AN EVALUATION ON THE EFFECTS OF DOUBLE TAXATION ON BUSINESS OPERATIONS IN CAMEROON

CHAPTER ONE INTRODUCTION 1.1 Background of the Study The private sector plays a fundamental role in driving long-term economic growth and development in any nation. It is typically defined by the ownership and control of resources by individuals or organizations and is mainly motivated by the pursuit of profit. Although some entities within the private sector may pursue additional goals beyond profit-making, the sector as a whole contributes significantly to increased production and job creation. Moreover, it fosters competition in the market, which helps in stabilizing prices (Ayele, 2015). Beyond these roles, the private sector also helps improve the purchasing power of citizens, thereby enhancing their overall standard of living. This improvement positively influences political stability and ultimately supports the development of infrastructure and other essential services (Ayele, 2015). Taxation, on the other hand, is a compulsory financial obligation imposed by governments on individuals and businesses. Taxes can apply to a wide range of areas such as consumption, income, assets, professions, privileges, and various forms of economic activity. The main goal of taxation is to raise revenue for the government (Business Dictionary). In Cameroon, tax policy is closely aligned with the country's trade and commercial strategies. The national tax system is generally divided into direct and indirect taxes (Nyuylime, 2017). According to Nyuylime (2017), Cameroon’s pre-reform tax regime included direct taxes such as income tax, pool tax, corporation tax, and patente. Similarly, Andrade (2021) and Arnold & Loomer (2023) observed that indirect taxes during the pre-reform era included the domestic turnover tax, value-added tax (VAT), and customs or import duties. Following the tax reform of 1994, Cameroon’s key indirect taxes became VAT, excise duties, and customs tariffs. One pressing issue that has since emerged is double taxation—the situation where the same income or financial transaction is taxed by more than one jurisdiction. This is a significant concern for businesses operating in Cameroon. Like many other countries, Cameroon’s tax system is quite complex, involving both domestic laws and international tax treaties (Baez, 2021). However, due to a lack of coordination between national laws and international agreements, businesses often find themselves subject to overlapping tax obligations. This leads to increased compliance costs, reduced competitiveness, and can ultimately hamper economic growth. The tax framework in Cameroon is influenced by a combination of historical, economic, and geopolitical factors, including its colonial legacy and membership in regional and international organizations like the Economic Community of Central African States (ECCAS) and the Organisation for Economic Co-operation and Development (OECD, 2015). Despite various reform efforts aimed at modernizing the tax system and improving compliance mechanisms, the problem of double taxation remains, particularly for businesses with cross-border operations or foreign affiliations. Cameroon’s economy is marked by a wide variety of enterprises, including numerous small and medium-sized enterprises (SMEs) operating in sectors such as agriculture, manufacturing, services, and extractive industries. SMEs are especially vulnerable due to their limited resources and inexperience in navigating international tax obligations, making them particularly susceptible to the negative effects of double taxation. Global literature provides valuable insights into the broader economic impacts of double taxation. For example, Baez (2021) highlights how it distorts economic behavior and introduces inefficiencies, stressing the importance of harmonizing tax systems and avoiding jurisdictional conflicts. However, empirical research specifically focusing on how double taxation affects businesses in Cameroon remains scarce. This study seeks to fill that gap by thoroughly examining the effects of double taxation on Cameroonian enterprises. Through this investigation, the study aims to offer practical insights for policymakers, tax administrators, business owners, and other relevant stakeholders. By analyzing the specific challenges faced by businesses, evaluating the financial and economic implications, and exploring potential policy solutions, the study aspires to provide meaningful recommendations for improving the tax environment. Therefore, the researcher intends to assess the influence of double taxation on business operations in Cameroon. 