Abstract

This study aims at “Analysing the Administration of Value Added Tax in Cameroon”. Its specific objectives are to assess VAT’s relevance in revenue generation, savings and consumption of the consumers and to identify the main problem that hinders the practice of VAT in Cameroon.

The selected businesses here are businesses in the secondary and tertiary sector in Buea which will cover state tax collecting and administering offices, businesses paying VAT (tax payers) picked randomly such as book venders’, shoe vendors’, saloons, bakeries, poultry vendors, restaurants, hotels, financial institutions, provision stores and super markets which constitute the managers, owners, store keepers, accountants, cashiers and other employees of these businesses that provided relevant information for the research.

Primary data was collected with the use of 40 questionnaires that were answered by managers, owners, store keepers, accountants, cashiers and other department staffs of the target businesses. Frequencies and percentages were used to analyze data through SPSS and Microsoft Excel and the results were presented on tables, bar charts and pie charts.

The findings indicate that VAT economically does encourage investment by providing a refund for a tax paid on inputs and encourage export by zero rating items exported. With the very concept of VAT, output tax is charged at each stage of production and distribution to ensure that only final consumption is exposed to be taxed as is obvious that when there is tax on the consumption of the goods and services, people are not consuming large amount of goods and services (their consumptions are decreasing) and many of their income goes to savings. The study also found that the main drawbacks that hinders the administration of VAT in Cameroon are lack of awareness and deliberate resistance not to comply with the VAT laws of the business community, absence of sufficient materials and skilled manpower, the negative attitudes of some business societies towards VAT, tax evasion, weak purchasing powers of the society forcing to search goods and services that exclude the value of VAT from its price, poor relationship between the tax payers and tax officers and low remuneration of the tax officers.

Therefore, the study thus recommends that Cameroon tax Authority has to build its administration capacity on both human and material resources to carry out its duties and responsibilities effectively and efficiently.

This can be maintained through hiring of more qualified employees, provision of consistent training and development for staffs. Who will join and who have joined and using advanced information and communications technology so as to improve its administration capacity and control those on compliance VAT payers.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Tax can be defined as a levy or other type of a financial charge or fee imposed by the state or central governments on legal entities or individuals. It can be categorized as direct or indirect taxes. For the purpose of this study, the researcher takes one of the types of indirect tax which is VAT If tax is levied directly on personal or corporate income, then it is a not indirect tax. If tax is levied on the price of a good or service, then it is named an indirect tax.

Value added tax (VAT) is a type of indirect taxes on goods and services. They are also referred to as commodity or consumption taxes, since they are paid only when particular transaction of goods or services is affected. The burden or incidence of such taxes fails indirectly on the ultimate consumer rather than on the registered taxpayer that is why this tax is indirect tax. Taxation has been the major source of revenue for governments for thousands of years. It is the process of raising government revenue to finance its expenditure through tax (James, 2011).

VAT was introduced in UK in April 1973 following its general acceptance in some western European countries in subsequent years; with the growth of the EEC the tax is slowly but steadily being accepted in the developing countries. It should be noted that the acceptance of VAT in most developing countries has been rather more philosophical than practical as it practice has proven rather difficult.

Other developing countries precisely in the CEMAC region who adopted VAT include Equatorial Guinea in 2004, Gabon on 24th February 1995, Congo on the 12th of May 1997, Chad on the 1st January 2000, Central Africa republic in 2001, not forgetting Cameroon on January 1st, 1999 just to name a few.

Furthermore, as far as the Asian continent is a concern, South Korea was the first Asian country to implement VAT in 1977 the assistance from the international monetary fund (IMF). While 1987 to 1997, VAT was introduced in other Asian countries and the Eastern European countries with VAT rates ranging from 5% to 26%.

According to Cnosscn (1998) who suggested that nearly universal introduction of the Value Added Tax should be considered the most important event in the evolution of the tax structure in the last half or the twentieth century. The idea of VAT traces back to the writing by Von Siemens, a German business man, in the 1920s.

However, Value Added Tax was first applied in France in 1948. VAT came into effect for the first time on 10th April, 1954 in France (Tuan Minh Le, 20(3). In order to increase the revenue of the government many countries in the world are implementing the Value Added Tax. Value added Tax (VAT) is a special types of indirect tax in which a sum of money is levied at a particular stage in the sale of a product or service.

Fifty years ago the Value added tax was rarely heard outside of France and a few dry specialist texts. Now it raises about 20 percent of the world’s tax revenue, and affects about 4 billion people (Keen and Lockwood, 2007). Few fiscal issues are more important in developing and transitional economies (DTE) than the Value added tax.

Over the last few decades, Value Added Tax has swept the world. The principal reasons for the rapid of this form of taxation were, first, the early adoption of this form of taxation DTE by the International Monetary Fund in particular and by international agencies and advisors in general (Richard, 2006).

Myles (2000) states that financial capacity of any government depends among other things, on its revenue base, the fiscal resources available to it and the way these resources are generated and utilized. It is therefore, the duty of the government to adequately mobilize potential revenue across the country to prevent economic stagnation.

This mobilization involves the adoption of economically and politically acceptable taxes that would ensure easy administration, accounting, verification, auditing and investigation based on the equality, neutrality and other attributes of a good tax.

Consumption taxes have a wider coverage since the cause of adverse variance can be adequately controlled under proper administration (Leach, 2003). The revenue generated from consumption taxes can help to boost the financial base of any economy. This however involves exploiting the potential and adopting the type of consumption tax that will recognize the tax payers as utility minimizing individuals and safeguarding their evading behavior.

