The Gambia has been relying heavily on donor support to finance critical government activities. Approximately 27 percent of the budget was funded by donors on average between 2018 and 2023. The support seems to have reached its peak despite the country’s growing developmental needs. In response, the government through the 2024 Budget and the 2025-2028 Medium Term Fiscal Framework has committed to increasing domestic revenue. Their goal is to gradually increase the revenue-to-GDP ratio from 12 percent in 2022 to 15 percent GDP by 2028. Increasing domestic revenue mobilization will ensure sustainable government funding, reduce overdependency on donor aid, and improve public governance.
Like other developing countries, The Gambia faces significant challenges in raising revenue, which include widespread poverty, hard-to-tax groups, disorganized accounting in the private sector, outdated laws, and weak administrative capacity. To navigate these deficiencies, the government has embarked on several reforms over the past decade, which include the introduction of Value Added Tax (VAT), modernization of Customs and Excise Regulations, and implementation of the ASYCUDA ++ system of customs administration. While these reforms have significantly increased revenue, they have not fully resolved the collection shortfalls.
The government has recently shown renewed interest however in closing revenue gaps. With technical support from the IMF (and financial support from the European Union) and the World Bank, a dedicated Directorate of Revenue and Tax was established in 2023. This directorate is tasked with designing, formulating, reviewing, and monitoring tax policy as well as participating in trade protocols negotiations. The directorate has made significant progress, including a comprehensive assessment of the legal framework for both tax policy and revenue administration, a careful examination of tax expenditures and recommended changes, and a thorough review of avenues to enhance domestic revenue mobilization. Findings from these assessments have revealed substantial opportunities for transformative reforms. The following reforms have been identified and are at various stages of approval and implementation:
Corporate Income Tax Payments by Major Public Works Contractors and Concessionaires: Progress has been made in enforcing income tax compliance and raising awareness of the obligation to pay corporate income taxes by major contractors, especially as it relates to their income from government public works projects and concession contracts. Consequently, receipts of withholding tax more than doubled in 2024.
Implementation of a System to Tax Property Rental Income: The government approved a licensing system to regulate and collect tax from apartment residences offering short-term stays to tourists. Implementation of the reform has resulted in income tax from property rentals growing by over 70 percent in the first half of 2024.
Deployment of an Excise Tax Stamp/Petroleum Marking Solution for Excisable Goods, Telecoms and Energy: The Gambia Revenue Authority and its key stakeholders, has rolled out an excise tax stamp solution for excisable goods. The system aims to curb tax evasion, underreporting, smuggling, and other illicit practices, to ensure fair competition and boost revenue collection.
Review and Revision of Investment Incentives Under the Gambia Investment and Export Promotion Agency (GIEPA) Act of 2015: The aim is to rationalize the incentives to make them more focused and relevant whilst also striking a balance between attracting foreign investment, promoting domestic investment, and preserving the tax base.
Development of a Domestic Resource Mobilization Strategy (DRMS): The government is in the process of developing a comprehensive DRMS to identify and leverage the potential sources of revenue within the country.
Implementation of a Tax Expenditure Policy framework: The policy centers on fostering greater transparency in reporting and accountability in the tax system, thereby enabling the government to evaluate the economic and social impact of each tax expenditure allocation.
Implementation of a Duty Waiver Policy: Once approved, this policy will require eligible businesses or individuals seeking duty waivers for specific imports to demonstrate a satisfactory record of tax compliance. This will encourage voluntary tax compliance and reduce tax evasion, ensuring a fair and equitable tax system for all taxpayers.
The partial implementation and the signaling effect of these reforms have contributed to an increase in domestic revenue from 12 percent to 13 percent of GDP in 2023. In the first half of 2024 tax revenue exceeded its target by 7 percent, and revenue is 29 percent above the same period in 2023. If the reform agenda is sustained to year end, an additional 1 percent of GDP may be added.
With increased domestic revenues, the country will reduce its dependency on unpredictable donor funding, allowing for more stable and predictable financial planning. This stability should enhance the government's ability to create accurate macroeconomic forecasts and ensure more a reliable allocation of resources in the annual budget.
Going forward, the reforms require full political backing. There is a high risk of reform push-back through lobbying by big domestic and international corporations, which may prompt policy makers to take the path of least resistance and annul or water down some of the reforms. There is also a high risk of reform fatigue due to perceived lower economic benefits and inefficient public expenditure.