1.2 Statement of the Problem Double taxation—where the same income or financial transaction is taxed by multiple jurisdictions—has become a pressing concern for businesses in Cameroon. While efforts have been made to simplify the country’s tax laws, many businesses continue to struggle with the dual tax obligations imposed by both domestic and international authorities (Bräumann, 2019). This situation leads to increased regulatory costs, a decline in investment incentives, and reduced global competitiveness. Yet, the full scale and specific consequences of double taxation on different types of businesses in Cameroon are not well documented. The country still lacks comprehensive empirical studies that assess how double taxation affects firms across various sectors, sizes, and ownership types (Chand & Villaseca, 2021). Moreover, the factors that intensify the problem and potential strategies for addressing it—especially those tailored to Cameroon’s unique economic environment—have not been adequately explored. As a result, this study aims to evaluate the real impact of double taxation on businesses operating within Cameroon. 1.3 Objectives of the Study The general objective of this research is to assess the impact of double taxation on businesses in Cameroon. Specifically, the study seeks to: i. Identify how widespread double taxation is among businesses in Cameroon. ii. Evaluate the economic impact of double taxation on businesses in the country. iii. Examine the difficulties businesses face in complying with dual tax obligations. iv. Suggest policy recommendations to help minimize the negative effects of double taxation on businesses in Cameroon. 1.4 Research Questions This study seeks to answer the following research questions: i. How prevalent is double taxation among businesses in Cameroon? ii. What are the economic consequences of double taxation for businesses in the country? iii. What challenges do businesses face when trying to comply with dual taxation requirements? iv. What strategies can be adopted to reduce the adverse effects of double taxation on businesses in Cameroon? 1.5 Significance of the Study This research holds relevance for several key groups: Policymakers: The study’s findings can help policymakers and tax authorities understand the specific hurdles that double taxation creates for businesses. This knowledge can guide the development of more effective tax policies and regulatory reforms that reduce tax burdens, improve the business climate, and promote economic growth. Academic Contribution: The study adds to the existing body of knowledge on taxation, international business, and economic development. It offers empirical data and theoretical insights that can contribute to scholarly debates and serve as a foundation for further academic research in this field. 1.6 Scope of the Study This study focuses on analyzing how double taxation affects businesses in Cameroon. The empirical scope includes evaluating how common double taxation is among businesses, understanding its economic implications, identifying the compliance challenges businesses face, and offering policy recommendations aimed at mitigating these negative effects. 1.7 Limitations of the Study As with most academic endeavors, the researcher faced some constraints while conducting this study. Financial limitations affected the ability to access all necessary materials, literature, and tools needed for comprehensive data collection, including internet access, questionnaires, and interviews. This led to a more conservative sample size. Additionally, the researcher had to balance this project with other academic responsibilities, thereby limiting the time available for conducting the research. 1.8 Definition of Terms Double Taxation: This refers to the situation where the same income, transaction, or asset is taxed by two or more tax authorities, usually resulting in an increased tax burden and higher compliance costs for the affected individuals or entities. Businesses: Commercial, industrial, or professional organizations engaged in economic activities with the objective of earning profit. These may include corporations, partnerships, sole proprietorships, and cooperatives. Compliance Costs: The expenses businesses incur in order to comply with tax laws and regulations. These include costs related to tax preparation, documentation, filing, and other administrative obligations. REFERENCES Ayele, G. T (2015). Do tax structures optimise private fixed investment in Sub-Saharan Africa? A Data Envelopment Analysis. The Horn Economic and Social Policy Institute. Working Paper No. 03/2015. Nyuylime, L. P. (2017). Private Sector: Cradle of Economic Development. Cameroon Tribune. https://www.cameroon-tribune.cm/articles/4243/fr/le-moungo-en-projets Accessed on May 10, 2018. Andrade, , B. (2021). “Developing Countries and the Proposed Article 12B of the UN Model: Some Known Unknowns”. 4 International Tax Studies 6. Arnold, B. and G. Loomer (2023). “Article 5: Permanent Establishment”. Global Tax Treaty Commentaries, Global Topics IBFD. Baez, A. (2021). “Because Not Always B Comes after A: Critical Reflections on the New Article 12B of the UN Model on Automated Digital Services”. 13 World Tax Journal 4. Bräumann, P. (2019). “Dual Residence for Non-Individuals” in M. Lang et al. (eds.), Tax Treaty Entitlement. Amsterdam: IBFD. Chand, V. and C. Villaseca, A. (2021). “The UN proposal on automated digital services: Is it in the interest of developing countries?”. Kluwer International Tax Blog, 5 March 2021. http://tinyurl.com/r9b4ddr7.