The Gambia: Selected Issues

This Selected Issues paper examines economic developments in The Gambia during 1994–98. Although real output growth slowed significantly in the early 1990s and turned negative in 1994/95, both 1997 and 1998 were characterized by an upswing in real economic activity. The 1994/95 output decline of 3.4 percent was primarily owing to a significant downturn in tourist activity. The recovery in the tourist sector and the more favorable weather conditions led to real GDP growth of 4.9 percent in 1997 and an estimated real growth rate of 4.7 percent in 1998.

Abstract

This Selected Issues paper examines economic developments in The Gambia during 1994–98. Although real output growth slowed significantly in the early 1990s and turned negative in 1994/95, both 1997 and 1998 were characterized by an upswing in real economic activity. The 1994/95 output decline of 3.4 percent was primarily owing to a significant downturn in tourist activity. The recovery in the tourist sector and the more favorable weather conditions led to real GDP growth of 4.9 percent in 1997 and an estimated real growth rate of 4.7 percent in 1998.

III. Issues in Tariff Reform21

A. Introduction

62. Since the mid-1980s, The Gambia has been carrying out external tariff reforms in line with the comprehensive reform efforts undertaken under the auspices of the Economic Recovery Program (ERP) and its successor, the Program for Sustained Development (PSD), supported by the Fund and the World Bank. By July-1998, the authorities had lowered the maximum tariff rate from 90 percent to 25 percent and reduced the number of import duties from 30 to 18.22 In January 1999, the government further streamlined the tariff structure by lowering the top tariff rate to 20 percent and the number of tariff bands to 10. Separately, the tariff rates for alcoholic beverages, tobacco, and vehicles were lowered from a maximum of 87 percent to 20 percent. At the same time, the authorities introduced an excise tax on these goods to compensate in part for the potential revenue loss. This chapter reviews the tariff reforms implemented since the 1980s.

63. The rest of this chapter is organized as follows. Section B provides a review of the external tariff reforms in The Gambia since the mid-1980s. Section C outlines the 1998 and 1999 tariff reforms, in particular focusing on reform-related revenue losses and the impact of the introduction of compensating excise taxes. Section D presents a brief conclusion and some policy implications relating to the possibility of further streamlining the tariff structure of The Gambia.

B. Review of Tariff Policy

64. The ERP was started in 1985 with a six-year horizon as a response to an economic situation that had deteriorated mainly because of adverse oil shocks, unsustainable fiscal deficits, and subsequent balance of payments problems. It represented a shift toward extensive structural reforms, including a reform of the tariff structure (which took place in 1988), together with a sequence of measures aimed at stabilizing the economy in the aftermath of the financial and monetary crises. By the early 1990s, the economic situation in The Gambia had improved considerably. Several studies23 attribute this success in part to the implementation of the ERP and the PSD.

Evolution of tariff policy

65. The basic features of the trade and tariff reform in the ERP involved the reform of international trade taxes, including the following measures:

  • the total elimination of quantitative restrictions;

  • the rationalization of import duties;

  • the replacement of all but three specific duties with ad valorem duties;

  • the abolition of the import tax;

  • the introduction of a sales tax; and

  • the abolition of export taxes.

These were complemented by the following actions:

  • exchange rate policy reform (including a devaluation of the dalasi); and

  • liberalization of the foreign exchange market.

66. In the late 1980s, export taxes and duties were abolished and the import tax was replaced by a sales tax. As pointed out by Basu and Gemmell (1997), the reforms of the tariff system that were initiated under the auspices of the ERP were aimed at liberalizing trade and reducing price distortions. Public sector revenue considerations were at stake in the reform of the customs and tax administrations and collection procedures, as observed by Gray and McPherson (1995).

67. The ERP was followed by the PSD, which aimed at increasing growth through deregulation and by improving the links between the financial and the real sectors of the economy. The PSD also included a program for the computerization of the customs tax administration. An important part of the program was aimed at widening the tax base and reducing tax evasion and customs fraud. The program continued the policy stance initiated during the ERP to reduce the number of tariff lines and the dispersion of duty rates. Further modifications of the system were made, with the objective of reducing distortions caused by factors such as the excessive taxation of intermediate inputs.

