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Gambia Budget Simplifies Tax for SMEs

by Lorys Charalambous,, Cyprus

19 December 2012

Abdou Kolley, the Minister of Finance and Economic Affairs, in his budget speech for the 2013 fiscal year presented to Gambia’s National Assembly on December 14, provided an increase in individual income tax thresholds and a simplified tax regime for small and micro business taxpayers.

Firstly, he stressed that: "Fiscal prudence at all levels of government continues to be a top priority for government, as government's fiscal position has weakened in recent years due to growing expenditure demands which have yet to be offset by growth in revenue mobilization. The shortfalls in revenue have led to fiscal deficits, which have been financed mostly by costly domestic borrowing."

Along those lines, he confirmed that the government is implementing the policies and programs supported under the Extended Credit Facility (ECF) arrangement approved by the International Monetary Fund (IMF) in May this year, the main objective of which is the reduction of the level of net domestic borrowing to around 0% of gross domestic product (GDP) by end-2015.

For the year 2012 as a whole, NDB is now expected to be limited to GMD720m (USD21.8m), or 2.5% of GDP, compared with 3.4% in 2011. Following its visit to The Gambia earlier this month, the IMF confirmed that the country’s 2013 budget should reduce new domestic borrowing to about 1% of GDP next year, which is expected to reduce interest costs.

Tax revenue in the 2012 fiscal year is expected to reach GMD4.3bn, or 14.6% of GDP – an over performance of GMD300m compared with the GMD4bn budgeted for the year 2012. In 2013, with an overall budget deficit of some 2.1% of GDP, tax revenue is estimated at almost GMD4.8bn, or 14.2% of 2013’s GDP, which is expected to have increased by up to 10% during the year.

With regard to revenue measures in his budget, Kolley revealed that the individual income tax threshold would be raised from GMD7,500 to GMD18,000. While that represents an increase of about 140%, he noted that the existing threshold was adopted in 1991, and therefore his proposal is justifiable based on the increase in the prices of essential goods and services over the intervening years.

In addition, he disclosed that the Gambia Revenue Authority will introduce a simplified presumptive tax regime for small and micro taxpayers in 2013, which would reduce the compliance burden of small taxpayers by getting them to keep simplified records of their daily sales. Small taxpayers, with an annual turnover of less than GMD500,000, would be required to pay tax at a rate of 3% on their total monthly turnover to be paid quarterly.

"The tax is a final tax meaning that no deduction shall be allowed for business expenses," he announced. "It is expected that lower tax rate and the simplification of the processes and procedures would significantly reduce the cost of compliance thus increasing compliance for these taxpayers."

The Gambia is to introduce a new value-added tax (VAT) to replace its sales tax in January 2013, a reform that the IMF called "a key step toward modernizing The Gambia’s tax system and rebuilding the revenue base."

However, Kolley said that there is a need to realign certain tax items in the switchover so as not to increase the cost of necessities. For example, rice, which used to be duty free with a sales tax of 5% would now become zero-rated under VAT and would attract an import duty of 5%; and sugar, flour and cooking oil, which attract a 5% duty and 15% sales tax, would be zero-rated under VAT and attract 20% duty.

Finally, with the dual objective of controlling tobacco consumption and maximizing revenue collection from the product, the government will move from a weight-based specific excise tax to one based on the number of cigarettes. A GMD5 per pack excise tax on cigarettes will be imposed from 2013, increasing to GMD7 per pack in 2015, while an excise tax of GMD37.50 per kilogram will be levied on the rest of other non-cigarette tobacco products that are not in packs.

TAGS: individuals | compliance | Finance | tax | small business | economics | business | value added tax (VAT) | sales tax | fiscal policy | gross domestic product (GDP) | budget | International Monetary Fund (IMF) | tax thresholds | excise duty | ministry of finance | tax rates | Gambia, The | tax breaks | import duty | micro business | individual income tax | services

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