After a yearlong dialogue with eventful exchanges and high profile working sessions with the Directorate General of Taxation, the American Chamber of Commerce in Cameroon (AmCham) got the voice of the business community heard as breakthrough changes were enacted in the Finance Law 2022.

Here we go with Part 1 of AmCham contributions as presented by Guy Honoré Tchente, a Member of AmCham Board of Directors, and Head of Tax & Legal Committee.

Executive Summary

 1. BANKING

Point: Article 7-C

Former Legislation

• Conditions of deductibility of losses relating to bad debts did not take into account the specificities of regulations governing banking operations. This is seen on discrepancies between the tax conditions for the deductibility of losses resulting from bad debts after the exhaustion of all amicable or forced recovery methods, and the provisions of Article 11 of COBAC Regulation R-2018/01 of January 16, 2018, which simply provides that doubtful debts that have been fully provisioned for more than 5 years be written off as bad debts.
• This resulted in a disagreement between cases where fully provisioned receivables must be written off according to the banking regulation which is supra-national (5 years of anteriority), and those where they must be written off in the tax law (national legislation): exhaustion of amicable or forced remedies. Moreover, the requirement to exhaust amicable or compulsory remedies is not appropriate for small uncollectible debts insofar as the cost of the remedies is often greater than the amount of the debt itself.

AmCham Submission

• Link the provisions of the General Tax Code with the COBAC legislation for the specific case of the banking sector, in order to allow the cleaning of the balance sheet by the cleaning of the debts weighing heavily on the rating of Cameroonian banks and the evaluation of the cost of banking risk.
• In the case of small uncollectible debits, which are unpaid debts of relatively small amounts whose recovery costs are generally much higher than the debts themselves, it would be wise to either (a) define a tax deductibility threshold without requiring the exhaustion of all amicable or forced recovery channels and means, or (b) define a ceiling rate in relation to the volume of the debts (as was the case for the conditions of deductibility of damages and breakages in the brewing sector – Finance Law 2021).

Government Response: In the case of small uncollectible debits, the limit was set to XAF500,000 which is a good start, small as it may be. While the banking industry can practice this, the ceiling can be increased in future finance law reviews.

2. TELECOMMUNICATIONS

Point: Article 7D

Former Legislation

• The tax depreciation rates provided by the General Tax Code did not take into account the economic depreciation of fixed assets in the telecommunications sector, which actually has two major issues: (1) some of equipment mentioned is not defined in the General Tax Code (Antennas, optical fiber, etc.) and (2) some equipment can be classified under already existing headings depending on whether they are used in offices or on sites, they do not depreciate at the same rate E.g. power generators and air conditioners. Power generators used as principal power source on sites 24 hours a day, while offices generators are used occasionally as a backup power supply. A generator used 24 hours a day will depreciate by far faster than one in office use.

AmCham Submission

• Create a section "Telecommunications Equipment" in which we would list all the material and equipment used with depreciation rates approaching a little bit of economic depreciation.
• The main companies in the Telecommunications sector (MTN, Orange, Camtel, Nextel), under the supervision of the Post, Telecommunications and ICT Regulation Directorate of the Ministry of Posts and Telecommunications are available to collectively submit to the Tax Administration for study and approval, the list of their equipment with realistic linear economic depreciation rates

Government Response: Response exceeded AmCham expectations with an even more flexible provision. Finance law made it possible for all industries to benefit from specific depreciation rates subject to a memo to be presented by the industry to the Ministry of Finance now has the capacity of fixing derogative depreciation rates without waiting for a law amendment each time.

3. CORPORATE RESTRUCTURING (Taxation of restructuring)

Point: Article 543 (a), 350 section3, and 545 (B) in terms of registration fees

Former Legislation

·        The huge tax burden of corporate restructuring was a real issue, discouraging such transaction absolutely necessary to our economy.

 AmCham Submission

• Improve the business climate by implementing an attractive restructuring tax system that will allow companies in difficulty to transfer all or part of their operations to other companies with greater experience or growth. In a globalized economic context, Cameroon's tax system for restructuring is heavy and dissuasive, which does not encourage the restructuring of companies in difficulty. The American Chamber of Commerce's proposal is to:
• Encourage the compliance of foreign branches by their contribution to companies under Cameroonian law at the end of the two (2) year exemption provided for by Article 120 of the OHADA Uniform Act on the Law of Commercial Companies and Economic Interest Groups.
• Art. 543-a): Significantly reduce the tax burden of restructurings in terms of registration fees by eliminating the notion of assimilating transfers of control shares to transfers of business assets registered at the high rate of 15%. Instead, in order to truly encourage restructuring, we could subject the transfer of all or a majority of shares to the super reduced rate of 1%.
• Art. 350 par. 3 and 545 (B): Subject the assumption of all or part of the liabilities by the absorbing or new company to the fixed duty as a minimum of collection (No graduated stamp duty).

Government Response: The rate has been reduced from 15% to 5% which is important enough and should reduce the burden of corporate restructuring.

 Points Art. 9, 7D and 12, 21 section 4 (In terms of income tax)

 AmCham Submission

• Art. 9: Exemption to be maintained in the taxation of restructurings.
• Art. 7D and 12: To confirm the doctrine of constant application on the treatment of deficits of the absorbed, split or contributed company. This treatment consists in allowing the carry-forward within the limit of 4 years carried-over deficits and 10 years for the differed depreciation, on the profits of the subsequent financial years of the companies benefiting from the restructuring, each one collecting the deficit and/or the depreciation proportional to the activity that it receives.
• Art. 21 al4: In the context of company restructurings, the tax credits not yet subject to reimbursement of the absorbed, split or contributed companies are carried forward to the benefit of the companies benefiting from the restructuring, each collecting a credit proportional to the activity that it receives.

Government response: Suggestions effectively considered in the Finance Law 2022. 

 To be continued.