68. The trade and tariff reforms in the ERP and PSD were accompanied by a more general objective of rationalizing the tax system and diversifying sources of tax revenues. Several factors contribute to a high dependence of The Gambia on customs revenues. From an economic perspective, the low level of GDP per capita, the small industrial base, the low productivity level, and the small labor force do not allow the authorities to generate sufficient revenue by taxing the domestic economy (McNamara and McPherson, 1995). Also, weaknesses in the administrative system do not allow proper recordkeeping of taxpayers and a full assessment of what they owe the tax authorities.24 Finally, the geographic location of the country and the corresponding importance of reexport trade make the collection of customs revenue popular as it is perceived as a tax on foreigners. These factors contribute to The Gambia’s high reliance on customs revenue,25 which, in turn, make the country vulnerable to fluctuations in international trade, a problem that both the ERP and PSD attempted to address.

69. The share of international trade taxes in total tax revenue of the government declined from about 80 percent in 1982 to about 66 percent in 1997 (Figure 7).26 These changes partially reflect the reforms of the tax system that have been implemented throughout the period under analysis, such as the introduction of the national sales tax in 1989-90, which has emerged as an important source of revenue for the country.27

Figure 7.
Figure 7.

The Gambia: Share of International Trade Taxes, 1982-2000

Citation: IMF Staff Country Reports 1999, 071; 10.5089/9781451815399.002.A003

Source: The Gambian authorities; and staff estimates.

Key features of the tariff structure before the 1998 tariff reform28

70. At the beginning of the 1990s, The Gambia’s tariff structure consisted of 30 tariff bands applying to about 5,000 tariff lines. The tariff rates ranged from zero (capital goods, raw materials, and government imports) to a maximum of 90 percent on alcoholic beverages (Table 4). In 1996, the unweighted average of statutory tariff rates was 13.7 percent, and the import-weighted average was 11.8 percent. Although there were no quantitative restrictions and no licensing requirements, there were three specific duties.29 Tariff revenues were reduced as a result of several discretionary and statutory duty and tax exemptions.

Table 4.

The Gambia: Distribution of the High-Rated Products, Pre-1998 Tariff System

article image

71. Table 5 (column “Pre-1998 System”) shows the tariff structure of The Gambia prior to 1998 classified by tariff rates. It presents the statutory duty rates, the number of tariff lines for each of these rates, and the associated c.i.f. imports and statutory revenue share of the commodities over the total value of imports. The column also displays the simple average of statutory tariff rates (SSA) and the import-weighted average (IWA).30 Based on the overall trade-restrictiveness measure developed by the IMF, The Gambia could be classified as a country with a relatively open tariff system and low non tariff barriers.31

Table 5.

The Gambia: Tariff Structure by Statutory Rates.

article image
Source: Staff calculations.

Total c.i.f. value is D 2,527,624.

As percent of total value of imports.

As percent of total revenue.

Excise taxes are not accounted for.

72. Table 5 shows that most tariff lines were concentrated at the lower range of tariff rates: only 0.7 percent of all tariff lines had tariff rates exceeding 40 percent, although these accounted for 19 percent of the total tariff revenue. Moreover, 75 percent of tariff lines were in the range 0-20 percent, with 27.3 percent of them zero rated. Five duty rates accounted for 86.5 percent of the total number of tariff lines: 0, 10, 19, 23, and 28 percent. Most revenue was generated by the 10, 19, and 23 percent tariff rates, although large shares also came from the 46, 50, and 55 percent rates; the latter applying mostly to vehicles and tobacco (see Table 6 for a detailed list).

Table 6.

