As you are winding up your public consultations, please allow me to make one more contribution that is so important for the economy of this country. The current liquidity crisis that is hitting this government and forcing it to borrow more money domestically is the effect of reckless interventions in the past by a president who put personal gains before national interest. As I will explain further, diverting government hard-earned taxes and duties to the commercial banks in violation of the 1997 Constitution created a precarious cash situation inherited by this government. ]
While the domestic debt situation continues to rise, GRA is still reporting record levels of tax collections of D10.7 billion which made me wonder why this government is still borrowing heavily from the local commercial banks when its tax revenues are increasing exponentially. Well, the answer is not hard to discern! If we pay close attention to the pattern of interventions in the banking sector during the former regime, we will see that all the directives that were issued to diversify tax revenues to the private banks away from the Central Bank were designed to give leverage to one bank: Guaranty Trust Bank (GTBank). Although other agreements were signed between GRA and four other banks, this was only done three years after GTBank started receiving hard-earned taxpayers’ money and undoubtedly using it to make profit.
It is no surprise therefore that over the years the bank became the major provider of domestic loans to government. Its portfolio of government T/bills and Bonds grew from D670 million in 2012 to almost D3.74billion in 2018. Other commercial banks were only included in the scheme in 2014, three years after the GTBank started collecting the GRA tax revenues. It was not until in 2018 when the former managing director of the bank was giving out testimony about the shareholders of the bank when he disclosed that the former head of state and one of his close associates were the major shareholders of the bank.
I would therefore wish to start this contribution by laying out the historical perspective of the origins of this problem for a better understanding of the reasons why urgent action is needed to strongly legislate against this practice inherited from the previous corrupt regime that is so damaging to our country economically, socially and politically.
Historical origins of diverting government revenues to the private commercial banks
1. In 2010, the former government of Yahya Jammeh tasked the Guaranty Trust Bank (GTBank) the sole responsibility of collecting Airport Development Levy for the Government at the exclusion of the Gambia Civil Aviation Authority (GCAA) which was mandated to collect airport duty. The impact of this unusual arrangement on the finances of the GCAA and the nation’s tourism industry was quickly felt; tourist arrival numbers began to fall and tour operators as well as inbound travelers started making loud noises about the move. The decision was quickly reversed but the bank had already benefited enormously from this cash windfall.
2. In May 2011, another scheme was created to benefit GTBank this time targeting GRA tax revenues. Through executive directive issued from the Office of the President, GRA was directed to pay taxes and duties at any GTBank branch in the country. That directive was implemented by GRA through a memorandum of understanding (MoU) between GRA and GTBank and it went on for three years before other commercial banks were included.
3. At the time of implementing this agreement, GRA has more branch offices across the country than GTBank and its staff cashiers were highly proficient in handling tax revenues than the tellers at the bank. Once tax collections are banked it is the responsibility of the Central Bank and the government’s accountant general (Treasury department) at the Ministry of Finance to control and monitor the cash movements in the account of the Consolidated Revenue Fund. But none of these two important institutions was included in the signing of the MoU. This raises a red flag!
4. In May 2012, one year after the implementation of the MoU between GRA and GTBank, the government signed a Letter of Intent with the IMF requesting for financial support as the fiscal deficit began to widen and the domestic debt, which was on a declining path, started to rise. The domestic debt at the time stood at D8, 697 million (30.4 percent of GDP), seventy five percent of the debt was in the form of T/-bills. Interest on domestic debt has been very costly, consuming about 18 percent of government revenues at the time. As government revenues fell steadily the net domestic borrowing rose to 4.7 percent of GDP.
5. In late 2012, the former head of state Yahya Jammeh again diverted collected taxes to secret accounts at the GTBank and Trust Bank where he and his two former secretary generals were signatories to those accounts. Making this revelation at the Janneh Commission, the former managing director of GTBank, Mr. Lekan Sanusi, said the former president made several withdrawals from the account as signatory to the tax account. The current director general of GRA, Mr. Darboe, also testified at the same commission and made further revelations about how Yahya Jammeh came with the idea to divert GRA collected tax funds to the accounts at the Trust Bank and Guaranty Trust Bank.
6. When asked whether it was normal to pay government taxes to a commercial bank and this is what Mr. Darboe had to say: “It is not normal. Any revenue we collect we have an account at the Central Bank of The Gambia (CBG). If it is international trade, an account has been opened at the CBG, in the name of the Commissioner General. There is also a domestic account at the CBG for the GRA. Any other account open outside the CBG is not normal,” he added. In fairness to Mr. Darbo, he was not the GRA director general at the time these arrangements were made.
