Cameroon is losing US $10 billion a year due to tax exemptions

By Olivia Broome & Michel Bissou on December 13, 2021

By Flickr user Alvise Forcellini, creative commons
By Flickr user Alvise Forcellini, creative commons

Cameroon is heavily dependent on its extractive industries, and places a particular emphasis on its oil sector. From 2007 to 2009, oil revenues represented more than 25% of its national budget. Even during the 2008 financial crisis, Cameroon kept its national oil revenue average going strong.

Over the last five years, Cameroon has exported around 42.29% of its oil because it recognises the importance of its oil sector on a global scale. It is therefore clear that revenues derived from natural resource extraction are crucial for Cameroonian citizens.

The Cameroon Constitution ascertains that it is determined to exploit its natural resources “in order to ensure the wellbeing of all by raising the standard of living of the populations without any discrimination”. Because all mineral resources belong to the Cameroonian State, there is plenty of opportunity to make that vision a reality.

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Source : Cameroon Statistical Yearbook, 2015 edition

But instead, tax loss in Cameroon amounts to around 5850 billion CFA franc, or approximately US $10 billion a year. This is equivalent to 1.5 times the 2016 national budget, 24 times the average budget of the public health ministry or 15 times the education budget, according to a new study by Publish What You Pay (PWYP) Cameroon in light of the case study of the Mbalam Iron Project.

Prospecting, exploration and mining activities for any mineral deposit in Cameroon are regulated by permits. When a company wants to extract resources in Cameroon, it needs to enter a mining agreement/convention with the State. The Cameroonian State collects a significant amount of revenue from mining companies by fixed duties, proportional royalties (mining royalty and superficial royalties) as well as ordinary taxes. This income is paid into the public treasury, and if correctly used, will improve the economy of the country, region, council and local communities around the project.

In accordance with Article 137 of the Decree implementing the Mining Code (2014), 10% of revenues from extraction tax goes to local mining communities and 15% goes to their local councils. Yet in light of the marble and Figuil limestone projects, it appears that municipalities and communities bordering mining sites do not receive their share of mining royalties.

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Source : Ministry of Finance, (2015)

However, in the last few years, the government has been making a number of amendments to its legislation as it has been keen to encourage foreign investments in the country. Law No. 2013/004 of 18 April 2022 sets incentives for private investment in the Republic of Cameroon. This law complements the Mining Code which was amended in 2001 in the context of attracting extractives investment.

The PWYP Coalition in Cameroon and other civil society partners in the country have found that a large amount of companies have been benefiting from these amendments. These amendments have lead to a lack of oversight, which in turn has led to loss of tax revenues and an increase in tax exemptions.

With the case study of the diamond exploitation project of Mobilong, civil society members of PWYP’s Coalition in Cameroon have shown that there is a lack of monitoring of mining projects in Cameroon. Without monitoring production it is difficult to know if fiscal revenues are being used in accordance with Cameroonian mining laws.

With the current judicial set-up of the country and companies’ less complicated rights to operate, the Constitution’s goal of ensuring that all Cameroonian citizens benefit from the country’s natural resources will be hard to reach.

Real political will is needed to bring in financial investments from extractive companies. Effective monitoring should help ensure that contractual obligations between mining companies and the government of Cameroon are respected. These contracts must also allow the government to capture maximum benefits from extractive activities in the country.

There is an urgent need for the Cameroonian Government to review its tax exemption policy. With annual petroleum production consistently falling since 1985 as existing reserves are depleted, there is not much time left for the country to harness its potential oil wealth.


Background

Key resources: oil, gas, mineral, quarry, marble, limestone, bauxite, aluminium and iron ore.

Cameroon’s oil sector is now “mature”, consequently oil production is declining. In order to encourage foreign investments, Cameroon has recently made a number of amendments to its legislation, notably by the law n°2010/011 on mining activities dated July 29, 2021 (the “2010 Mining Law”). This law is aimed at improving the existing mining code dated April 16, 2022 (the “2001 Mining Code”).

As is usual in other African jurisdictions, a mining convention must be entered between the relevant mining companies and the State in order to define the rights and obligations of each party under the relevant mining title.