The Gambia: Distribution of the High-Rated Products, 1998 Tariff System

article image

73. Table 7 examines the structure of the tariff system in The Gambia by sections of the Harmonized Tariff Schedule (HTS). From Table 6 it can be observed that sections 2 (vegetable products), 4 (beverages and tobacco), and 16 (machinery) accounted for 42.1 percent of the total import value of the country.32 Sections 5 (mineral products), 6 (chemical products, including soap), 17 (vehicles), 11 (textiles), and 15 (metals) follow in significance. The rest of the sections represent a small percentage of total c.i.f. import value. In terms of the statutory revenue that these sections generate, sections 4, 16 and 17 (beverages and tobacco, vehicles, and machinery, respectively) accounted for 50.9 percent of total revenue.

Table 7.

The Gambia: Tariff Structure by Sections of the HTS

(In percent, unless noted otherwise).

article image
Source: Staff calculations.

Total c.i.f. value is D 2,527,624.

As percent of total value of imports.

As percent of total revenue.

Import-weighted average

Simple average of statutory tariff rates.

Excise taxes are not accounted for.

74. For sections 5, 6, 8, 13, 16, 17, 19, and 20, the IWA rates are significantly higher than the SSA rates; this suggests that the imports in these sections are concentrated on tariff lines with higher duty rates.33

C. The 1998 and 1999 Tariff Reforms

Implications of the 1998 tariff reform

75. The 1998 reform of the external tariff structure of The Gambia was characterized by the following three features:

  • The number of tariff bands was reduced to 18.

  • The three specific duties were eliminated.

  • The top tariff rate was reduced to 25 percent for all items except tobacco, alcohol and vehicles. The tariff rates on the latter commodities remained virtually unaltered from the previous tariff structure.34

76. As a result of the reform, the unweighted average of the statutory tariff rates declined by about ½ of 1 percentage point to 13.1 percent, while the import-weighted average dropped by ¼ of 1 percentage point to 11.5 percent. The reform also led to a modification of the distribution of statutory revenue shares: sections 1, 6, 14, 19, and 20 experienced a decrease in value, while the rest remained constant or slightly increased. The specific duties were eliminated. Tables 5 and 7 (“1998 System” columns) summarize the tariff structure of The Gambia after the reform was implemented.35 Ten percent of all tariff lines had an associated tariff rate of 25 percent, representing a c.i.f. import share of 3.4 percent and a corresponding revenue share of 7.3 percent. Most revenue was still generated by the 10, 19, and 23 percent tariff rates, but a large share also came from the 25 percent rate. The revenue loss associated with the 1998 reform was relatively small (D 5.5 million, or 0.1 percent of GDP).36 This loss was basically caused by the elimination of specific rates and the considerable reduction in the number of tariff bands. Complementary measures to limit revenue losses were taken, including the extension of the sales tax to professionals and the controlling of duty exemptions more rigorously.

Figure 8.
Figure 8.

The Gambia: Statutory and Import-Weighted Averages of Tariff Rates in Selected African Countries

Citation: IMF Staff Country Reports 1999, 071; 10.5089/9781451815399.002.A003

1/ Data for 1994 from Kirmani (1994).2/ Data for 1997 from Aksoy (1998); staff estimates for Ghana and The Gambia.

Implications of the 1999 tariff reform

77. Beginning January 1999, the government of The Gambia implemented a further tariff reform with the following features:

  • The number of tariff bands was reduced from 18 to 10.

  • The maximum tariff rate was reduced from 25 percent to 20 percent.

  • The rates on tobacco, alcohol and vehicles were reduced to 20 percent as well; however, in order to partly offset the revenue loss associated with this reduction, excise taxes were introduced.

78. Because the duty rates on tobacco, alcohol and vehicles have been brought down to 20 percent from previous rates ranging from 37 percent to 87 percent, the direct overall revenue loss is estimated to be about D 46 million in 1999. Had the rates on these commodities been kept unaltered, as in the 1998 tariff reform, the resulting revenue loss from reducing the top rate to 20 percent is estimated to be limited to about D 9 million. Given the objective of the tariff reform on alcohol, tobacco, and vehicles to be revenue neutral, the newly introduced excise taxes should thus compensate for about D 37 million. These excise taxes range from 20 percent to 35 percent on the value of new vehicles; D 80 per carton of cigarettes; and D 25 per liter of alcohol (Table 8). Using the c.i.f. import values for the respective categories of vehicles, the excise tax revenue on vehicles is estimated at some D 15 million, thus lowering the total loss resulting from the 1999 tariff reform to D 31 million. As excise taxes on cigarettes and alcoholic beverages are based on quantities for which data is not available, a precise calculation of the reduction in revenue losses through these taxes is not possible with the available data.