The essential consideration choosing a consumption tax option from other tax options includes; assessment of administrative feasibility of each tax and determining its relative revenue potentials, its relative revenue potentials, its degree of voluntary compliance, its relative neutrality, its equity essential for regressively and the efficiency of these criteria, one can easily see under lying reasons why government replaced a Retail Sales Tax (RST) with value added tax as consumption tax.

Value Added Tax (VAT) is a consumption tax that is being charged and embraced by many developed and developing countries, which is relatively easy to administer and very difficult to evade. The introduction of VAT has been one of the most important tax reforms over the last decades, especially in Africa. It derives its name from the concept of value addition. It is a tax levied on goods and services in the economy.

Value-added tax (VAT) was enacted to the law in Cameroon on the 1st of January 1999 in order to replace the sales tax or the turnover tax which was a single-stage collection tax system resulting in the great loss of tax revenue to the government due to great tax evasion and avoidance, as it did not provide rebates for the taxes paid at each stage. The turnover tax (TOT) also suffered from a narrow base as compared to VAT with a broad tax base as it was imposed only at the retail level; it only recognizes tax when the goods reach the final consumer.

On the other hand, VAT takes into consideration the various stages of production from the primary producer, manufacturer, wholesaler, retailer as well as final consumers who then suffer the VAT burden. This is to say that VAT is at every point of the production process whenever the goods change hands.

Essentially VAT is collected by registered businesses on the value added by them in each stage of production carried out by them and later paid by them to the tax department of their respective tax jurisdiction.

It can also be seen as a multi-stage tax that is imposed at a flat rate upon the annual sales proceeds of a firm less all its purchases from other businesses. In fact, VAT is administered and collected on consumption or expenditure in the domestic economy, rather than on production or output of the domestic economy.

Also, the actual amount of tax borne by many businesses is less than was the case under the sales tax system, and owing to the fact that a business may have to pay VAT on a broader range of goods and services, it, however, deducts the tax it has paid (input VAT) from the VAT it has collected (output VAT) and only pays the net balance to the tax authority.

This implies that VAT incidence is borne by the final consumer since it is a consumption tax. Intermediate collectors only act as temporary agents and they only bear the burden as long as they have not sold the goods, but this is depending on the demand elasticity of the said goods. This is due to the fact the taxes paid at the intermediary stages are only input taxes which are claimed when the goods are sold to the final consumers and the output tax is collected. The output and input VAT is then offset.

Traditionally VAT had a limited coverage that is, only on manufacturers and importers but as time evolved; VAT became a broad base tax with broad coverage that is extended to retailers and services. Also, the several positive rates it had in the past years were modified to a single positive rate and also a high threshold as opposed to a low threshold in the past.

The threshold is the level at which the registration of VAT becomes compulsory, this is a very critical choice in the design and implementation of the VAT. In the past, many countries set their threshold too low putting themselves in considerable difficulty when their tax administration is found insufficiently developed to administer a large VAT population. Therefore this study aims at analyzing the administration of Value Added Tax in Cameroon.

1.2 Statement of the Problem

The acceptance of VAT in many developing countries has been rather more philosophical than practical as it practice proves rather difficult, this is a result of the many problems which are commonly encountered in trying to administer the VAT.

This problem ranges from the degree of literacy, size of the monetary economy, nature, and size of trade and industrial establishment, adequacy of record-keeping, and attitude towards taxation and tax administration services. This is usually due to the fact that the ability of any country to introduce and administer VAT depends on its level of economic development.

In addition, the broad tax base associated with VAT implies that the range of activities to which it applies is largely leading to a slowdown in its administration. There is also a high level of no compliance due to the high   tax rate especially by most retailers as they argued that some of the goods they purchase are perfectly elastic in demand and this makes it difficult for them to shift the tax burden to the final consumers in the form of high prices hence, most at times, they end up making losses. VAT has also been proven to be very complex tax to administer which reduces its efficiency. Summarily, the main problems include the introduction of complex VAT loss by the government, too many exemptions on the tax, many rates, and multiple stages.

The major activity in VAT administrations are identifying tax payer, processing returns, controlling collections, making refunds, auditing taxpayers and levying penalties. The other part of VAT administration is assessment on VAT execution. This includes identifying taxpayers and tax evasion as well as the registered and unregistered tax payers among the business society.

This follows that the concerned authority takes legal measures against people who do not comply with the VAT law. It is not only the authorities who shall be responsible in assessment of execution of VAT but the consumers themselves will play key role. Since the VAT is a tax that is levied on the consumer, it does not constitute a tax on business. In effect, a registered VAT taxpayer is charging and collecting funds that are being held in trust for the government before being remitted to the Revenue Authority.

However, Revenue Authority did experience the types of fraudulent activities that have been commonly encountered by many countries which have introduced VAT. Such fraudulent actions reject the country its revenue entitlements: create competitive inequalities in the business environment and work to the harm of the honest business taxpayers.

This in turn hampered the implementation of Value Added Tax fully and is reducing the revenue of the government from the Value Added Tax. Even though intensive education program has been undergoing by the tax administrative, there are various problems which restrain for the practice of VAT in the Zone.

There is a strong need to understand the underlying causes of VAT practice. In developing countries many research have been done on VAT administration but not considering of theoretical part of rule and regulation of VAT and its practice.

Teffera (2004) attempted to examine the implementation of VAT in Ethiopia using information obtained solely from the tax authority. From the data collected this researcher is not reaching on reliable finding and recommendation. Therefore, this thesis will examine different problems associated with the practices of VAT which affects the government revenue and tries to answer the following basic questions:

1.3 Research Questions

1.3.1 Main Research Question

Is the administration capacity of Cameroon Revenue Authority strong enough to administer VAT?

1.3.2 Specific Research Questions

1. Does VAT contribute to revenue generation, saving, and consumption of the consumers?
2. What are the major problems that hinder the smooth practice of VAT in Cameroon?

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