logoBC
Yaoundé - 09 June 2023 -
Economy

Alex-Ariel Tchetgnia (N-Soft): “Cameroon has the lowest money transfer tax rate”

Alex-Ariel Tchetgnia (N-Soft): “Cameroon has the lowest money transfer tax rate”
  • Comments   -   Monday, 28 February 2022 16:28

(Business in Cameroon) - Alex-Ariel Tchetgnia is a Cameroonian polytechnician and vice-president of N-Soft, which he joined in 2007. This company, created in 1986, offers innovative technological solutions helping governments maximize their tax revenues, particularly in the telecom, financial services, water, electricity, entertainment, and gaming sectors. Based on his experience at N-Soft, the Télécom Paris graduate gives his opinion on the money transfer tax that became effective in Cameroon in January 2022. He offers solutions for optimal mobilization of tax revenues in the telecommunications sector, tax on money transfers that came into effect in Cameroon in January 2022. He also proposes solutions that could allow the government to optimize its revenues from telecommunications taxes, which seem to be in vogue currently. 

Business In Cameroon: Since January 1, 2022, Cameroon has been applying a 0.2% tax on money transfers, including mobile money transfers. As an expert on domestic revenue mobilization in countries with poor bank penetration rates, what do you think about that tax?   

Alex-Ariel Tchetgnia: Listen, the whole world is struggling to come out of the Covid-19 crisis, which has shaken what was considered as gains. By slowing down economies, it altered states’ self-financing capabilities. If you were in those states’ shoes, to which sector will you turn to replenish the public treasury? The obvious sectors are those that benefited from the Covid-19 crisis.

Everywhere in the world, the telecommunications sector is booming. Social distancing measures, which is the main response to the Covid-19 pandemic, forced people to resort to calls instead of meeting physically. In the same vein, mobile money was preferred over cash transactions. This is why telephony as a whole and mobile money, in particular, experienced strong growth since the beginning of the Covid-19 pandemic.  

Cameroon is not the only country that wants to refinance itself with telecommunication taxes. Ghana also introduced a tax on mobile money transactions. That tax became effective this year. Burundi also instituted a tax on mobile internet. That tax also became effective this year.  In its 2022 Finance Act, Zimbabwe gives the Minister of Finance the power to introduce a tax on imported phones, etc. These are just examples of taxes that became effective this year. There are many more if we go back in time.  

The exception in Cameroon’s case is the rate of the tax applied. It is only 0.2% compared to 1.75% in Ghana. Even in Côte d'Ivoire, where this measure was tried in the past, the government suggested a 1.5% tax. Those rates are very high compared to the low rate approach adopted by the Cameroonian government. 

BIC: In that case, what is your response to those who say that too much tax kills tax or that it is counterproductive to tax payment means? 

AAT: Those are indeed arguments I’ve heard. But, given the global trend, I don’t think the government had any choice. Domestic revenue mobilization is a major issue. The State must be able to fund itself to remain operational.  I also note that, unlike other countries that have adopted such taxes, the Cameroonian rate of 0.2% is the lowest. Let's hope that the mechanisms for collecting this tax are reliable and that the funds collected are effectively used for the reasons that prompted the tax.  

BIC: Mobile operators silently approved this tax, unlike what happened with the project for customs duties on imported phones in 2020. Why?  

AAT: I think this question is asked because mobile operators are the senders of a correspondence that pushed the BEAC [Ed.note: Central Bank of the CEMAC region] to legislate on the nature of airtime and therefore oppose the collection of customs duties on imported phones. Well, regarding the mobile money tax, it is a law passed by the State and, as it is the case for any other law affecting economic operators, they are bound to comply. 

BIC: According to our sources at the Ministry of Posts and Telecommunications, the digital platform where the customs duties on imported phones were to be collected would have increased customs revenues but, above all, it would have allowed the government to assess mobile operators’ turnover. Wasn’t that the real reason they opposed it?  

ATT: Not having enough contacts with cell phone operators in Cameroon, I can’t provide a fact-based answer to this question. To understand the reason behind their opposition to the customs duties on imported phones, I must first discuss with them.  

But let's look at the project itself. I think the first draft of the project provided that mobile operators would deduct a fixed amount of prepaid airtime daily from the accounts of the users of imported phones that were not cleared through customs. As it is formulated, the State will be aware of those who have airtime or not but, it would be aware of that information only for people using the phones targeted. This is not enough to assess an operator’s prepaid turnover.   

As far as I am concerned, I think there is another reason. A user’s airtime is like a turnover for operators since once the subscriber loads that airtime, they will no longer refund it. The plan to collect customs duties on imported phones required operators to share that turnover with the government. This is not a prospect they will appreciate. 

BIC: With the money transfer tax, the Directorate General of Taxation plans to collect XAF20 billion every year. Based on the volume of money transferred in Cameroon [every year], do you think that this is a realistic forecast?  

AAT: This is another difficult question to answer. There are many elements to take into account: the tax base, the negative impact of the new tax on mobile money, etc. I don't have enough information to answer. 

BIC: How can the state ensure the effective collection of the tax?   

AAT: That's the main question. In July 2021, Orange declared XAF800 billion monthly in mobile money transactions. If we multiply that volume by two to take into account the amount generated by MTN, this is a staggering figure. In this context, should the state just wait for the operators’ to declare the volume of tax collected? 

In my humble opinion, the answer is no! The stakes are very high and transparency is the key to ensuring that the state's revenues are effectively collected. There are simple and inexpensive financial oversight solutions that would allow the state to have full visibility of all mobile money transactions. This is the solution that can ensure the state effectively collects that tax.   

