By Dr. Jean Cédric Kouam (Download pdf version)
The Expected Effects of Taxation on the Competitiveness of the Cameroon’s Economy in 2023
On December 5, 2022, Cameroon’s National Assembly approved the Finance Law for the year 2023. The particularity of this document is that it contains a number of innovations including those related to the taxation of businesses and households. Although this law grants tax exemptions to boost the productive sector, the Cameroonian government has also given itself some leeway to increase tax revenues. Given the unfavorable global economic situation, marked in particular by the war in Ukraine and the sharp fluctuations in commodity prices on the world markets, the government wishes to ensure the sustainability of public finances.Against the backdrop of the country’s commitment to promote economic freedom and to take full advantage of the African Continental Free Trade Area (AfCFTA), this article analyzes the implications of these tax innovations on the competitiveness of the national economy. The purpose of this analysis is to draw the government’s attention to the risks associated with the tax increases planned for the year 2023. The paper is structured in three main points: the presentation of main fiscal innovations for the year 2023 in Cameroon (1); the effects of these fiscal innovations, particularly tax increases, on the competitiveness of the Cameroonian economy (2); and the risks associated with these tax increases for achieving the objectives of the new national development strategy 2020-2030 (NDS30) (3).
Main fiscal innovations for the year 2023 in Cameroon
Among the fiscal innovations for the year 2023 in Cameroon are those relating to the “removal of exemptions on imports of locally manufactured products or those with local substitutes, as well as those detrimental to the development of certain sectors, in order to encourage their local production and competitiveness”. The government is also considering granting five years of tax exemptions to certain farmers or agricultural entrepreneurs in the exploitation phase; a 30% tax rebate over three years on the production of local beverages in case of local purchase of raw materials as well as a 50% rebate on the monthly instalments and income tax, to name a few.
The Cameroonian government has also taken fiscal measures to compensate for the losses associated with the exemptions. Among these fiscal measures, the government plans to set the price of the fiscal stamp at 1,500 CFA francs, an increase of 50% over the price in 2022 and 100% over 2005 (Article 547). There is also an increase in the tax stamp for national driving licenses and their duplicates, as well as for certificates of capacity for driving certain urban vehicles, which will now be set at 10,000 CFA francs, n vehicles, now set at CFAF 10,000, an increase of 50% compared to 2022 (Article 550).
In addition to the increase in the price of the tax stamp, it is also planned to increase the cost of the car tax sticker, depending on the number of horsepower. For example, for vehicles with 2 to 7 horsepower (HP), the motor vehicle stamp duty has increased from CFAF 15,000 to CFAF 30,000, and for vehicles with 8 to 13 HP, previously set at CFAF 25,000 in 2022, it has increased to CFAF 50,000, an increase of 100% for each of these categories of vehicles in one year (Article 597B). These increases in the price of motor vehicle tax stickers (to which could be added the cost of insurance company services), combined with the sharp fluctuations in fuel prices, the special tax on the sale of petroleum products (new Article 229) and the recent increase in the price of vehicle inspections, are not without consequences for economic activity and the objectives set by the government in the NDS30.
In addition to the increase in the price of tax stamps, which will undoubtedly affect the cost of obtaining a land title, the Cameroonian government is also planning to revise the tariffs of fees relating to state, cadastral and land operations listed in Article 19 of Ordinance No. 74/1 of 6 July 1974 to establish the land tenure system (Article 14 new). All these changes are not without consequences on the competitiveness of the national economy.
The Implications of the 2023 Fiscal Increases on the Competitiveness of the Economy
Fiscal increases for the year 2023 in Cameroon are likely to affect the competitiveness of the Cameroonian economy through two main channels: the transportation channel and the administrative channel.
The transportation channel
Many studies indicate that transport facilitates economic activity and innovation by linking people and businesses to opportunities and expertise (Savy, 2017; Bahri, 2022). In Cameroon, much of the agricultural production is done in rural areas and requires vehicles to transport the farm products to urban areas and large markets. In other words, vehicles facilitate the movement of people and goods safely and efficiently and provide access to new economic opportunities. The transport industry in all sectors supports hundreds of thousands of jobs. However, any increase in the price of transport would lead to a concomitant increase in the price of consumer goods. The measure to increase the price of motor vehicle tax stickers, in a context already marked by significant fluctuations in the price of fuel , is likely to slow down the efficient operation of transport networks, the development of the private sector and, by extension, economic growth.
The administrative channel
The tax increases forecasted in the 2023 State Budget will also affect the competitiveness of the national economy via the administrative channel. This channel is used among other things to create files for the formalization of companies, the land registry and real estate matters that require the payment of fiscal stamps. The increase in the price of this stamp would not be likely to encourage the exit of certain companies from the informal sector. Yet these businesses would have generated more tax revenue if less austere measures had been put in place to facilitate their formalization and/or access to land ownership.
The risks of tax increases on Cameroon’s development objectives
In implementing the NDS30 in November 2020, the government of Cameroon set itself three specific objectives: (i) to achieve economic growth in double digits, (ii) to reach the threshold of 25% of manufacturing production as a share of GDP, and (iii) to reduce poverty to less than 10% by 2035. To achieve this, the government intends to develop the productive sector, which accounts for more than 90% of businesses still trapped in the informal sector.
However, the fiscal measures planned for 2023 are at odds with the government’s desire to continue the modernization of land and property management provided for in the NDS30. The government has promised to promote the development of connected, inclusive and resilient cities that are conducive to business competitiveness, as well as access to land and property ownership.
The increase in tax stamp contributes to tightening the conditions for formalizing businesses or accessing land, and in so doing, contributes to slowing down the dynamics of the private sector, as the holding of a land title is very often the guarantee required by credit institutions to grant financing to businesses. The increase in the cost of the fiscal stamps required to apply for a land title, combined with the corruption generally observed in this sector, are likely to make the already very difficult economic situation even more depressing.
Moreover, the projected high tariffs in the transport sector further complicate Cameroon’s vision of having a critical mass of ‘national champion’ companies representing flagships or leaders in key sectors of the national economy.
Despite the current economic situation, which is somewhat favorable to the collection of sufficient tax revenues to ensure the state’s standard of living and finance the development projects envisaged, the government’s decisions to revise upwards the price of the fiscal stamp and car vignettes in 2023 are not likely to encourage economic recovery, and can rather contribute to favoring the predominance of the informal sector.
On the other hand, the removal of fiscal stamps, particularly on documents used to request the formalization of a business, or the reduction in the number of stamps required to register a property, would indirectly contribute to the expansion of the tax base, which would make it possible to achieve the objectives set by the government for 2030, in particular that of reaching the threshold of 25% of manufacturing production as a share of gross domestic product (GDP).
Jean Cedric Kouam is the Deputy Director-Economics Affairs Division and the Head of Fiscal and Monetary Policy Sub-section at the Nkafu policy Institute. He holds a doctorate in economic policy and analysis (monetary and financial macroeconomics) from the University of Dschang in Cameroon.
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