An Assessment on the Nature and Impact of Personal Income Tax Administration in The Gambia

Abstract

Extant literature in revenue generation and tax administration has long recognized the importance of personal income tax as the essential link for sustainable financial independence, stability, growth, and economic prosperity through effective domestic resource mobilization for developing economies like The Gambia. It is the best-suited strategy to move out of the debacles and shackles of poverty brought forth by the culture of foreign aid dependence if properly and effectively utilized in its intended purpose, and as a tool for development finance, through the corridors of internally-generated revenue. It is one of the primary revenue sources that help to finance the budgetary requirements, needs, and development finance of The Gambia. This empirical study critically examines the nature and impact of the personal income tax system of administration in The Gambia within the context of a registration, filing, payment, and audit and enforcement compliance from the year (s) 2006-2015. The study assessed the potential contribution. It also sought to identify the inherent problems associated with the administration, collection, and enforcement of personal income tax (PIT) within the corridors of internally mobilized revenue in The Gambia. In spite of its importance, many studies have revealed that the practice of personal income tax administration, particularly in developing economies is fraught with problems of staff-aided fraud, corruption, and mismanagement of resources, misallocation of funds, gross incompetence, administrative ineptitude, political interference, intentional and internal sabotage by employees and players, among others. This influenced the doubtful intentions of the valued taxpayers with an endemic culture of perceived mistrust and deliberate non-compliance to meet their tax obligation as a result of not seeing the positive relationship of the taxes paid and the services received in return of investments in the areas of health, energy, infrastructure, social programs, and security. The study has revealed that there are serious problems associated with the administration of personal income tax (PIT) in The Gambia, despite its performance in the realm of domestic revenue mobilization. This is as a result to the complexity of the personal income tax (PIT) administration, as a result of (i) differing and inconsistent tax policies, collection challenges, (ii) weak institutional enforcement capacity, (iii) culture of laxity and non-compliance of the taxpayers’ in meeting their tax obligations, (iv) lack of working operational manuals for the tax officials, (v) absence of a comprehensive, updated and reliable data, (vi) high tax rates, (vii) non-usage of automation and (viii) non-communication of enacted laws, legislation and policies to the taxpayers’; coupled with the (ix) multiplicity of taxes and fees levied on employers’, sole proprietors on business income (s). It is a growing cause of concern in The Gambia. It poses a challenge for business development and growth, thus impacting negatively on the economic performance of businesses, thus inhibiting the government's quest and efforts in broadening and sanitizing the tax base for the attainment of a well-sustaining and meaningful economy in our socio-economic dynamics. This is an important issue that requires an urgent attention to be addressed from the fiscal policy perspectives as a revenue source and tax policy vector for consideration to create the necessary and enabling environment that is attractive for business growth and development for the Micro, Small and Medium Enterprises (MSMEs) with the confidence and trust to invest and contribute in The Gambia’s tax system. Therefore, the over-reliance on indirect taxes, such as value-added tax (VAT), excise and import duties on international trade and the loose-ends in the tax handles is inconceivable in the context of personal income tax (PIT), which continues to experience a sharp decline. This sharp decline if not addressed will adversely have a negative bearing on individual incomes were taxes will potentially trickle down in a reversed position in absolute, actual and relative terms, based on trend analysis and comparative studies, despite the increase in number of registered taxpayers and businesses over the years in The Gambia from 2006 to 2015. The study used a quantitative survey through the forms of questionnaire designs in the primary data collection exercise. The rationale was to have first-hand information on the PIT and to gauge the respondents’ level of reaction and understanding towards PIT implementation in The Gambia. The questionnaire design comprised four components, which include: live and actual business taxpayers, employees of the government, public and private institutions, tax practitioners, and students of tertiary institutions pursuing undergraduate degree programs of study. Questionnaires were administered to 850 randomly selected respondents for the research study. The sample size was derived statistically using the Taro Yamane formula. The sample size consists of 170 respondents who were randomly selected from a cross-section of a population of 850 through simple random sampling. The responses of the participants of the study were presented, tested, and analyzed using simple percentages, which generated the frequency distribution tables and means score. Hypotheses of the study were tested and analyzed using the chi-square statistical model, Spearman’s correlation, multiple regression, bivariate and Pearson’s coefficient correlation was used to analyze the data of the responses. The main hypotheses used in this research were tested at 0.05 level of significance using chi-square statistics. The results of the study suggested a significant relationship between inflation and consumption to PIT. Besides, the results primarily gathered from selected respondents and data generation on the secondary data has been reviewed and presented to gauge the respondents’ perceptions and objective responses of whether PIT measures towards its expected and potential rate of return in revenue mobilization in The Gambia. Secondary data in the forms of textbooks, annual magazines, and bulletins, research, and position papers were sought in the analysis and literature review of this research study. Findings in this study provide significant evidence about the administration of the personal income tax (PIT), its tax handles, regarding administrative efficiency, the myriad of faced challenges and prospects. It also unraveled the misnomer behind the understanding of the whole concept of the self-assessment tax regime (SATR) in relations to principle and practical terms of both in conception, design, and application. This, if left unattended, will no doubt derail any future desired possibility for the optimal broadening of the tax base of the Gambia, hence impacting the futuristic intention of the government of The Gambia for a simpler, fairer and equitable tax system. The result of the analysis of the study showed in conformity to our prior expectation because the parameter estimates of personal income tax (PIT) on work, savings and investment appears with negative signs, this means that an inverse relationship exists between taxation and economic growth. The financial implication of the result is that one percent (1%) increase in the PIT will result in a decrease in the level of work, savings, and investments in the Gambia. Consequently, an increase in economic growth results in a decrease in the level of work, savings, and investment. However, the results, therefore, showed that taxation is negatively related to the level of employment, savings, and investments and the output of goods and services (GDP) and is positively related to government expenditure in The Gambia. The researcher observed that the Gross Domestic Product is affected by the income tax on which Personal Income Tax is classified, as the relationship of the GDP of the Gambian economy is negative on the PIT. It was added in this investigation in corroboration with other researchers that validate the result that inflation, as it eroded people’s income, has a direct and positive impact on personal income tax in The Gambia. Besides, the Consumer Price Index positively influences personal income. Based on the results of the findings, the study will no doubt inform policymakers, government, and the tax administration on the extent to which personal income tax can best be administered more efficiently. Additionally, the research will add to the body of knowledge in the dossier of The Gambia’s literature on taxation for scholars, students, and future researchers to further expand on the subject under inquiry for new revelations. The study revealed the need for the tax administration to embark on a massive tax reform programs on policy designs and tax education. This has the direct benefits of yielding positive interactions with the taxpayers, hence creating a possible link of raising awareness in the schools to teach the culture of paying taxes to the students. The study emphasizes on the need for effective enforcement of the tax handles as prescribed in the laws of taxation (IVATA, 2018) without prejudice or any form of preferential treatment given to no one group of taxpayers at the expense of the other, streamlining the tax-business processes and the end to the trajectory, and compounding issues on tax multiplicity in The Gambia. In conclusion, the study recommends that: (a) the government of the Gambia should use personal income tax to achieve its set target to enhance sustainable socio-economic growth and development through internally mobilized revenues; (b) the principles of taxation must not only be preached by the tax authority (GRA) but must be seen applicably adhered to, demonstrated and hence lived by it by revenue officials in their duties and dealings with the public (taxpayers’) and (c) that there is the need for absolu