Table 8.

The Gambia: Excise Taxes, 1999

article image

79. The unweighted average of the statutory tariff rates will decline to 12.1 percent in 1999 while the import weighted average tariff rate will fall to just below 10 percent. The reform will also lead to a decline of statutory revenue shares of alcoholic beverages, tobacco, and vehicles respectively. Tables 5 and 6 summarize the main features of both the 1998 and the 1999 reforms.

80. Table 9 summarizes the significant impact of the 1998 and 1999 reforms on the tariff system through the reduction of the number of bands from 30 to 18 (the 1998 reform), and 10 (the 1999 reform), the elimination of the specific rates, and the reduction of the maximum rate to 25 percent (the 1998 reform),37 and 20 percent (the 1999 reform).

Table 9.

The Gambia: Main Characteristics of the Tariff System

article image

Excluding vehicles, tobacco, and alcoholic beverages with rates in the range of 37 percent to 87 percent.

81. The main implications of the current tariff reform are presented in Table 10. Both the 1998 and 1999 reforms brought about a decrease in statutory and import-weighted average duty rates of the tariff system of The Gambia, with a relatively small associated revenue loss (D 5.5 million, or 0.1 percent of GDP) for the 1998 reform and a substantial loss (D 46.0 million, or 0.98 percent of GDP) for the 1999 reform. The loss resulting from the 1998 reform was basically due to the elimination of specific rates and the considerable reduction in the number of tariff bands, while the loss associated with the 1999 reform is due to the abolition of the high duty rates, in particular on alcohol, tobacco, and vehicles. However, these estimates do not yet take into account the various excise taxes implemented in the 1999 reform (Table 8). Assuming that these excise taxes achieve the objective of largely compensating for the loss resulting from the reduction in duty rates on alcohol, tobacco, and vehicles, the effective loss associated with the 1999 reform would be limited to about D 9 million or 0.2 percent of GDP (see paragraph 78).

Table 10.

The Gambia: Implications of Tariff Reforms

article image

Import-weighted average.

Simple average of statutory tariff rates.

D. Conclusion and Policy Implications

82. Prior to the 1998 tariff reform, The Gambia’s tariff structure consisted of 30 tariff bands applying to about 5,000 tariff lines. Tariff rates ranged from zero to a maximum of 90 percent. The unweighted average of statutory tariff rates was 13.7 percent, and the import weighted average was 11.8 percent. The 1998 reform of the external tariff structure was characterized by the following features:

  • Reduction of the number of tariff bands from 30 to 18.

  • Elimination of specific duties (on beer, wine, petroleum and cigarettes).

  • Reduction of the top tariff rate to 25 percent, except for tobacco, alcohol and vehicles.

As a result, the unweighted average of statutory tariff rates declined to 13.1 percent, while the import weighted average dropped to 11.5 percent. The 1999 tariff reform had the following features:

  • Further reduction in the number of tariff bands from 18 to 10.

  • Reducing the top rate to 20 percent.

  • Reduction of the rate on alcohol, tobacco, and vehicles to 20 percent as well.

The average of the statutory tariff rates is estimated to decline to 12.1 percent, while the import weighted average is estimated to decline to just below 10 percent.

83. The revenue loss that resulted from the 1998 tariff reform was relatively small and primarily due to the reduction in tariff bands and the abolition of specific rates. The more significant revenue losses that will result from the 1999 tariff reform are primarily due to the reduction of the rates for high rated items—alcohol, tobacco, and vehicles—from a maximum of 87 percent to 20 percent. Complementary measures taken to compensate for losses have been the control of duty exemptions and the extension of the sales tax to professionals under the 1998 reform, and the introduction of excise taxes in the context of the 1999 reform.

