With the emergence of e-commerce, most individuals and businesses now use digital platforms to buy and sell products and services. The Gambia is not an exception, especially with a growing young population in the digital age. However, the Gambia Revenue Authority (GRA) has little or no means to track online business transactions for possible tax extraction. These growing opportunities and related challenges mean the government is losing tax revenue. We all know that tax revenue accounts for about 80% of the Gambia government’s income and about 20% of its Gross Domestic Products (GDP).
In this article, Momodou S. Fatty, a professionally qualified accountant, has identified possible tax evasions with digital or online businesses in The Gambia.
1. Employment Income tax
E-commerce has created jobs for many people selling products and services on social media platforms such as WhatsApp, Facebook, and Instagram. As a result, they earn an income above the minimum D2,500 which means they are supposed to pay income tax to the tax authorities at the specified rate on any income or earnings above D2,500. Many online business owners do not comply with this rule. This non-compliance is possible due to the failure of such business owners to register with the tax authorities and the tax authority’s inability to track small business transactions.
The individuals working for these online businesses are not paying employment tax and, most importantly, the social security and pension contributions.
2. Corporation tax
Corporation tax is paid on revenue or net profit made by a corporation at a rate of 27% of the net profit and or 1 to1.5% (audited and non-audited accounts) of the total revenue, usually the higher of the two (revenue or net profit).
Taxes reported by e-commerce corporations are usually understated because tax returns are not certified by professional accountants, or accounting firms and businesses do not have a proper sales recording system. However, smaller unincorporated businesses commit most business-related tax evasion, and small business accounts for a more significant percentage of the entire business community.
Value added tax (VAT) is the taxes paid on supplies of goods or services, and it is paid at the standard rate of 15% of the value of the goods or services supplied. With e-commerce, the value of the products or services will sometimes come with an invoice indicating VAT inclusive in the quoted prices. Therefore, the supplier of such goods or services will collect the VAT received while refusing to pay the VAT collected to GRA. At this point, the supplier has extorted from the customer and evaded tax. It is common to see businesses sending invoices including VAT when such invoices are not indicating any VAT registration number. In such cases, the seller is trying to extort the customer.
4. Withholding tax
Withholding tax is the tax paid by contractors for the services offered. It is paid at 10% and 15% for local and international contractors, respectively. The service beneficiary collects these taxes on behalf of GRA. Tax evasion happens if, for example, a professional is awarded a service contract that will be done online; for a service beneficiary who is not even registered with the GRA. At this point, the service recipient does not withhold the tax or withholds it but fails to transfer it to GRA.
In summary, it is essential for Gambia Revenue Authority to also focus on the small and medium group taxpayers on efficient and maximum tax collection. I know that GRA is embarking on various tax reforms and efficient tax collection strategies. However, it will be essential for GRA & government set a threshold for businesses’ financial statements to ensure the accounts represent some fair view of their activities. This practice already applies to banks, insurance, and financial bureaus. This will help in efficient and volume tax collection and job creation for professional accountants who will equally be taxpayers.
Momodou S. Fatty
Nice article. GRA needs to invest in tech to cope with the rising digital markets.
Very true. Technology can help a lot here.