Value-Added Tax in Cameroon
Everyday, you hear people talking about “VAT” with many not really knowing what it is all about. The common man uses it as one of the taxes that is making life very difficult on Cameroonians. I won’t refute that, because this tax is totally borne by the final consumer. Let’s talk about Value-Added Tax in Cameroon.
What is value-added tax all about?
We can’t talk about value-added tax in Cameroon without first of all knowing what it is all about. Just as its name ‘value-added’ suggest, it is a tax that comes in as the value of a product or service increases at each level of production or distribution. This value is added at each stage of production or supply chain until it reaches the final point of sale.
That said, the value-added tax is levied on products or services at the point of sale beginning from the raw materials to the final consumer. This is the reason the VAT is called a consumption tax. Let me break it down a little for those who may still find difficulties in understanding.
Each time you transform a product, you add value. For a farmer who harvests tomatoes in his farm adds value the moment he’s selling to the buyam-sellam who to him is the final point of sale. The buyam-sellam takes it to the market where (s)he serves as a whole-sale distributor to the market women who retail tomatoes. She considers that her point of sale. At the final stage, the tomato retailer resells to the final consumer or even restaurants who still add value to it.
At each point of sale, value is added. What I am trying to let you know is that VAT is something like a fee that is added to a product or service, depending on it’s value. However good the explanation is, not all businesses need to register for the value-added tax in Cameroon. This means, the above people are not actually supposed to add VAT to their transactions. I was just trying to show you how value addition works. But a business that is liable to VAT will have to do so.
Who is liable to pay the VAT?
The valued-added tax is an indirect tax. This is because it is not paid directly to the government’s treasury but by those who are in charge of collecting it. It should be noted that the real debtor (one who pays the tax) is the consumer and the person legally liable is the person collecting.
So those that are liable to value-added tax in Cameroon are natural persons or entities. Entities include bodies governed by law and local authorities that carry out taxable transactions within the scope of VAT. In effect, only those who are in the Actual Earnings Tax Regime are VAT-liable.
Which operations are taxed?
It should be noted that only the transactions carried out within the context of an economic activity is liable to value-added tax. The economic activities include
- The provision of services
- Distribution of a product
- Mining activities
- Agriculture & agro-industry
- Exports and imports
- forestry and handicraft activities
- Real estate works as well as
- liberal or related professions
Check section 127 of the General Tax Code to see the various transactions that are liable to value-added tax in Cameroon.
Special exemptions from value-added tax in Cameroon
1. Investments during economic disasters
The tax department in Cameroon has this advantage for businesses that carry out investments in conflict zones or “economic disaster” areas. Section 121 (1) of the General Tax Code of Cameroon states that such a business amongst other things will be exempted from VAT on purchases of goods and services. This happens during the installation phase that may not exceed 3 years.
2. Education, vocational training & health
All duly approved faith-based private educational, health and training facilities are exempted from the obligation to collect value-added tax on the services they provide. It also doesn’t matter if the services are directly related to their main activities or not.
3. Agricultural sector
As an incentive provided by the government of Cameroon to promote agriculture, the tax administration has exempted this sector for paying VAT on the purchase of certain products. Such purchases include fertilizers, pesticides and all inputs used by farmers and those practicing stock-breeding fisheries for equipment.
4. Local building material companies
Companies that promote the production of local building materials are also exempted from paying value-added tax in Cameroon on certain purchases. They include equipment and materials used for the manufacture of local building materials. They are also exempted from VAT on the sales of products manufactured using the materials.
5. International traffic transactions
This includes ships, boats, lifeboats, assistance boats, aircraft and ships used for refueling and maintenance operations.
Checkout Section 128 of the General Tax code to see the various transactions that are exempted from VAT in Cameroon.
Territoriality of value-added tax in Cameroon
The transactions carried out within the territorial boundaries of Cameroon except those that are listed in the exemptions are liable to value-added tax. There are also situations where the VAT is levied when the taxpayer’s residence or head office is located out of Cameroon.
The value-added tax is established where the product is manufactured or put in use and in the case of services, where it is provided or utilized. In the case where the taxpayer’s head office is different from where the product is manufactured, they are obliged to appoint a solvent representative who is accredited to the tax authority of said area. The representative must be resident in Cameroon and liable to VAT.
Failure to appoint a representative, the VAT as well as the penalties (if there are any) will be borne by the client on behalf of the taxpayer who has no permanent location in Cameroon.
Check Section 129 for more on the territoriality of value-added tax in Cameroon.
What is the rate of value-added tax in Cameroon?
There two value-added rates applicable in Cameroon. This include the
- General rate: The general VAT rate in Cameroon is 17.5% of which you add the additional council tax rate of 10% (of the principal) which gives you 19.25%. This is applied to all transactions that are not subject to the zero rate.
- Zero rate: This shall apply only to exports of taxable products.
Obligations for value-added tax in Cameroon
All VAT liable entities and natural persons are bound to file in their value-added tax declarations to the tax authority in charge. Section 132 GTC states that the value added tax should be levied only on natural or legal persons assessed under the actual earnings tax system: This is for sole-proprietorships and legal persons that have an annual turnover of 50 million francs CFA and above. They have to do their VAT declarations before the 15th of every month following the end of operations.
How to calculate VAT
The following are taken into consideration before the calculation of the value-added tax:
- The cost of supply of goods or services charged to the customer
- All taxes, levies and duties including VAT
- Other charges included in the price paid by the customer
The following are excluded from the basis of assessment of VAT in Cameroon:
- Discounts, rebates and commissions. This is on condition that they appear on the initial invoice or rectified bill.
- Goods for promotion or free distribution
- Refunds to the customer of the exact amount invoiced
- Cash receipts like interest arrears or damages for not carrying out contract terms. Note that these are not payments for business transactions.
When calculating value-added tax in Cameroon, the basis of assessment has to be rounded down to the nearest thousand francs. If after calculation your VAT is 10500frs, it has to be rounded down to 10,000frs.