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Gambia: A Potential loss of D2 Billion Tax Revenue in A Pandemic Year

The Gambia’s biggest tax payers are financially struggling as businesses grind to a halt due to the escalating number of coronavirus cases in the country. This has posed devastating consequences on the country’s economy with a potential loss of two billion dalasi in tax revenue.

In December 2019, the government’s projected tax revenue for 2020 was more than D12 billion. A few months into the fiscal year, the country was hit by the global pandemic – COVID-19.

In March 2020, the country diagnosed the first COVID-19 case.

The government decided to impose restrictions to contain the spread of the virus by shutting several businesses including the tourism industry, the country’s biggest corporate taxpayers.

The Gambia Revenue Authority, GRA, was forced by the condition to extend the filing of the annual tax return and the payment for final quarter 2019 by one month. Thousands of citizens who work in the industry were consequently laid off, further denying the country from collecting the personal income tax.

GRA Building in Banjul

Tourism therefore became the most hard-hit sector. “We have no revenue at all since the beginning of April,” deputy general manager of Senegambia Beach Hotel, Nicholas Blell, told The Chronicle about why they have not been paying taxes.

The hotel’s total revenue is about D250 million annually and the total taxes it pays is about 60 million of this goes into paying annually including the value added tax, corporate tax, and personal income tax (PAYE), according to Nicholas.

The hotel industry suffers because tourists have not been arriving while conferences have not been held regularly since April. Blell said some tour operators are owing them a huge amount of money, which exacerbates the situation.

“I can assure you that at the moment, the hotel is like a ghost town. There’s no revenue coming in and this has been since April. The future also looks very bleak. The way things are going is like there is no light at the end of the tunnel,” says Blell.

According to him, under normal condition, the hotel employs about 250 to 275 staff while in a half operation for the off-season, it employs about 180 staff.

Senegambia Beach Hotel roundabout

But in this pandemic, only 50 staff are retained including the accountants, technicians and cooks while the rest are laid off and are no longer paying income taxes to the state.

“We’ve had to let-go some staff during that period. Since the end of July, no operations but effectively since the beginning of April, there has been no staying guest in the hotel. So, from April, there is no revenue being realized by the hotel apart from these minimal workshops and meetings that we had accommodated [before the surge in cases].”

The hotel’s front desk manager responsible for admitting guests described the situation as challenging.

“It will be challenging, definitely because we rely on the business to pay the utilities, the taxes and all other expenses,” Adama Ndure tells The Chronicle.

“The percentage of booking we are getting is so low, somewhere in the region of 3,5 to 7 percent when normally we would have been going quite high like 70 to 80 percent.”

He said by this time of the year, they would have hosted a minimum of 200 to 300 guests while it could go close to 600 plus guests under normal operation.

“So, at the moment, there is no guest, no room is occupied and no revenue…If things don’t change, it doesn’t look good. It wouldn’t help because in the months like October, we have 375 rooms and will be around 80 percent full going into December.,” says Ndure.

The head of public and corporate affairs at the Gambia Revenue Authority GRA, Ousman Bah, said the downward revision from twelve billion four hundred and fifty million dalasi to 10 billion as the expected tax revenue to be collected in 2020 was due to the unrealistic figures in the prevailing circumstance.

Projections of Government Expenditures and Revenues 2020 – 2024

“So, it was reversed downward to ten billion dalasi and that represents 19 percent downward [revision] from 12.8 percent growth.” This he said, was because the import has dropped, local consumption has dropped and with the economy is not doing well, and the figures will not be unrealistic.

Although he said the GRA continues to manage the situation by collecting D7 billion from January to August, he warned that the remaining months could witness low collection especially when the tourism season remains closed.

“Like many institutions, we also have to apply some measures as to the way we operate. One of them is to extend the deadline for the filing of the 2019 annual tax return and payments which was supposed to be done in March but we extended it to the end of May to give businesses the latitude to be able to operate.

“We also suspended all field taxpayer audits so that we allow them to operate until such a time we find it convenient to engage them but that’s not to say it has been waived.”

Bah said most of these are corporate businesses. “We don’t want to enforce to an extent that they will suffer because when they suffer more than they can carry they will eventually not be able to operate and when they don’t operate, we can’t collect tax.”

He disclosed that under the current arrangement, they will not be able to collect about 2 billion dalasi that was supposed to be collected due to the pandemic. His new target is D10 billion.

