The devastatingly negative impact the value added tax ( V.A.T ) has had on the Gambian economy, coupled with apprehension and public outcry, mainly in blogs and online papers, has led the IMF and some agencies of Government to convene in Banjul to “discuss the VAT and its socio-economic condition of the people”, according to reports emanating from The Point newspaper.
A postmortem became necessary barely six months of its introduction because, as I have said from the inception, the consultant who conducted the VAT study didn’t appear to have done a good job, assuming that his recommendations were what was being implemented by GRA and the allied agencies. Even if the recommendations of the Study, including the 15% rate were theoretically justified based on empirical evidence, the timing and the roll-out which was poorly handed would have guaranteed failure.
As part of ECOWAS’s efforts to harmonize regional trade policies among Member States, it is assumed that The Gambia bought into the program i.e. introduction of the VAT region-wise but phased over a period given the different prevailing economic circumstances that exist in the region. For example, big economies like Nigeria’s introduced the VAT earlier, but not making adjustments to the overall tax structure to reduce the burden on citizens by reducing income tax rates by 5% to accommodate the new tax regime. Jammeh promised the repeal of the sales tax in place of the new VAT. Unfortunately, he failed to keep his promise to the people which contributed immensely to the current state of affairs.
Gambia’s payroll tax stands at 35% for businesses with turn-overs of a million dalasis and more, a sales tax rate of 15% and a VAT of another 15%, not to mention numerous other taxes and excises Gambians and businesses are subjected to, making Gambians one of the most taxed people on earth. This heavy tax burden in a country where 60% of the population live in abject poverty whose main source of income is derived from agriculture – a sector that continues to under-perform despite government’s claim that agriculture is its major preoccupation.
In his statement at yesterday’s meeting, the permanent secretary of the Ministry of Finance said that ultimately government’s desire “is to lessen the burden of taxation on the policymakers, the business-people and the consumers.” I find this statement to be not only scurrilous but presents a case of conflict of interest for the same policy makers responsible for tax policy to have as their primary interest to lessen their own tax burden. At least, lessening the burden on policymakers should not have been listed as one of government objectives. The primary objective of reducing the tax burden should be for business and consumers. Policymakers are part and parcel of the latter category and should never be mentioned as a separate class. It is out of place even in Yaya Jammeh’s Gambia.
The Commissioner for Domestic Taxes at the GRA at his turn at the podium expressed his view that “tax is very fundamental; [and that] it is the most important responsibilities they (businesses) need to discharge…” He also solicited “constructive criticism” of the tax system in order to improve it. Of course he is assuming that the reason d’etre of businesses is to pay taxes and nothing else, and that criticism of any kind is allowed under the regime he serves. He’s , of course, wrong on both counts. Businesses exit primarily to provide services in exchange for profits which they reinvest, in turn, to provide growth and employment.
Businessmen and women, for fear of reprisals from Jammeh and the very officials at the meeting, have been contacting anyone who will listen to them outside Gambia to put pressure on the Jammeh regime to reverse course on the VAT. Even businesses aren’t allowed to express their views on how the private sector should operate. Soliciting their views after the horses have bolted out of the staples is futile. They should have been at the ECOWAS table when the regional trade harmonization policies were formulated. Business men and women should have taken a lead role during the consultants presentation of the VAT implementation and their views taken into account, and seriously. They should have been adequately trained, lead time provided and the purchase of points of sale (POS) cash registers should have been put out to tender rather than sole sourcing it to a single person who ended up pricing the machine out of reach to the business community.
The mishandling of the VAT has resulted in businesses fleeing The Gambia in droves to Senegal and neighboring countries. So when the IMF Country Representative spoke of the intricacies between VAT and business and investment, he was simply reminding officials that public policy is intricately linked to our lives and livelihoods and, therefore, requires public input. Unfortunately, this regime lacks public policy expertise as well as openness – necessary requisites for success.
There are steps government can take to mitigate an impending disaster, especially as FAO is now projecting yet another food deficit year due to what amounts to government negligence in not making sure there is adequate drought-resistant seeds readily available to the farming community despite several warnings from FAO and other donors active in the agriculture sector.
1. Government should seriously consider ditching the VAT altogether. This action assumes that the current protocol will allow such an action. If this action cannot be accommodated by existing protocols, suspending implementation will be in order until such time that an amicable resolution can be reached with ECOWAS.
2. Maintain the VAT with immediate repeal of the sales tax.
3. Reduce the income and/or payroll tax rates
Option 1 is the most desirable because of the immediate and negative impact it has had on the economy, and the mess it had created in implementing it with unscrupulous petty traders taking advantage of the situation by raising their prices of ineligible goods by 15% or more.
Inaction by government will accelerate the flight of businesses to Senegal and neighboring countries, further worsening an already desperate economic condition – a condition that could have been avoided if minimum level of competence was maintained by a regime that is also plagued by high level corruption – a combination that has proven deadly.