Developing a Sustainable Economy in Cameroon

19 - The Informal Economy and Tax Revenue of Cameroon's Economy

19 The Informal Economy and Tax Revenue of Cameroon’s Economy Aloysius Ajab Amin and Alexander Mbeaoh Introduction and Background Cameroon has evolved in terms of economic, social and political changes since independence. In many cases these changes required conformity to new rules and restrictions imposed by the government. During the period, the government itself has been reforming and creating new institutions necessary for effective management of the public sector and the creation of favourable conditions for private sector development. An alternative for those not capable or not willing to abide by formal regulations has been to carry out activities informally or to conceal them from the government authorities. All such hidden activities accumulate to have contribute to the growth of the informal economy. The informal economy has existed for centuries, but the term is very recent. In fact it was coined and used for the first time by Keith Hart in a study on Ghana in 1971 (Hart 1973) and then taken up by the ILO in a very popular document on Kenya in 1972 (ILO 1972). The informal economy has taken different appellations in the literature, among which are: second economy (Chipeta 2002), parallel economy (Del Boca and Forte 1982), unofficial economy (Kaufmann and Kaliberda 1996), shadow economy (Schneider 1997), underground economy (Tanzi 1983), black economy (Dilnot and Morris 1981), subterranean economy (Guttman 1977), irregular economy (Mirus and Smith 1982) etc. Consequently, many definitions and measurement approaches have been used. However, one of the most popular definitions of the informal economy is that chosen by Schneider. According to him the informal economy is the sum of all economic activities that contribute to value-added and which should be included in national income in terms of national accounting conventions but are presently not registered by national measurement agencies (Schneider 1986). For this study, by‘informal economy’ we mean all enterprises and activities that the government is willing and able to capture but which for one reason or the other 381 Amin and Mbeaoh: The Informal Economy and Tax Revenue of Cameroon's Economy do not comply with standard business norms such as filing taxes, adhering to labour laws, being registered with chambers of commence etc. ; in other words, these activities generate income from legal sources. As shown in Table 19.1, our study does not focus on the broad informal economy. It excludes all illegal activities and do-ityourself work and neighbour-help legal monetary activities. Table 19.1: A Taxonomy of Types of Underground Economic Activities Source: Ogunç and Yilmaz 2000. Initially the informal economy of Cameroon was a breeding ground for mainly the unskilled population. However, with the advent of the economic crisis and the resulting adjustment policies, it became an integrated sector by itself. Also, many tax reforms have been put in place to raise tax revenue, and each reform has more or less been associated with increasing the tax rates. Today the informal economy, which remains difficult to tax, accounts for 49 per cent of GDP and represents 90 per cent of Cameroon’s employment (INS 2005). Tax revenue in Cameroon as indicated in Fig. 19.1 has always constituted a greater part of total revenue, only falling less than 50 per cent in 1983 (45.79 per cent). 0 10 20 30 40 50 60 70 80 90 100 Year Percentage tax revenue to total revenue total taxes to GDP taxrevenue to total revenue 78 82 83 83 61 79 73 69 46 51 66 50 57 57 62 61 53 55 80 89 72 69 65 68 84 64 62 66 68 67 total taxes to GDP 12 14 14 15 18 14 14 15 21 20 20 15 13 14 16 13 13 13 14 10 11 12 13 14 13 12 13 12 12 11 19 75 19 76 19 77 19 78 19 79 19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 Fig.19.1 The Evolution of Tax Share in Total Revenue and GDP, 1975–2004 Source: authors’data compiled from Agbor (2004) and IMF Cameroon Report (2005) 383 Amin and Mbeaoh: The Informal Economy and Tax Revenue of Cameroon's Economy The rise and...