A STUDY ON THE EFFECTS OF VALUE ADDED TAX (VAT) AND ITS IMPLICATIONS FOR TAXPAYERS IN CAMEROON

CHAPTER ONE INTRODUCTION 1.1 Background of the Study A persistent challenge within Nigeria's three-tier system of governance is the steady decline in revenue generation, evident in recurring budget shortfalls and the government's limited capacity to fund developmental projects. This economic backdrop underscores the urgent need for the government to not only strengthen its existing revenue channels but also to expand its income base in order to effectively fulfill its constitutional responsibilities. According to Kryeziu and Imeri (2016), a government's financial strength depends largely on its revenue capacity, the availability of fiscal resources, and how efficiently these resources are mobilized and utilized. Hence, it becomes imperative for the government to efficiently generate adequate income at all levels to prevent economic stagnation. To achieve this, tax systems must be both economically viable and politically acceptable, ensuring ease in administration, accounting, auditing, and verification, and grounded in principles of equity, transparency, and efficiency. Among various tax types, consumption taxes stand out due to their broader scope, and with proper administration, they can be effective tools for addressing disparities (Odonkor, 2017). Consumption taxes help strengthen a country's fiscal foundation by enhancing revenue streams. However, leveraging this potential depends on implementing a system that considers the rational behavior of taxpayers, who often aim to maximize their utility and minimize tax obligations (Ofishe, 2015). In choosing an appropriate consumption tax, several factors must be considered — administrative feasibility, revenue yield, voluntary compliance, neutrality, fairness, and efficiency. These considerations contributed to the government’s decision to replace the Retail Sales Tax (RST) with the Value Added Tax (VAT). The introduction of VAT, therefore, was not only a policy shift but also a strategic attempt to modernize the Nigerian tax system. However, the rationale behind this decision remains a topic of debate among scholars. VAT is a type of indirect tax that applies to the value added at each stage of the production and distribution chain of goods and services. Since its first implementation in France in the 1950s, VAT has been widely adopted across the globe, including in many African countries. Cameroon adopted the VAT system in 1998 as part of broader tax reforms aimed at modernizing its tax structure and improving government revenue (Tchakoute-Tchuigoua, 2016). Like many developing nations, Cameroon relies heavily on indirect taxes like VAT to finance public expenditures and deliver essential services. VAT plays a pivotal role in boosting the country’s revenue generation, promoting fiscal stability, and supporting economic development initiatives. Despite its importance, the effects of VAT implementation on taxpayers in Cameroon remain a matter of concern and inquiry. Previous research has explored various dimensions of VAT and its effects in different settings. For instance, Tchakoute-Tchuigoua (2016) examined how VAT contributes to Cameroon’s economic growth by funding public investment and stimulating economic activity. Similarly, Ntouko and Fouda (2017) highlighted the challenges faced by small and medium enterprises (SMEs) in complying with VAT regulations, citing administrative complexities and limited resources as major hurdles. However, there is still a lack of empirical studies specifically examining the effects of VAT on different segments of taxpayers in Cameroon, such as individuals, SMEs, and large corporations. A comprehensive understanding of how VAT impacts different social and economic groups is essential for designing effective tax policies, enhancing compliance, and ensuring sustainable economic growth (Okoro & Onatuyeh, 2018). This study seeks to fill this gap by providing an in-depth analysis of the implications of VAT on taxpayers in Cameroon. It aims to evaluate the economic, social, and equity-related outcomes of VAT implementation and provide actionable insights to policymakers, tax administrators, businesses, and taxpayers to optimize the system for the benefit of all stakeholders. Consequently, the researcher intends to assess the impact of Value Added Tax (VAT) and its implications for taxpayers in Cameroon. 1.2 Statement of the Problem The introduction of VAT in Cameroon was intended as a significant fiscal strategy to enhance government revenue. However, the impact of this tax on the different categories of taxpayers remains a critical issue that requires thorough examination. Currently, there is insufficient understanding of how VAT affects various taxpayer groups in Cameroon — from individuals to small businesses and larger firms (Owino, 2019). This lack of clarity hampers effective decision-making among policymakers and taxpayers alike. For many taxpayers, VAT could represent a financial strain, potentially influencing their spending patterns, investment behaviors, and overall economic wellbeing. Understanding the extent of this burden is essential for crafting policy measures that mitigate adverse effects. Furthermore, ensuring tax compliance remains a widespread challenge, and Cameroon is not exempt. The complexity of VAT regulations and inefficiencies within the system can exacerbate compliance difficulties, resulting in reduced revenues and a weakened tax structure (Shala, 