Monday, October 19, 2020

Experts: Government might lose half of its revenue on tax As covid19 seriously hampers Gambian businesses

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MUHAMMED S. BAH (MS)

The coronavirus pandemic has drastically scaled-down businesses since its outbreak in the Gambia in March 2020.

Experts suggest that the status quo will hamper private sector contribution to the revenue of the country. It has even affected some businesses that resorted to closing or scaling down operations and cutting  their staff.

The overall impact of the pandemic on The Gambia’s economy is  yet to be fully known. However, The Gambia’s Finance Minister, Mambury Njie, told lawmakers in March that the country could lose 1 billion dalasi in revenue due to the coronavirus pandemic.  This will result in a budget financing gap of about D2.5 billion, according to Njie.

Officials at the Ministry of Finance said the initial projection was done in the early stage of the pandemic, but given the current situation, the impact is likely to be more than the initial estimates. The ministry plans to conduct another assessment to get a more comprehensive picture of the impact of the coronavirus pandemic on government revenue and the economy.

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“Looking at the projection ahead of the 2021 fiscal year, the government might lose half of its revenue on tax, which may be in millions of dollars or billions of dalasis,” Lamin Dampha, an economist and a lecturer at the University of the Gambia, said. “This will have a negative impact on the 2021 budget,” Dampha said in an interview by phone.

Lamin Dampha UTG Lecturer

The Covid-19 outbreak was initially seen as a health problem when it first emerged. But as the government enforced rules to curb its spread, almost every sector especially businesses felt the impact of the disruptions caused by what has since became a global pandemic.

“Now it has been realised that [this pandemic] is also an economic problem, businesses are seen as frontline workers of the economy,” Baboucarr Saho, Manager Business Development and Project of the Gambia Chamber of Commerce and Industry (GCCI), said.

A GCCI survey of 300 businesses published in July shows the majority of small and medium enterprises hit by the impact of Covid-19 had to lay off staff and others resort to paying half salaries.

“What we understand is that almost 80% of these businesses are expecting a liquidity crisis due to the pandemic,” Saho said.

According to him, most of those businesses are likely to be left with little or no money and may not be able to recover from the financial damage caused by the pandemic. Most of these businesses will literally disappear because they will not be able to withstand the financial challenges they face, he told Foroyaa by phone.

As a good number of businesses are expected to go under, Saho noted that the government may lose almost half of its revenue on tax. “…because 90% of the government’s revenue comes from taxes, and the private sector has been hit hard by the pandemic so therefore businesses cannot pay tax,” the GCCI business development officer said.

“This might put the government under pressure to borrow more money, which will increase the country’s debt.”

While the extent of the damage to government revenue is yet to be fully known, Saho said it is likely to be “huge”.

Tourism alone is expected to lose up to D6.7 billion from the impact of covid-19 on hotel and allied sectors, according to an impact assessment commissioned by the Gambia Hotel Association and the Travel and Tourism Association of The Gambia that was released in March.

Imagine such a huge revenue loss in just one sector, tourism. It is too early to give a specific estimation but the total loss of revenue due to COVID-19 could be beyond 20 billion when other sectors are included, Saho said.

He disclosed that earlier during a budget consultation with the ministry of finance government projected that it will collect nothing less than 20 billion dalasi from the private sector in the form of taxes. However, he said this cannot materialised due to the impact of covid19 on the private sector.

Baboucarr Saho Manager Business Development and Project of the Gambia Chamber of Commerce and Industry (GCCI)

The Gambia Investment and Export Promotion Agency (GIEPA) provided training on business development and management to over 4000 youth-led businesses before the COVID-19 outbreak.

Six of those businesses which providing skills training have all closed down due to the impact of COVID-19, Momodou Lamin Drammeh, Director of Enterprise Support at GIEPA, said.  He said some of them closed initially but reopened, and closed again when the country started seeing a surge the number of coronavirus cases. “…due to the COVID-19 restrictions students couldn’t go for lessons and if there are no trainees then there are no businesses,” Drammeh said in an interview at his office on Kairaba Avenue.

