How Cameroon Can Boost Tax Revenue and Build a Stronger Fiscal Future

Cameroon is entering a crucial phase in its economic journey. As pressure builds from rising debt costs and growing development needs, the country’s ability to raise its own revenue is becoming a key test of its financial stability. A recent analysis by the International Monetary Fund highlights a simple but urgent reality: Cameroon is not collecting as much tax as it could, and this gap is limiting its growth potential.

At present, Cameroon collects just over 12 percent of its GDP in taxes. This is below the level economists generally consider necessary for countries to fund basic services like infrastructure, healthcare, and education. While the economy has shown signs of recovery, including moderate growth and easing inflation, the government still faces tight fiscal space due to increasing debt servicing costs. This leaves fewer resources for development spending.

A Tax System That Leans Too Heavily in One Direction

One of the main issues is how Cameroon collects its taxes. The system relies heavily on indirect taxes such as value-added tax and excise duties. These are taxes people pay when they buy goods and services. In contrast, direct taxes like personal income tax and corporate tax contribute much less.

This imbalance is partly due to structural challenges. A large informal sector means many workers and businesses operate outside the formal tax system. At the same time, tax rules are complex, and there are many exemptions and special regimes that reduce how much revenue is collected.

The country has also seen a decline in oil revenues, which once played a major role in government finances. As oil income has dropped, Cameroon has had to depend more on non-oil revenue, but this has not been enough to close the gap.

Untapped Potential: Cameroon Could Collect Much More

Despite these challenges, the IMF analysis suggests Cameroon has significant untapped potential. Under current economic conditions, the country could raise its tax-to-GDP ratio to more than 18 percent. This means there is a gap of about 6 percentage points between what is collected and what could be collected.

This gap is not mainly due to the structure of the economy, but rather inefficiencies in how taxes are designed and administered. For example, income taxes bring in less revenue than expected, even though tax rates are relatively high. This points to problems such as weak compliance, limited coverage, and a narrow tax base.

The value-added tax system performs better compared to others in the region, but it is still held back by too many exemptions and complicated procedures.

The Hidden Cost of Tax Exemptions

A major issue highlighted in the report is the large number of tax exemptions and incentives. These are policies meant to support certain sectors or groups, but they often do not work as intended.

In many cases, tax exemptions benefit wealthier households more than poorer ones. For instance, exemptions on essential goods may not effectively target those who need support the most. Similarly, tax breaks for companies do not always lead to more investment or job creation.

These exemptions come at a high cost, estimated at nearly 2 percent of GDP. They reduce the government’s revenue and make the tax system more complicated to manage.

Reforming the System: A Step-by-Step Approach

The IMF suggests that Cameroon can improve its revenue collection through a mix of policy and administrative reforms. On the policy side, this includes reducing unnecessary exemptions, simplifying tax rules, and expanding areas like property taxation that are currently underused.

On the administrative side, improving digital systems is key. Cameroon has already made progress by introducing electronic filing and payment systems, which have helped bring more taxpayers into the system. However, more work is needed to improve compliance, especially among smaller businesses, and to reduce tax arrears.

The report recommends a phased approach. First, the government can focus on quick wins, such as removing outdated exemptions and improving digital tools. These steps can generate immediate gains and build confidence. Over time, more comprehensive reforms can be introduced to modernize the entire tax system.

The Road Ahead

Reforming a tax system is never easy. There may be resistance from those who benefit from the current system, and the government will need strong administrative capacity to implement changes. Clear communication and careful monitoring will be essential to keep reforms on track.

For Cameroon, the stakes are high. Improving domestic revenue collection is not just about balancing the budget. It is about creating the resources needed to invest in the country’s future. With the right reforms, Cameroon has the opportunity to strengthen its economy and build a more resilient and inclusive path to growth.