purchased, it will from 2013 only receive 15% VAT on every card purchased.

“The potential loss of revenue in this sector has been quantified, but it is expected that the resulting broadening of the tax base from the introduction of VAT will dampen this loss.”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

The Income and Value Added Tax Bill 2012 sets up a minimum level of threshold for VAT eligibility of D1 million.  In this regards, any business or individual that makes annual turnover of D1 million and above is subjected to pay VAT as stipulated in Act but those with low level of economic activity of less than a total turnover of D1 million are exempted from mandatory VAT registration.

However, basic necessities like education services, medical services, unprocessed agricultural products, import of goods that are exempted from paying customs duties, etc are not subject to VAT as they are categorised as non-taxable (zero rated) items and supplies under the Act.

“We should however note that zero rated supplies are good and services that will be taxable but at a rate of zero percent,” the finance minister clarified.

“Though the tax is charged on the supplies at zero per cent, the registered taxpayer is allowed to full credit for taxes paid on inputs used in the production of the good service.”

All taxable items and supplies are charged the normal VAT rate of 15%.

According to the minister, for Gambia Revenue Authority (GRA) to know how much of VAT has been collected within a specific period of time, every VAT registrant will be required to file VAT return monthly whether or not tax is payable in respect of that month.  The return should be filled with the commissioner general [of GRA] in the form prescribed in the legislation. 

Just like business registration, a new VAT registration process shall be administered to allow all eligible taxable businesses to apply for VAT.  Every registered person will be given a certificate of registration indicating his name, taxpayer identification number, location of business and the effective date of registration. 

Hon. Kolley also said:  “That certificate [of registration] must be placed in a conspicuous place at each location at which the registered person engages in taxable activity.  Only registered person can charge VAT on sale or claim for VAT paid on business purchases (input tax).

“Also, only registered taxpayers can issue VAT invoices to customers who are registered taxpayers so that these customers will be able to claim input tax credits for purchases made.  Provisions are however made for person and businesses that are below the VAT threshold and wish to apply for VAT.”

He stated that The Gambia’s VAT system is aligned with the ECOWAS VAT Protocol that the government has committed itself to.  All ECOWAS countries have already introduced VAT, with the exception of The Gambia and Guinea Bissau but come January 2013 The Gambia also will introduce it.

VAT is a key component of the system of over 120 countries worldwide raising one-fourth of the world’s tax revenue. It is a system that thrives on good record keeping.  Under VAT regime, invoices, credit notes and debit notes are issued to consumers at the time when a taxable product is supplied.