Diverting vehicle road tax and license fees to the fuel companies
7. Almost five years after this intervention, another intervention was made to benefit the former head of state’s business interests. Vehicle license fees and road taxes which we all have to pay for if we want to drive our cars were also diverted and paid to the petroleum companies for which it also became evident during the commission that Yahya Jammeh had interest in one of the major importers of fuel into the country. The revenues coming from this unusual arrangement is far below what government used to receive when the Traffic Police and GRA were processing the collection of road tax, motor vehicle license and other related fees.
8. In 2014, three more banks were engaged in the scheme for the receipt of GRA taxes and duties. They are: Trust Bank, Access Bank, Keystone Bank and Ecobank. Officials at the central Bank and the Ministry of Finance were never made party to the agreements and to date, I have yet to see any Bill passed before the National Assemble legalising the transfer of government taxes and duties to the commercial banks. This agreement may be illegal as they are implemented in violation of the Constitution and the Public Finance Act 2013.
9. There is growing evidence that the commercial banks are deliberately foot-dragging when it comes to transmitting the GRA tax funds to the Central Bank for obvious reasons. The Central Bank and the Finance Ministry are also not effectively monitoring the accounts to make sure government monies are transferred daily to the Central Bank in line with the MoU.
Hundreds of millions of government monies sitting in the commercial banks
10. It was not surprising when this year the Auditor General reported in its review of the Government Financial Statement 2016, that at the end of that year over D250 million in various currencies belonging to the government were sitting with the commercial banks and not transferred to the Central Bank. These were taxes and duties paid to the banks by GRA. This is not unusual as sometimes it takes weeks even months before taxes collected are paid to the central bank. This amount is far greater than the budget allocation of D113 million for Youths and Sports and Tourism and Culture (D40.9 million) in the 2020 budget.
11. In a cash-strapped tax driven economy, the timeliness of depositing tax revenues into the consolidated revenue fund (CRF) is crucial in implementing an effective cash planning system. Government is operating a cash-based accounting system which means that if collections are not paid to the treasury account at the Central Bank and left sitting in the private commercial banks it will never be recognized as revenues until it hits the government account at the Central Bank. Therefore there is always a difference between what GRA collects and what is deposited at the central bank.
12. Banks in other countries within the region have appointed agents to collect taxes from their clients who refuse to pay taxes. For example in Nigeria, Banks are appointed as tax collection agents by the Federal Inland Revenue Service (FIRS) and issued ‘letters of Substitution’ under provision of Nigerian tax law for customers that are identified as “affected companies” and maintaining bank accounts with them. This is totally different from what we are doing here by paying tax revenues to the banks instead of the Central Bank.
13. There is only one way to maximize Government revenues and that is to bank all tax collections, custom duties, vehicle license and other related fees directly into the Government’s Consolidated Revenue Fund at the Central Bank. That will herald a sea-change in government finances and enhance timely revenue recognition, facilitate monthly reconciliations exercise and enable effective consolidation of all inflows from all government agencies into a single treasury account at the Central Bank as well as reducing the dangerous levels of the Government domestic debts owed to the commercial banks. Right now we are spending more than 40 percent of our tax revenues to service the domestic debts.
Strong policies are therefore needed in the management of public fund; Section 222 should be explicit in banning the use of taxpayers’ revenues by the commercial banks. There is consensus the main factor contributing to the cash shortages and forcing government to take more debts is the delay to transmitting all tax revenues paid to the banks to the Central Bank and this has an effect on government borrowing.
The origins of diverting GRA taxes to the commercial banks started during the time of Yahya Jammeh and knowing what we now know, it makes little sense to allow this practice to continue hurting the economy. The Financial Regulations 2016, Part IV (21) (6) and Section 13 of the Public Finance Act 2014 on the opening of government bank account state that “A government account may only be opened with a commercial bank on the approval of the Finance Minister based on the recommendation of the Accountant General”. Also Section 161 (3) of the 1997 Constitution makes the Central Bank the sole depository bank for Government as follows: “The Central Bank shall be the sole banker of the Government and it shall be the principal depository bank for all funds raised for, or on behalf of, the Government”.
It therefore remains to be seen whether GRA sought the approval of the Minister and Accountant General before opening these accounts and whether they were parties to the signed MoU between GRA and the banks. One thing is certain though, the commercial banks will do anything to let this cash bonanza that started with GTBank during the past regime be taken away from them so easily. So long as government continues to borrow funds, they will resist any moves to discontinue this free money from them. There is an old Wolof proverb that says, “Buki ken douko denga yapa”. This literally means that you can never entrust your meat to a wolf.
I hope you will find my contribution useful in your deliberations to give Gambians a constitution that aims to protect the resources as well as every citizen of this country irrespective of tribe, religion, creed, color or region.
Dr. Alieu .O. FAAL
Former Senior Resident Adviser, MOFEA
Former Key Public Financial Management (PFM) Expert, WYG International, UK