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Sunday, May 19, 2024

On Gambia’s exorbitant tax burden: the case for a rethink

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Since the advent of the Sir Dawda Jawara era of economic recovery programme, The Gambia’s policy thrust of “private sector led growth” has not changed.

Yet the space for that to happen is often hampered by the actions of the very governments that sponsor the policy thrust.

The evidence of private sector led growth is squarely in favour of the performance of the Sir Dawda era with anecdotal (and some empirical) evidence suggesting a sterling performance with The Gambia being the ‘supermarket’ of the subregion as the reexport trade boomed, ushering in growth and balance of payments improvements that helped us with stable exchange rates. That is not a mean feat for a small open economy with exchange rate pass through estimated at way above 60 percent.

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Jammeh-era interferences with market forces did not help much with the smooth operation of the private sector and thus market misalignments negatively affected the private sector to a large extent.

The second republics interventions in the market, though well intentioned, often produced counterproductive outputs.

Enter new Gambia, and one would have expected corrections of the wrongs of the past with the benefit of hindsight and the advent of a much-touted democratic renaissance.

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Alas; the gains fell below the expectations and dreams of Gambians and friends of the smiling coast.

Of the many causes of failure in the anticipated private sector-led growth reemergence, fiscal policy is the chief culprit.

With unprecedented donor support anticipated, one would have expected the downward revision of tax rates, and freeing of the domestic money market of the much maligned ‘crowding out effect’; but what we have witnessed is the explosion of tax rates (in some areas) in a way and manner characteristic only of banana republics.

When government introduced the wild idea of a 50 percent salary increase some four years ago, some of us warned them against its natural macroeconomic effects of a wage-price inflationary spiral.

Our advice (in the form of media interviews and op-eds) fell on deaf ears; but the ramifications were unmistakable.

The classic case of the faults of that fiscal binge is the closure of the nation’s trademark factory, Julbrew, that was the result of a more than 700 percent increase in excise taxes on beverages.

The subsequent inevitable closure of Julbrew surely had its knock-on effects on the tourism industry. In addition to the covid impact, the tourism industry also suffered from the nuisance tax of $20 dollars for entry and exit at our only airport. 

The infamous Securiport levy is doing untold damage to our travel and tourism sector.

The state/owned utility company, Nawec, has announced planned hiking of electricity charges by up to 36 percent for most industries, effective this month. This is yet another hurdle placed right in the path of the private sector horse that is supposed to gallop and move the economy forward.

From the indices of the “doing business” survey report for the year 2020, The Gambia’s tax indicators are all worse than the average for Sub-Saharan Africa. With a minuscule economy size like ours, that does not augur well for our much-touted private sector led growth, talk less of the much-needed foreign direct investment.

On the indices about paying taxes in The Gambia, our statistics include 49 against 36.6 for Sub-Saharan Africa.  When measuring ‘payments (number per year)’. Our ‘total tax and contribution rate (% of profit) stands at 48.4 against the sub-Saharan Africa average of 47.3. Time spent on paying taxes is also significantly much higher than the norm.

With high tax rates that seem to be on the rise with subtle effective increments occasionally disguised as improvements in compliance; and government’s insatiable desire for borrowed money from the largely primitive domestic money market; there is little room for savings or even credit at reasonable interest rates.

With the foregoing realities on the ground, the similitude of Gambia’s private sector led growths policy is that of an elephant in the forest asking the goat to lead the process of feeding the settlement with milk; yet the voracious elephant feeds on all the plants and grass in the forest leaving but little for the goat charged with all the work for the production of milk for their common welfare.

This practice is counterproductive and if it remains unchanged, The Gambian economy will remain in its current unenviable situation of stagflation.

High taxes will keep killing the private sector goose that lays the golden eggs.

From manufacturing to agriculture and services, every sector of the economy is over-taxed. Even the all-too-important fuel trading sector is close to its demise due to high tax rates in the fuel structure; coupled with covert taxes inbuilt into an unrealistic exchange rate used in the fuel pricing formula.

The government of The Gambia needs some genuine soul- searching, devoid of flowery policy rhetoric that seeks to entice non-existent investors and exhausted donors.

What is needed is pragmatic policy shifts that can bring us tangible multiplier effects leading to real private sector rejuvenation and macroeconomic resurgence for job creation and real improvements in human lives.

This is the sustainable way forward for a better Gambia in lieu of the mirage that was touted as New Gambia at the advent of the Barrow Presidency.

May Allah guide, bless and protect the leadership and the people of the Republic of The Gambia.

Momodou Sabally

Former presidential affairs minister, international speaker and economist

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