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Yaoundé - 29 March 2024 -
Douala Stock Exchange

Businesses choose fiscal hiding over DSX incentives

Businesses choose fiscal hiding over DSX incentives
  • Comments   -   Thursday, 13 February 2014 15:54

(Business in Cameroon) - Despite tax breaks and other concessions, businesses are wary of the financial market because of the required transparency to which they are not accustomed

 

Countries that grant tax incentives are more likely to attract investors than those with fiscal regimes that are two strict. This principle is hardly apparent in Cameroon. The legislature believed it had to put in place a particularly generous stock market tax package for investors in securities as well as for issuers of listed securities. The provisions included a 20% reduction over three years for capital increases, 25% over three years for share concessions, and 28% over three years for increases or discontinuations were granted. Companies issuing securities on the bond market enjoy a reduced tax rate of 30% over three years. Furthermore, the acts and agreements for discontinuation of listed securities on the DSX are also exempt from registration fees. Above all, Cameroon’s exchange rate regime ensures full transferability of foreign investors’ assets. However, this deliberately attractive and modern exchange rate arrangement is not luring businesses.

Aren’t these concessions worth it? Is what businesses stand to gain worth what they risk losing by accepting to play on the market? In reality, even those who are on the market are not playing the game. For example, mandatory activity reporting (on a quarterly, bi-annual, annual or periodical basis) is not readily done by businesses on the DSX stock exchange. As if they had made a pact of secrecy, it is arduous work getting any information about their business lives. To see their volume of activity or their sales figures takes a virtual miracle. One wonders what the point was of being on the DSX in the first place.

 

The “D” System

Intermediaries (ISPs) that produce financial information spend a year without submitting a single word. Yet, they are the ones convincing businesses to abandon their old business practices that are not pro-transparency and pro-accountability. They are champions of the “D” system over patrimonialisation of business, even large corporate companies function with practices of the informal sector. It is common to hear, here and there, that each company has at least two accounting systems: one for shareholders and the other for taxes. A study conducted among businesses and published in 2010 by the National Institute of Statistics (NIS) reveals that only 42.9% of the 93,969 businesses in Cameroon interviewed had written accounting records, compared to 57.1% of that group who had nothing at all. Among those companies with accounting records, only 31.1% had formal accounting procedures, that is to say, record-keeping that leads to Statistical Tax Declaration (STD). This accounts for only 13% of all businesses.

Yet, the issuer making a public appeal for savings hides nothing. This duty of fact in the figures communicated and information given shapes market reaction. Even the State of Cameroon was not clear in December 2010 when the note on its bond was modified. Worse still, there has been no privatisation or portfolio renewal in Douala.

 

 

 

FMC: to serve…and obscure?

The public capital companies prefer to raise capital on the bank market through syndicated loans and bridging loans… at onerous rates. Yet, at DSX, state-issued bond products and interest, those of the State and those of decentralised territorial localities are completely tax-exempt. Since the rise of Cameroonian market, no commune has issued a single bond. They continue to finance themselves through their bank (FEICOM), in complete obscurity. The culture of transparency falls first with the Financial Markets Commission (FMC). As a representative of the State, this body should be acting to promote security and integrity by way of impartial approval granted to all investors and industry entities. It is therefore to be held accountable for the disorder that reigns in the stock market sector. Like everywhere else, the government is first in line to sell. It is the duty of the public authorities to dismantle areas of lawlessness and promote financial transparency throughout the market.

Since its creation, the FMC has been more visible in terms of opinions and sanctions, but less involved in the improvement of the stock market culture in Douala. Apart from the seminar held in January 2011 for financial industry members, there has been nothing of substance. As a result, disparities in the dissemination of information have become common place between key investors and those who are outside of their circle of favourites. This disposition could lead only to the general lethargy that one now sees in Douala.

For a lot of people, DSX must offer solid advantages. Despite the tax exemptions, transactions, arrangements, information dissemination, order routing, negotiation, compensation and regulation still turn away many. “Economic research proves that stock market listing improves the probability of sales growth and higher profits for those who are on the market as opposed to those who are not. But in Cameroon, it’s difficult to see this. Even those who are doing well try to analyse and assess their journey on the stock market,” explains a banker. As long as the pioneers are uncertain about the gains of being on the stock exchange, it will be difficult to ask other businesses to follow in their footsteps. The bottom line: tax incentives alone are not enough to revive the DSX.