By Henri Kouam (Download Pdf Version)
Ease of Paying Taxes in Cameroon
The Doing Business Index of the World Bank ranks economies based on their performance in several businesses and governance-related indicators. One of the most important indicators for developing economies such as Cameroon is the “Paying Taxes Indicator,” as investors closely watch this metric to determine the attractiveness of a country to Foreign Direct Investment.
What is the Paying Taxes Indicator, and why Does it Matter to Cameroon?
According to the World Bank (2020), The Paying Taxes indicator of the Doing Business Report records the taxes and mandatory contributions that a medium-size company must pay in a given year as well as measures of the administrative burden of paying taxes and contributions and complying with post-filing procedures.
Taxes and contributions measures include the profit or corporate income tax, social security contributions and labor taxes paid by employers, property taxes, property transfer tax, dividend tax, capital gains tax, financial transactions tax, waste collection taxes, vehicle and road taxes, and any other small taxes or fee. The “Paying Taxes Indicator” is an important indicator for foreign investors as it enables them to gauge the length of administrative procedures as well as the cost of complying in any given jurisdiction.
The Paying Taxes Indicator Measures
The tax indicator is a composite indicator that combines four components:
- Tax payments for a manufacturing company (number per year adjusted for electronic and joint filling and payment)
- The time required to comply with three major taxes (hours per year)
- Total tax and contribution rate (% of commercial profits)
- Post filling index: time to comply with a Value-Added Tax refund (hours), time to obtain a VAT refund (weeks), time taken to comply with a corporate income tax correction (hours), time taken to complete a corporate income tax correction (weeks).
Table 1: Cameroon Ranking in the Doing Business Indicator as Regards to Paying Taxes (2007-2020)
Source: World Bank DBI Reports, Cameroon Economy Profile, 2007-2020
From the above table, the post-filling index appeared in 2017 when Cameroon increased the minimum tax rate for companies (DBI, 2017). The general tax Code was amended in the same year and outlined the need for taxpayers to file a tax return for income earned from their business venture during the period serving as tax base on or before March 15th annually (Section 18 (1)).
Between 2016 and 2017, 9% of the profit relating to the tax and contribution rate can be explained by higher taxes. Higher taxes are a deterrent to foreign direct investment, but cumbersome procedures are equally discouraging foreigners from investing in Cameroon.
Paying Taxes in Cameroon
The time taken to pay taxes is equally an important indicator, where Cameroon made notable improvements. It went from 1,300 hours in 2007 down to 624 hours in 2020. Since February 3rd, 2016, it has been made possible to pay taxes online in the Central African sub-region. Further reforms were made to the post-filing index in 2017.
Since 2011, there has been a drastic reduction in time which went from 1,400 hours in 2010 to 654 hours in 2011. The sudden change was driven by the 2011 Finance Law, which implied a delay in the payment of the Personal Income Tax.1 The 52nd article modifications in the 2011 budget reduced the time taken to complete the transaction.
In 2020, the Directorate General of Taxation set up a 2020 tax payment system named “Syampe” dedicated to businesses, students, sellers, employees of all categories, including mobile phone operators. On the Syampe platform, there is access to a control panel that gives the user a real report of their most recent operations as well as their progress status: either paid, invalidation, archived, or rejected (Investir au Cameroun, 2020).
The paying taxes indicator improved from 170 in 2010 to 169 in 2011, while the number of payments increased per year to 44, the total index rate was reduced to 49.1% of business profit. The Directorate General of Taxation has contested these figures of taxes, stating that the DBI was not updated hence penalizing Cameroon’s perceived improvements.
It is noted concerning the rank that the country went from the 143rd position in 2007 to the 181st position in 2020, which shows that the country’s position has rather deteriorated despite the existence of these aforementioned reforms. We will advocate for cautious optimism as the enactment of reforms and their implementation sometimes experience a lag.
However, fiscal policymakers should implement and verify such reforms to reduce burdensome administrative procedures and enable a fully remote and digital tax system similar to that in advanced economies. Rather than taking a defeatist approach, we would align with the view of full digitization to enable an investor in foreign countries to invest and pay their dues online.
However, it is imperative that fiscal policymakers enact, implement, and verify the said reforms to reduce administrative procedures and enable a fully remote and digital tax system similar to that in advanced economies. Rather than take a defeatist approach, we would align with the view of full digitization to enable foreign investors to pay their dues online.
Paying Taxes Indicator of Cameroon and That of Other Countries
Cameroon has equally made improvements between 2007 to 2020; other countries that were better than Cameroon have also continued to make tremendous improvements on the paying taxes index. Comparatively, these countries have made more efforts on the ease of paying taxes than Cameroon. For example, in terms of time spent, Kenya has reduced hours spent in paying taxes from 432, Morocco from 468, Mozambique from 200, Nigeria from 1,120 hours per year in 2007 to 180, 155, 200,343, 180 hours respectively in 2020.
Figure 1: Relationship Between the “Doing Business Index” and Foreign Direct Investment
Source: World Bank (2021)
Cameroon has made some progress on the various sub-indicators of the paying taxes index indicator. However, the efforts made by other countries, especially in reducing the time spent in paying taxes, surpass the efforts made by Cameroon. Additionally, Cameroon has equally regressed in the number of payments per year (Table 1). The chart above indicates how the paying taxes indicator impacts FDI flows into Cameroon. Firstly, we find a strong correlation between the global “Global Paying Tax Indicator” and the FDI.
Figure 3: The Global Paying Taxes Indicator has a Lagged Impact
Source: World Bank
In a second scenario, a is smoothing function to the global Paying Taxes Indicator. As illustrated in the chart above, it moves concurrently with the FDI inflows. As such, it is true for Cameroon that the DBI index – the Global Paying Taxes Indicator – moves together with foreign direct investment.
The gradual pace of digitization, cumbersome procedures, and slow implementation of reforms, explain why Cameroon still maintains a poor ranking in the paying taxes index. Cameroon has also regressed in the number of taxes. Even though other countries experienced a slight drop, it is better than Cameroon’s performance from 1,300 hours to 624 hours. Cameroon regressed from 39 in 2007 to 44 in 2020 in the “number of payments per year.” This has impacted the position of Cameroon on the paying taxes index.