84. Even with the implementation of these reforms, there is still scope for further streamlining of the tariff structure in The Gambia, taking account of the West African Economic and Monetary Union (WAEMU) common external tariff (SET). Several reasons can be put forward in favor of simplifying the current structure of the tariff system in The Gambia: such a simplification would encourage investment, promote trade, avoid discretionary exemptions, reduce administrative and collection costs, and keep The Gambia in step with developments in the WAEMU countries. In particular, further efforts could focus on:

  • classifying commodities according to their economic use, employing the Broad Economic Categories (BEC) classification;

  • reducing the number of duty rates further by streamlining the duty rates on raw materials, intermediate goods, capital goods, and consumer goods; and

  • reallocating zero-rated items to each of the defined economic categories, with only a limited number of essential goods left at a zero rate.

APPENDIX II: Sections of the Harmonized System

Section I. Live animals; animal products. Section II. Vegetable products.

Section III. Animal or vegetable fats and oils and their cleavage products; prepared edible fats; animal or vegetable waxes.

Section IV. Prepared foodstuffs; beverages, spirits, and vinegar; tobacco and manufactured tobacco substitutes.

Section V. Mineral products.

Section VI. Products of the chemical or allied industries.

Section VII. Plastics and articles thereof; rubber and articles thereof.

Section VIII. Rawhides and skins, leather, fur skins and articles thereof; saddlery and harness; travel goods, handbags and similar containers; articles of animal gut (other than silkworm gut).

Section IX. Wood and articles of wood; wood charcoal, cork and articles of cork; manufacturers of straw, of esparto or of other plaiting materials; basketware and wickerwork.

Section X. Pulp of wood or of other fibrous cellulosic material; waste and scrap of paper or paperboard; paper and paperboard and articles thereof.

Section XI. Textile and textile articles.

Section XII. Footwear, headgear, umbrellas, sun umbrellas, walking sticks, seatsticks, whips, riding-crops and parts thereof; prepared feathers and articles made therewith; artificial flowers; articles of human hair.

Section XIII. Articles of stone, plaster, cement, asbestos, mica, or similar materials; ceramic products; glass and glassware.

Section XIV. Natural or cultured pearls, precious or semiprecious stones, precious metals, metals clad with precious metal, and articles thereof; imitation jewelry; coins.

Section XV. Base metals and articles of base metals.

Section XVI. Machinery and mechanical appliances; electrical equipment; parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles.

Section XVII. Vehicles, aircraft, vessels, and associated transport equipment.

Section XVIII. Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus; clocks and watches; musical instruments; parts and accessories thereof.

Section XIX. Arms and ammunition; parts and accessories thereof.

Section XX. Miscellaneous manufactured products. Section XXI. Works for art, collectors’ pieces, and antiques.

Section XXII. Special classification provisions.

References

  • Aksoy, Ataman, 1998, “Preliminary Results from Africa Regional Trade Study,” paper presented at World Bank - International Monetary Fund Workshop, Washington.

    • Search Google Scholar
    • Export Citation
  • Basu, Priya and Norman Gemmell, 1997, “Fiscal Adjustment in The Gambia: A Case Study,” in Fiscal Reform in the Least Developed Countries, edited by Chandra K. Patel, Brookfield, Vermont: Elgar Publishing, pp. 11049.

    • Search Google Scholar
    • Export Citation
  • Gray, Clive S. and Malcolm F. McPherson, 1995, “Tax Reform,” Economic Recovery in The Gambia: Insights for Adjustment in Sub-Saharan Africa, edited by Malcolm McPherson, and Steven C. Radelet, Harvard Studies in International Development, Cambridge Massachusetts: Harvard University Press, pp. 12544.

    • Search Google Scholar
    • Export Citation
  • Hadjimichael, Michael T., Thomas Rumbaugh, and Eric Verreydt, 1992, The Gambia: Economic Adjustment in a Small Open Economy, IMF Occasional Paper No. 100, (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Kirmani, Naheed and Nur Calika, 1994, International Trade Policies: The Uruguay Round and Beyond. Volume II. Background Papers, World Economic and Financial Surveys, (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • McNamara, Paul E. and Malcolm F. McPherson, 1995, “Customs Reform,” Economic Recovery in The Gambia: Insights for Adjustment in Sub-Saharan Africa, edited by Malcolm McPherson, and Steven C. Radelet, Harvard Studies in International Development, Cambridge Massachusetts: Harvard University Press, pp. 25163.

