(Business in Cameroon) - The international audit and consulting firm Bekolo & Partners recently published an analysis of Cameroon's 2020 finance law. For this firm with an established reputation, some provisions of this text are obstacles to industrialization and investment. In its note, Bekolo & Partners particularly points out amendments to Article 7 in the section “taxable profit.”
To obtain a company’s taxable profit, “all charges directly necessary for the operation of the taxable activity in Cameroon” are subtracted from the turnover. However, the amendment of the article in the 2020 financial law is the volume of deductible expenses. For instance, the costs of technical assistance and studies for the construction of a plant, which were hitherto subtracted without any limitation, are now limited to “2.5% of the taxable profit before deduction of the costs in question”.
Obstacle to industrialization
For the government, the objective is to “limit the risk of tax evasion” but Bekolo & Partners denounces the amendment to a provision that “was intended to encourage companies to set up factories.” “This [ed.note: the provision] boosted the industrialization of Cameroon,” the firm indicates adding that the amendment is applied retrospectively starting from the results of the 2019 fiscal year.
Bekolo & Partners says this reform is all the more inappropriate as “foreign expertise is needed for the installation of modern and high-tech factories, and the country needs more than ever to industrialize and attract investors to take advantage of intra-African trade development opportunities offered by the African Continental Free Trade Area (AfCFTA) established in July 2019.”
In concrete terms, the audit firm illustrates, “Sonara will not be able to deduct the full cost of technical assistance and studies relating to the reconstruction of its factory, which was destroyed by fire.”
The firm invites the government to review this provision of the 2020 finance law which could undermine the country's objective of reaching emergence in 2035 “Because to be emerging we need industries, therefore factories to transform materials and create added value.”
Harm to domestic and foreign private investment
On another note, Bekolo & Partners indicates, before the new 2020 Finance Law, the General Tax Code used to allow companies, when they were in a loss for a financial year, to not deduct the depreciation of fixed assets, but accumulate them (deferred depreciation) without any time limit and to defer their deduction to the financial years during which they were profitable.
For the firm, this provision was a major tax advantage for companies investing in the acquisition of fixed assets, as it allowed them to recover their investments, through the tax deduction of depreciation, and reinvest.
However, “by limiting the period of accumulation of deferred depreciation when a company is in loss to 10 years, there is a risk that companies may no longer be encouraged to invest large amounts in fixed assets.”
Authorities justify this latest reform by the desire “to limit the risks of income smoothing via fanciful deferments.” Bekolo & Partners, which does not seem convinced of the relevance of this reform, advises the government to re-examine this provision of the 2020 finance law. According to the consulting firm, “it could harm domestic and foreign private investment, which the country badly needs in order to develop and reduce unemployment.”