AN ASSESSMENT ON THE IMPACT OF DOUBLE TAXATION ON BUSINESSES IN CAMEROON

CHAPTER ONE

INTRODUCTION

Background of the Study

The private sector is crucial in guaranteeing sustained growth and development in any economy. The private sector, characterised by individual and organisational ownership and control of resources, is primarily driven by profit motives. While some actors in this sector may have objectives other than profit-making, it overall contributes to increased production and employment opportunities. Additionally, it fosters competition in the economy, leading to price stabilisation (Ayele, 2015). Furthermore, the private sector not only fulfils the roles mentioned earlier, but it also enhances the purchasing power of individuals, leading to an overall improvement in their quality of life. This improvement, in turn, has a positive effect on political stability, which ultimately contributes to the advancement of physical and developmental infrastructure (Ayele, 2015). Tax is a mandatory financial payment made to the government by people and organisations. It is imposed on many aspects such as actions, pleasure, spending, income, vocation, privilege, and property, with the purpose of generating money for the state (Business Dictionary). In Cameroon, the tax policy is aligned with the trade and commercial strategy. The tax system of the nation is divided into direct and indirect taxes (Nyuylime, 2017). Nyuylime's (2017) study indicates that the pre-reform tax system in Cameroon contained several direct taxes such as Income tax, Pool tax, Corporation tax, and Patente. Conversely, according to the study conducted by Andrade (2021) and Arnold and Loomer (2023), the pre-reform tax system in Cameroon consisted of indirect taxes such as domestic turnover tax, value added tax (VAT), and customs charges or import taxes.After the 1994 tax reform in Cameroon, the primary indirect taxes in the nation are classed as Value Added Tax, Excise charges, and Custom duties. Double taxation, which refers to the levying of taxes on the same income or financial transaction by more than one jurisdiction, has become a major worry for firms operating in Cameroon. Cameroon, similar to several other nations, has a complex tax framework including both internal tax legislation and worldwide tax agreements (Baez, 2021). Nevertheless, the absence of coordination between national legislations and global treaties sometimes gives rise to scenarios in which companies encounter overlapping tax responsibilities, leading to higher costs of compliance, diminished competitiveness, and impeded economic expansion. The taxation system in Cameroon is shaped by multiple factors, including its colonial past, economic strategies, and affiliation with regional and international organisations like the Economic Community of Central African States (ECCAS) and the Organisation for Economic Co-operation and Development (OECD, 2015). Although there have been attempts to update the tax system and enhance methods for ensuring compliance, issues about double taxation continue to exist, especially for companies involved in international operations or with overseas branches. Furthermore, the economy of Cameroon is distinguished by a wide array of firms, including small and medium-sized businesses (SMEs) that operate in several sectors, such as agriculture, manufacturing, services, and extractive industries. Small and medium-sized enterprises (SMEs), in particular, often face challenges due to their limited resources and lack of experience in dealing with the intricate aspects of international taxes. As a result, they are particularly susceptible to the negative consequences of double taxation. The current body of work on the effects of double taxation on firms offers significant perspectives from a worldwide standpoint. Research conducted by Baez (2021) underscores the economic inefficiencies and distortions resulting from double taxation. It emphasises the need of coordinating taxes and avoiding disputes between different jurisdictions. Nevertheless, there is a scarcity of empirical research that particularly examines the consequences of double taxation on firms in Cameroon. Hence, this research aims to address this deficiency by conducting a thorough evaluation of the consequences of double taxation on enterprises in Cameroon. This study intends to produce actionable insights for policymakers, tax authorities, companies, and other stakeholders by investigating the unique issues encountered by enterprises, analysing the economic and financial consequences, and exploring alternative policy and regulatory remedies. Therefore, the researcher sought to assess the impact of double taxation on businesses in Cameroon.

1.2 Statement of the Problem

Double taxation, the imposition of taxes on the same income or financial transaction by several jurisdictions, has become a major problem for firms operating in Cameroon. Although attempts have been made to simplify tax rules, firms nevertheless encounter difficulties due to the simultaneous tax requirements imposed by both local and international authorities (Bräumann, 2019). The issues include escalated regulatory expenses, diminished investment motivations, and impeded global competitiveness. Nevertheless, the exact extent and particular consequences of double taxation on enterprises in Cameroon are still not well understood. The Cameroonian economy lacks substantial empirical research that investigates the impact of double taxation on enterprises of different sizes, sectors, and ownership structures (Chand and Villaseca, 2021). Furthermore, the variables that worsen double taxation and viable measures to reduce it, specifically designed for the Cameroonian context, have not been well examined. Hence, the study assess the impact of double taxation on businesses in Cameroon.

1.3 Objectives of the Study

The broad objective of the study is to  assess the impact of double taxation on businesses in Cameroon. The specific objectives is as follows

Determine the prevalence  of double taxation among businesses in Cameroon.

Evaluate the economic consequences of double taxation on businesses operating in Cameroon.

Investigate the challenges faced by businesses in complying with dual taxation requirements in Cameroon.

Proffer recommendations to mitigate the adverse effects of double taxation on businesses in Cameroon.

1.4 Research Questions

The following questions have been prepared for the following

What is the prevalence  of double taxation among businesses in Cameroon?

What is the economic consequences of double taxation on businesses operating in Cameroon?

What are the challenges faced by businesses in complying with dual taxation requirements in Cameroon?

What are the recommendations to mitigate the adverse effects of double taxation on businesses in Cameroon?

1.5 Significance of the Study

 Findings from this study can inform policymakers and tax authorities in Cameroon about the specific challenges faced by businesses due to double taxation. This understanding can facilitate the formulation of targeted policies and regulatory reforms aimed at reducing the burden of double taxation, enhancing the business environment, and fostering economic growth.

Academic Contribution: The study contributes to the existing body of knowledge on taxation, international business, and economic development. It provides empirical evidence and theoretical insights that can enrich academic discourse and serve as a basis for further research in related fields.

1.6 Scope of the Study

The study focuses on the impact of double taxation on businesses in Cameroon. Empirically, the study will determine the prevalence  of double taxation among businesses in Cameroon, evaluate the economic consequences of double taxation on businesses operating in Cameroon, investigate the challenges faced by businesses in complying with dual taxation requirements in Cameroon and Proffer recommendations to mitigate the adverse effects of double taxation on businesses in Cameroon.

1.7 Limitations of the study

Like in every human endeavour, the researchers encountered slight constraints while carrying out the study. Insufficient funds tend to impede the efficiency of the researcher in sourcing for the relevant materials, literature, or information and in the process of data collection (internet, questionnaire, and interview), which is why the researcher resorted to a moderate choice of sample size. More so, the researcher will simultaneously engage in this study with other academic work. As a result, the amount of time spent on research will be reduced.

1.8Definition of terms

Double Taxation: The imposition of overlapping taxes on the same income, transaction, or asset by two or more tax jurisdictions, typically resulting in increased tax liability and compliance burdens for individuals or entities subject to taxation.

Businesses: Entities engaged in commercial, industrial, or professional activities for the purpose of generating profit, including but not limited to corporations, partnerships, sole proprietorships, and cooperatives.

Compliance Costs: Expenses incurred by businesses to adhere to tax laws, regulations, and reporting requirements, including expenses related to tax preparation, filing, and administrative activities.