BIC: Mobilizing domestic revenues from the telecommunications sector is the current trend. Do you think that trend will last?  

AAT: I am certain that trend will last. In Africa, the telecommunication sector is yet to reach its full potential. There are many countries with penetration rates below 100%, unlike Europe. This means that there are growth prospects for the next five to ten years. Governments will try to capitalize on those prospects.  

BIC: What are the conditions required for this tax to become an important revenue stream for governments? 

AAT: The government has two options. They can introduce new taxes but this is a very unlikely approach that risks subjecting operators to tax pressures, which can disrupt sectoral growth. I won’t also mention responses from the civil society and the population as a whole, to a new tax. In short, a lot of conditions will be required for the government to move in that direction.

The second option is for governments to have the competencies to ensure the effective collection of existing taxes. Before creating new taxes, it is necessary to make sure the existing ones are effectively collected.  

There was a time when a “human” auditor was enough to collect and analyze a few invoices submitted by economic operators to ensure the latter is complying with tax obligations. This is no longer possible, at least, not for companies like mobile operators. These are companies that generate millions of invoices daily (for every call, SMS, internet connection, etc). The volume of those invoices is so high that it would be impossible for a natural or even a legal person to analyze. An auditor is helpless in this case. What is needed instead are computer bots that can absorb and automatically process the metadata on the invoices generated by operators and deduce their turnover. If not, the State will never be able to tell whether telecommunications are fairly contributing to government revenues. 

BIC: In Cameroon, the tax burden is already over 50% in the telecom sector, according to actors. Won’t new taxes suffocate the sector?  

AAT: I have already answered this question a little earlier. All over Africa, cell phone operators are complaining about the tax pressure. Truly, the telecommunications sector is usually more taxed than other economic sectors, and this is certainly not positive. 

However, a quick benchmark shows that this "tax pressure" does not have the same effect everywhere, and that's what makes me wonder. Do you know that the contribution of telecommunications to Cameroon's GDP has been less than 3% since at least 2007? As opposed to 7% in Mali and 10% in Côte d'Ivoire (countries where the tax burden is higher)? In neighboring Nigeria, telecommunications contribute 9 or even 11% to GDP. These are some shocking examples. Yet the ARPU (Ed.note: the average monthly budget spent on telephony by a subscriber) is more or less the same from one country to another. The mobile operators in those countries are also subsidiaries of the same multinationals.  So, why is the telecommunication sector’s contribution to GDP so low in Cameroon? 

While telecom operators are complaining about the high tax pressure, some are complaining about the low contribution of the telecommunication sector to the country’s GDP. So, who is right and who is not? 

Truly, everyone is to some extent right. But, if the government does not acquire a system that allows it a full and autonomous view of financial positions in the telecommunication sector, there won't be a right answer, which is necessary to secure revenues and initiate fair technical and tax regulations in the sector. 

BIC: In 2006, N-SOFT signed an agreement with Camtel to help the incumbent telecom operator validate the accuracy of its billable [internet] transit, check the accuracy of the amounts it is billed and secure payments from some international operators. What is the status of that agreement now?   

AAT: I will give a general answer…N-SOFT was initially a supplier of billing solutions to mobile operators. But that was a long time ago. Over the last ten years or so,  N-SOFT has reoriented its operations to focus on the GouvTech sector. We now work with governments and help them implement effective solutions for domestic revenue mobilization. 

BIC: N-SOFT claims it has solutions to help states increase their tax revenues in sectors such as telecom, financial services, water and electricity, entertainment, and gaming. Why then are you not considered in Cameroon where domestic revenues mobilization is still a challenge? 

AAT: I beg to differ. There is a growing interest in governance solutions in Cameroon. As with any innovation, it is necessary to allow time for governments to understand the benefits and challenges. We are noticing a growing interest. The obvious proof is that you are interviewing me now. 

BIC: What do you think Cameroon can do to mobilize more revenues in the sectors you cover? 

AAT: This is a broad topic but, I will try to provide my answer as an engineer. For the telecommunications sector, I have already answered. Just apply the suggestions I made for the telecommunications sector to the remaining ones where there is a high volume of bills generated. The short answer is automating the financial supervision of the country’s digitalized economy as much as possible. 

Interview byAboudi Ottou

cameroon-govt-plans-to-sell-47-seed-farms-to-the-private-sector
The Cameroonian Ministry of Agriculture and Rural Development (Minader) has just launched a call for expressions of interest to recruit private partners...
malian-cheick-kante-appointed-world-bank-director-of-operations-for-cameroon
Malian Cheick Fantamady Kanté is the World Bank's new Director of Operations for Cameroon. The newly appointed manager was officially presented to the...
cameroonian-jacques-edjangue-confirmed-as-afdb-vice-president
Cameroonian Jacques Edjangue has been confirmed Thursday as the Vice President for People and Talent Management of the African Development Bank (AfDB)...
cameroon-pays-back-cfa63-4bn-on-beac-securities-market-seeks-additional-cfa20bn
Cameroon made last June 5 the issuance of 7-year fungible Treasury bonds (OTAs) on the Beac public securities market aiming at raising CFA20 billion, the...

Mags frontpage


Business in Cameroon n110: April 2022

Covid-19, war in Europe: Some Cameroonian firms will suffer


Albert Zeufack: “Today, the most important market is in Asia”


Investir au Cameroun n120: Avril 2022

Covid-19, guerre en Europe : des entreprises camerounaises vont souffrir


Albert Zeufack: « Le marché le plus important aujourd’hui, c’est l’Asie »