He said that all those working there have lost their jobs, adding that GCCI is looking into how the government will subsidise their operations, such as electricity, and other things they would need.

Momodou Lamin Drammeh Director of Enterprise support Gambia investment and Export Promotion Agency (GEIPA)

Madi Kambai, Enterprise Support Development Manager at GEIPA, said it is obvious that the loss of revenue to the government will be big.

The impact of the pandemic on the businesses is enormous and is superficial, so everyone can see.

“About 90% of the government’s revenue is derived from taxes on businesses, and 80% of the jobs are provided by the informal sector, according to Kambai. “More than half of the businesses are struggling and as of now, a quarter of them are almost out of business.”.

He said GEIPA is planning to explore online methods of training and advising businesses through the use of technology. GEIPA is also trying to bring different stakeholders so that businesses are resorted to using the e-model technology, this will help clients to stay home and purchase from vendors.

Madi Kambai Enterprise Support Development Manager GEIPA

A one billion dalasi tax loss is equivalent to one month of GRA revenue collection in 2020. Monthly tax figures have revised downwards to between D750 to D800 million, according to officials at the Ministry of Finance.

Serrekunda market one of the biggest markets in the country

While a lot of businesses may face problems meeting their tax obligations, it is important for them to stay in business by adapting to the challenges brought about by the pandemic.

Menggeh Lowe, Enterprise Support Development Manager at GEIPA, is looking into innovations, moving from one stage of business to another with the use of technology. “…we are trying to see how we engage businesses virtually through the use of technology and help them change their business model,” she said.

Menggeh Lowe Enterprise Support Development Manager GEIPA

Post Covid Recovery 

For an effective and efficient post covid-19 recovery plan for private sector businesses, Babucarr Saho of GCCI said there is a need for the government to establish a comprehensive access to the package. He said this plan should be done in consultation with the non-state actors.

The GCCI is already engaging the government through the Ministries of Trade and Finance on the ‘socio-economic pillar’, which is mainly donor-dependent,  and might not be sustainable for a post-covid recovery.

“This is why the GCCI tries to push for business environment reforms because  we believe that businesses don’t thrive on charity, they thrive on a level playing field where systems work, and the bureaucracy is responsive,” Saho said.

According to Mr. Saho a couple of months ago the central bank pumped 700 million liquidity into commercial banks to facilitate private sector credit. “But the problem there again is the barrier to access it and the interest rate is high, around 20%,” he said.

Dampha, the University lecturer, said “we are faced with an unprecedented situation, what is important is govt should come up with policy directive, and accurate data as a benchmark, which will help to bring tangible solutions.”

He also said the situation needs the government to provide necessary infrastructural support services, and enabling policy environment for businesses to grow.

He also calls on the Central bank to put up better lending terms for businesses, and also task government to revisit the tax system and try to assess businesses based on their revenues, bearing in mind that there is a loss of revenue.

“Therefore, you should assess businesses based on what they earn and not the size of their business,” Dampha said.  He also said a bailout package is needed urgently in order for businesses to regain their footings.

“All of this can be achieved through comprehensive research to first set a baseline for future policy directive,” Dampha said. “This will enable us to get accurate information to set a benchmark. The accurate data will be used to develop a policy.”

He also suggested that the government be involved in bilateral and multilateral agreements that support access to finance for businesses.

For the 2021 fiscal year, Mr. Dampha said that the government needs to have budget discipline, and prioritise its spending. He said the government’s COVID-19 virement of D500 million shows a lack of priorities in spending.

“This is a clear manifestation of government [budget] allocations to sectors that are not a priority, such as travelling, conferences, maintenance of vehicles among others,” Dampha said. “This could be reduced, and the monies can be saved and can be invested in the productive sectors.”

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