    • Search Google Scholar
    • Export Citation
  • McPherson, Malcolm and Steven C. Radelet, eds., 1995, Economic Recovery in The Gambia: Insights for Adjustment in Sub-Saharan Africa, Harvard Studies in International Development, Cambridge Massachusetts: Harvard University Press.

    • Search Google Scholar
    • Export Citation
  • Radelet, Steven C., 1993, “The Gambia’s Economic Recovery: Policy Reforms, Foreign Aid, or Rain?” Journal of Policy Modeling, Vol. 15 (June), pp. 25176.

    • Search Google Scholar
    • Export Citation
  • Saye, Samba E., 1992, “Taxing the ‘Hard To Tax’ in The Gambia,” Tax Notes International, Vol. 5 (July), pp. 7172.

21

Prepared by Roman Arjona with Erik DeVrijer, Ivailo Izvorski, and Christian H. Beddies.

22

Excluding alcohol, tobacco, and vehicles.

24

Saye (1992) presents an evaluation of the efforts of the Gambian authorities to bring potential taxpayers into the revenue system.

26

However, the ERP led to an immediate increase in the revenue generated by international trade taxes, owing mainly to the large depreciation of the dalasi.

27

According to Basu and Gemmell (1997), the sales tax levied on imports by The Gambia Utilities Company (GUC) and The Gambia Public Transport Company (GPTC) accounted for 26 percent of domestic revenue in the period 1990/91 (July-June). The government levied customs duties on both the GUC and GPTC (the latter at a reduced rate) in order to compensate for the loss of revenue on account of the tariff reforms incorporated in the ERP and PSD.

28

The analysis in this section uses 1996 calendar-year data on c.i.f. import values at the eight-digit level of the Harmonized Commodity Description and Coding System Nomenclature (usually referred to as the Harmonized System, or HS), and the corresponding tariff book.

29

The specific rates applied to Cigarettes (D 92 a kg or 50 percent), beer (D 35 a gallon or 87 percent) and wine (D 35 a liter or 87 percent), and petroleum (D 2.5 a liter or 30 percent). Under the ERP, the restrictions for health and safety reasons were eliminated.

30

These calculations are based on statutory rates and import values. No detailed data on customs revenue are available. Both the SSA and the IWA rates are calculated using the formula:

1NΣitiniwhereN=Σini

where ti stands for the tariff rate and ni for the weights. The weights reflect the number of tariff lines (SSA) or the c.i.f. value of imports (IWA) associated with that rate. N stands for the total number of tariff lines (SSA) or for the total c.i.f. value of imports (IWA).

31

On a ten-point scale defined by the IMF, in which a value of 1 is allocated to most-open economies and a value of 10 to the least-open ones, The Gambia would be assigned a value of 2. The average import tariff rate is used as a basis for classifying the openness of the tariff regime. The number of quantitative restrictions is used as the main element for determining the degree of restrictiveness in non tariff barriers, together with state trade monopolies, restrictive foreign exchange practices, quality controls, and customs procedures that act as trade restrictions.

32

For a list of the sections in the Harmonized Tariff Schedule, see the Appendix.

33

See Figure 8 for a comparison with other African countries.

34

The taxation on spirits, whiskies, rum and tafia, gin and geneva and other similar alcoholic drinks was reduced from 90 percent to 87 percent, in line with the taxation on beer and wine (Table 7).

35

In order to perform the calculations in this section, 1996 calendar year data for imports and the tariff book after the 1998 tariff reform have been used.

36

Note that losses are calculated on the basis of statutory tariff rates.

37

Excluding vehicles, tobacco, and alcoholic beverages.

The Gambia: Selected Issues
Author: International Monetary Fund