By Omar Bah
The Gambia Revenue Authority had informed the Ministry of Finance that the parties that made the decision to exempt withholding tax on the Banjul Roads Project, had erred and the decision was legally incorrect.
The GRA made this communication to the Ministry of Finance through a letter seen by The Standard.
The National Audit Office report had revealed the contractor for the $35.7 million rehabilitation of roads, drainage and sewage systems in Banjul is exempted from paying taxes as per the addendum to the contract.
The auditors have also said the Ministry of Justice did advise the Ministry of Works to seek guidance from the Ministry of Finance and the GRA on the feasibility of these tax exemptions. Accordingly, the auditors said, the Ministry of Finance in a letter dated 14 October 2020 addressed to the Commissioner General GRA emphasized on the tax exemption clause in the contract addendum.
But in response, the GRA in a letter dated 20 October 2020 seen by The Standard stated: “Your letter makes reference to a clause of the contract giving tax exemption on payment of levies, taxes, duties and withholding tax. Exemptions of this nature are granted by specific laws and so any such exemptions contained in a contract must draw their inspiration from those laws. The payment of tax on income and consumption is prescribed by the Income and Value Added Tax (IVAT) Act, 2012, and all exemptions to be enjoyed under that Act are clearly stipulated. Exemptions that the government intends to provide outside those that are listed in the Act can only be granted by the President subject to the approval of the National Assembly and based on national interest.”
The GRA letter added: “For ease of reference, Section (33)of the IVAT Act relating to the power of the President to exempt tax states “The President may, with approval of the National Assembly, by order published in the Gazettes, exempt any person from income tax if the president considers that the exemption is for the economic benefit of The Gambia. Hence, the parties to the contract in this case have erred in law by making provision for tax exemption without having legal powers to do so.”
The GRA further informed the Ministry of Finance that other avenues for granting income tax exemption is through the approval of a Special Investment Certificate (SIC) under the Gambia Investment and Export Promotion Agency (GIEPA) Act.
“Considering the fact that the tax exemption article in the contract is at variance with both the IVAT Act (2012) and the GIEPA Act, we cannot allow such exemptions in the computation of the tax liabilities of the contractor. Therefore, we will subject all the incomes derived from the project to tax,” the GRA letter categorically stated.
The GRA letter added that in case subjecting the contract to withholding tax and VAT at this advanced stage of the project will lead to cost overturns, budgetary constraints and legal implications, “we advise that you use the legal procedure for obtaining the approval of the President for tax exemption covering only the aforementioned taxes.”
“This will not reduce the annual income tax liability as both the tax on turnover and profit will be applied on the taxpayer’s gross income. The exemption of the VAT is based on the fact that the Government ends up with the liability. In the case of import of materials and equipment in connection with the contract, an approval for duty remission by the Minister of Finance will suffice based on the Customs and Excise Act (2010),” the letter concluded.
Read more on the Banjul Project on Tuesday