2019). Another concern is the potentially regressive nature of VAT. It may disproportionately affect low-income earners and vulnerable populations, raising questions about the fairness of the system. Assessing the equity implications of VAT in Cameroon is necessary to ensure the tax framework supports social justice and equitable tax distribution. In addition, the broader economic impacts of VAT, such as changes in consumer behavior, business competitiveness, and macroeconomic stability, must be understood to gauge the long-term effectiveness of VAT as a revenue-generating tool. Given these gaps, there is a pressing need for empirical research to assess the real-world implications of VAT on taxpayers in Cameroon. Addressing these issues will not only contribute to academic literature but will also offer practical guidance for policymakers, tax agencies, businesses, and citizens seeking to enhance the fairness and functionality of the VAT system. Therefore, this study aims to evaluate the impact of VAT and its implications for taxpayers in Cameroon. 1.3 Objectives of the Study The main objective of this study is to assess the impact of Value Added Tax (VAT) and its implications for taxpayers in Cameroon. The specific objectives are to: i. Evaluate the level of awareness among taxpayers regarding VAT in Cameroon. ii. Analyze the effectiveness of the VAT collection process in Cameroon. iii. Provide recommendations for improving the efficiency of VAT collection in Cameroon. 1.4 Research Questions The study seeks to answer the following research questions: i. What is the level of awareness among taxpayers regarding VAT in Cameroon? ii. How effective are the processes involved in VAT collection in Cameroon? iii. What recommendations can enhance the efficiency of the VAT collection system in Cameroon? 1.5 Significance of the Study This study is important for several stakeholders: Policymakers: By offering a detailed evaluation of VAT’s impact on taxpayers, the study can guide policymakers in developing tax policies that increase revenue, drive economic growth, and promote social equity. Ministry of Taxation: Understanding the specific challenges faced by taxpayers can help the ministry address compliance barriers like administrative hurdles and resource shortages. This can improve tax compliance and reduce revenue losses. Academic Contribution: This research adds to the growing body of knowledge on VAT, especially in developing countries like Cameroon. By providing empirical evidence and insights, the study will support further academic inquiry in public finance and taxation. 1.6 Scope of the Study This research centers on assessing the impact of Value Added Tax (VAT) on taxpayers in Cameroon. Specifically, it will investigate taxpayer awareness levels, examine the effectiveness of VAT collection procedures, and offer recommendations to improve the VAT system’s efficiency in the country. 1.7 Limitations of the Study As with any academic undertaking, this study encountered a few limitations. Financial constraints posed a challenge in accessing relevant materials and carrying out extensive data collection through methods such as online research, surveys, and interviews. This financial limitation also influenced the sample size used in the study. Additionally, the researcher had to balance the demands of this study with other academic responsibilities, which limited the time available for conducting comprehensive research. 1.8 Definition of Terms Value Added Tax (VAT): A type of consumption tax levied on the added value at each stage of production and distribution. VAT is collected as a percentage of the final sale price, and businesses are responsible for remitting it to the government. Taxpayer: An individual, organization, or business entity legally required to pay taxes to the government. This includes duties such as filing returns, reporting income, and making tax payments. Fiscal Policy: Government strategies involving taxation and public spending used to influence economic conditions. It includes setting tax rates, managing expenditures, and determining borrowing to meet economic goals. Compliance: The degree to which taxpayers fulfill their tax obligations under the law, including accurate income reporting, timely tax payments, and maintaining appropriate financial records. Small and Medium Enterprises (SMEs): These are businesses with smaller scale operations compared to large corporations, often defined by factors like workforce size, annual turnover, and asset base. SMEs are crucial to employment, innovation, and national economic development. Social Equity: The principle of fairness in the distribution of resources and opportunities. In taxation, it refers to a system where tax burdens are shared equitably based on individuals’ or businesses’ financial capabilities. Revenue Generation: The process by which governments collect money to fund public services through taxation and other financial mechanisms. VAT is a significant source of tax revenue used to support programs in education, healthcare, infrastructure, and social welfare REFERENCES Kryeziu, R. & Imeri, S. (2016). Tax System and its Development in Kosovo. Academic Journal of Interdisciplinary Studies, 5(3s1) pp382-394 Ntouko, C., & Fouda, A. S. (2017). Analysis of VAT Compliance and Its Implications for Small and Medium Enterprises (SMEs) in Cameroon. International Journal of Economics, Commerce and Management, 5(8), 34-51. Odonkor, A.A. (2017). 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