Cameroon: World Bank Solutions to Optimize Tax Revenue Collection
Cameroon’s economic landscape is undergoing a transformative phase with the World Bank’s involvement in enhancing the country’s tax revenue system. The recent reports released by the World Bank, including the 2024 Cameroon Economic Update and the Cameroon Public Finance Review, shed light on the pressing need for fiscal reforms to unlock the nation’s full potential.
The economic update titled “Fiscal Instruments for Sustainable Forestry” delves into the recent economic developments in Cameroon and presents a medium-term outlook. It highlights the deceleration of economic growth to 3.3% in 2023, influenced by factors such as lower-than-expected public investment, rising prices, and ongoing internal conflicts. Inflation, too, has seen a rise, driven predominantly by high food prices and transportation costs. However, there is a silver lining as the real GDP growth is estimated at 4.0% in 2024, with projections of an average of 4.5% over the next three years, thanks to improved energy supply and stronger public investment.
The World Bank’s reports emphasize the significance of fiscal reforms, particularly in the forestry sector, which has not yet reached its full potential. By promoting better governance, forest certification, climate-smart fiscal policies, and engaging local communities, Cameroon can secure higher public revenues, preserve forests, and attract more climate finance.
The Cameroon Public Finance Review offers a comprehensive analysis and recommendations to enhance tax collection and improve spending more effectively and equitably. The current tax revenue system in Cameroon is characterized by narrow tax bases and inadequate enforcement, leading to significant tax evasion and avoidance. The report suggests a multifaceted reform approach through a Medium-Term Revenue Strategy (MTRS) and a comprehensive reform of budget management practices.
Moreover, the World Bank urges the need for Cameroon to diversify its revenue sources, as the country’s reliance on value-added tax is compounded by underperforming international trade taxes and levies on property and forests. With the global interest rates on the rise, the cost of borrowing in dollars has increased, prompting many governments, including Cameroon, to seek domestic solutions.
In light of these challenges, the World Bank Group has supported Cameroon’s efforts to modernize revenue administration through the automation of the Customs and Domestic Taxes Departments. The implementation of the Automated System for Customs Data (ASYCUDA World) in January 2019 has been a significant step forward, resulting in a doubling of revenue collections in the first quarter of 2019 compared to the same period in 2018.
The World Bank’s engagement in Cameroon is a testament to the potential benefits of strategic fiscal reforms and modernized tax collection systems. These measures are not only crucial for the country’s economic growth but also for the well-being of its citizens, ensuring that public services and infrastructure can be adequately funded and maintained. As Cameroon continues to navigate its economic journey, the insights and recommendations provided by the World Bank will undoubtedly play a pivotal role in shaping a more prosperous future for the nation.
According to the Economic and Budgetary Programming Document (Dpeb) 2025-2027, Cameroon’s tax revenues have increased significantly from 855.7 billion CFA francs in 2010 to 2,622 billion CFA francs in 2023, an increase of 1,766.3 billion CFA francs (+206.4%) in 14 years. They should also reach 3,968.3 billion in 2024 according to the forecasts of the finance law. However, the World Bank estimates that the country faces a significant challenge in terms of tax revenues, which remain below the 15% threshold required to support basic public services. “Despite an increase in tax revenues from 9.5% to 11.3% of GDP between 2011 and 2021, they lag behind the averages of lower-middle-income countries (LMICs), sub-Saharan Africa and peer countries in other regions,” reads the Fiscal Review just published by the Bretton Woods institution.
The diagnosis made by the financial institution reports the low collection of personal income tax (IRPP). In addition, we learned, that the level of collection of corporate tax (IS) in Cameroon is lower than the average of regional and global levels (2.3%). In the same vein, continues this multilateral partner of Cameroon, “corruption and the poor quality of institutions could lead to both revenue leakages and a weakening of tax morale”. A handicap to which must be added numerous tax expenditure measures for all of the country’s main tax instruments which “weaken” the level of tax revenue.
Revision of the tax code
In the first quarter of 2024, Paul Biya’s country mobilized 982.9 billion in tax revenues out of the 1,035 billion CFA francs expected during this period, i.e. a realization rate of 95% and a shortfall of 52.1 billion CFA francs. To boost collection, the Breton Woods institution suggests reviewing and restructuring overall tax policies. In this regard, the priority would be to undertake a “thorough” review of its tax code. Indeed, the Bank regrets that while many countries have successfully diversified their tax revenues by implementing strategies such as broadening the tax base and reducing rates, “the Cameroonian tax system does not make sufficient systematic efforts to optimize tax sources, relying on minor sources of revenue that limit tax collection and revenue predictability.”
Tax system
Cameroon’s lender also advocates reviewing the two-tiered personal income tax regime. On the one hand, it would be essential to establish an exemption threshold that could not only relieve the poorest households of the obligation to pay taxes but also facilitate administration. Another alternative would be to review the high fixed deduction of 500,000 CFA francs per year; anything that “tends to favour the rich” could lead to a significant decrease in revenue.
Moreover, committed to the National Development Strategy for 2030 with an economic growth target of 8% (compared to around 4.1% currently, Editor’s note), should reform excise duties with an emphasis on the periodic review of the tax base and the rate structure. According to the World Bank, the pillar of the CEMAC zone could also explore its forestry tax regime by implementing differential taxation and carbon pricing while reforming the structure and collection of its property taxes by limiting tax expenditures.
