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Cameroon: Brewers fear the 2019 taxation effect on business profitability

Cameroon: Brewers fear the 2019 taxation effect on business profitability
  • Comments   -   Wednesday, 09 January 2019 16:43

(Business in Cameroon) - In Cameroon, brewing companies express concern about the Finance Act 2019 that provides for an increase in drink prices as of January 15, 2019.

Meeting in Douala, they announced coming disruptions in beverage distribution across the country, next week, to organize themselves and find ways to deal with the government strategy which is still subject of discussion.

The brewers denounced the uncertainty in the management of beverage taxes, whose collection method this year poses a threat to the profitability of their business. The concern is the pressure of the new application of excise duties on prices that exclude operating expenses.

Producers and distributors between suggestions and risk assessment

Operators of drinking outlets are faced, on the first hand, by the government which manages a double-pressure: boost tax revenues while maintaining a stability in households’ purchase power. On the other hand, there are producers, who also bear the cost of raising the excise duty calculation base in the 2019 Finance Act.

It’s not the first time the brewing sector is facing difficulties about the implementation of taxation provisions. This time, in addition to having broadened the tax base (by reducing the allowance from 20% to 10%), the new Finance Act provides that excise duty is to be calculated on the retail price recommended by production companies.

According to experts close to the matter, it is this recommended retail price that is at the core of issues, since, in addition to the expenses and margins of the brewing sector, there are also the expenses and margins of distributors, added to the various taxes and other consumption taxes.

For producers, gathered in the Cameroon Alcohol Producers Association (CAPA), a dynamic and relevant implementation of the ad valorem duty (taxes expressed as a percentage of value) would be to apply it to the recommended resale price, from which the value added tax, and the specific excise duty would be reduced upstream ; these two fees do not technically form part of the gross final value of the beverages produced. Such an option would maintain the application of the tax law, while cushioning any price hike over time.

According to an expert close to Guinness Cameroon, who requested anonymity, the over taxation pressure on local beverage producers weakens them significantly compared to importers, who have to pay very few logistical costs in addition to taxes. “We are forced to deal with salaries, investment insurance in addition to a challenging environment,” the expert said.

The final government word awaited for, by the entire sector

Cameroon’s brewing sector is awaiting government's stance in a memo that will explain the implementation of the finance law. Brewers say if the government ignores their proposals, this would lead to an increase in their tax burden, which in 2017 had already reached 60%. If this happens, they say, they would be forced to reduce their expenditures as much as possible (trim staff, stop sourcing commodity from local suppliers, freeze local investments).

CAPA members also believe that the government could lose out, as an inevitable increase in beverage prices would weigh on consumers' purchasing power and therefore reduce sales and revenue volumes, thereby reducing tax revenues from the sector.

Another proposal from producers is that if the government wishes to continue with its own method, it should grant one month to companies to adjust their accounting and operational strategy.

Distributors, for their part, call for an urgent meeting with government and the productive brewing sector to discuss possible compensation in terms of rebates increase. They even threaten to paralyze the sector with a strike, if their claims are not heard.

Idriss Linge

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