“This is a real impact that is going to affect the government’s operations and that is not an easy thing. Two billion dalasi from the Gambian budget is a huge amount of money,” he said.

The Director of budget at the Ministry of Finance and Economics Affairs Bai Madi Ceesay said that due to the pandemic, they have seen a lot of revenue losses from tax collections mainly in the areas of corporate tax, personal income tax and the value added tax.

Bai Madi Ceesay

“The bulk of the loss is coming from the tourism industry like the hotels because as soon as this pandemic hit Gambia, tourists have stopped coming, the retail sector has also been seriously affected. We are looking at the total losses in tax revenue roughly about 2-billion-dalasi projection,” Ceesay said.

According to him, this constitutes roughly 17 to 18 percent revenue losses in one year. He believes that investing more on infrastructure can help to stimulate the economy and providing humanitarian assistance will minimize the hardship.

The projected tax losses of two billion dalasi is more than the total budget allocation allocated to the Ministry of Interior which housed the police, immigration, the fire and rescue services and the prisons. It’s close to roughly 2 percent of GDP.

“Really losing a projected amount of 2 billion in one year is quite substantial. If this pandemic prolongs into next year, then really it will be very bad for our macro-economic framework especially in terms of revenues.

“Our biggest concern is the tourism sector because tourism contributes significantly to the economy, in terms of providing jobs for the youth. It creates roughly 18 to 20 percent of the GDP. It employs directly and indirectly more than 70, 000 people,” Director Ceesay told The Chronicle.

To rebound the economy, economist Nyang Njie said it’s a good strategy to revise the tax revenue budget. However, he blamed the government for non-essential expenditures. He believes that lessening the expenditure is the way to go by making sure that expenditure pattern is consistent with the revenue in-flows.

Nyang Njie

Sadly though “Gambia is back to borrowing. It is effectively borrowing whether it’s through the budget supports from the multilateral like the World Bank or deficit finance. In either case, in a nutshell we are spending more than we are generating as a country at this moment.”

He urged the government to open the road to an economic recovery plan, meaning that the government through the ministry of finance should tell the general public the strategy in terms economic recovery of bouncing the economy back. “This is our strategy to get out of COVID-19. Maybe they have the strategy but I am not aware.”

According to him, letting the people know will allow major businesses to make decisions as per what kind of investments they can do in the medium to long term.

“What I can tell you right now is that the economic visibility for 2021 is very bleak, meaning the recovery will happen in the last quota of 2021 to first quota of 2022,” Njie said.

He justified that the country is entering into an electioneering year in which investors tend to hold on their capital and decisions because they don’t know exactly what’s going to happen.

“So, the economic visibility for the Gambia is somehow bleak, not only because of COVID-19 but the electioneering year we are getting into.”

Ebrima Sawaneh, a finance expert in commerce and investment, Ebrima Sawaneh said that revising the revenue budget will mean that the government will have less funds to support their 2020 development and recurrent expenses.

One of the primary purposes of taxation is to raise income for the government to support spending on health care, education and other critical economic sectors.”

“For example, 12% (D4.1 billion) of the 2020 budget was planned for works, construction and infrastructure, while 13% (D4.7 billion) was for education. Without alternative revenue or grant source, tax revenue fall may affect these sectors.”

2020 sector budget allocations

To minimize the consequences, Sawaneh calls for reassessing the priorities. He disputed the budget director’s assertion that focus should be given to construction to stimulate the economy. He believes that focus should be put on the health and agriculture sector as priorities.

“Some form of austerity measures must be taken in the area of effective expense management during hard times.”

Sawaneh said the government can also renegotiate loan terms with some lenders. “If lenders agree, this can release more funds to other sectors as 27% (D9.4 billion) of the 2020 budget was planned for national debt service.”

The GRA, has launched its strategic plan for the period 2020 – 2024, aiming to maximize revenue mobilization, increase revenue collections as share of GDP, by broadening taxpayer base through increased taxpayer registration.

During this plan period, domestic tax revenues are projected to grow by 13 per cent on average per year from D13.66 billion in 2020 to D22.06 billion in 2024. This revenue projection which is in line with GDP projection is expected to grow the “revenue to GDP ratio” from 13.4 per cent in 2019 to 14.9 percent by the end of the medium-term economic and fiscal framework (MTEFF).

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