The Introduction of a New Tax on Money Transfers in Cameroon
By Agbor Regina Ebob & Ferdinand Doh Galabe
Cameroon’s law-making body holds three (03) ordinary parliamentary sessions every year in the months of March, June, and November. Article 16 (2) b of Cameroon’s Constitution states that, “The National Assembly shall, during one of its ordinary sessions, adopt the State budget.” Traditionally, the last ordinary parliamentary session which holds in November is essentially devoted to the examination and adoption of the State budget for the following financial year. This is adopted in the form of what is known as the public finance law (“loi de finances” in French).
The purpose of the public finance law is principally to lay down the revenue and expenditure of the State, to define the conditions of budgetary and financial equilibrium, to adopt the State budget and to report on its execution. There are three (03) instruments which are considered as public finance law, namely, the initial public finance law, subsequent public finance laws amending previous public finance laws and the settlement law (the law which takes cognizance of the last executed public finance law). Examples of settlement laws can be found here and here.
Further, the public finance law contains a special chapter (chapter 2) relating to the amendment of the provisions of Cameroon’s General Tax Code, including for this year 2022 the amendment of Sections 4, 7, 89, 93 (c), 93 (h) bis, 93 decies, 104 (d), 107, 111, 120, 128 (b), 142, 149, 225, 225 (c), 228 (a) to 228 (e), 543, 544, 546 (a) (8), 559 M 1, M 2 (b), M 8 (c), M 13, M 14 (a), M 94 (a), M 94 (d), M 96, M 104, M 116, M 119, M 120, M 121 (6), M 126, M 128 and M 143. You can find the public finance law for the 2022 financial year here and the amended General Tax Code here.
Of particular interest among the amendments introduced by law no 2021/026 of December 16, 2021 laying down the public finance law of the Republic of Cameroon are Sections 228 (a) to 228 (e) relating to money transfer tax which is presented by the public finance law as a means to expand the tax base.
These provisions introduce a money transfer tax on all money transfer transactions effected through any traceable technical means or medium, especially through electronic means, mobile phones, telegraph, telex, or fax, with the exception of ordinary bank transfers, deposits into an e-wallet or virtual wallet and money transfers for the settlement of taxes, customs duties and levies – but not bills such as utilities, purchases, etc. To avoid embarrassing situations, the State will need to work out the technical means alongside payment service providers to ensure the proper application of the law.
The money transfer tax equally applies to cash withdrawals resulting from money transfer operations from financial institutions (Western Union, WorldRemit, Moneygram, etc.) or telephone companies (Mobile Money Corporation PLC, Orange Money Cameroun PLC, etc). The new tax is far reaching and does not apply only to mobile money transactions but equally to remittances from abroad, especially to family members back home. According to the World Bank, in 2020 Cameroon received personal remittances of almost USD 340 million. It equally applies to domestic money transfers by money transfer services.
The new law specifies that the basis of assessment of the money transfer tax is the actual amount of money transferred or withdrawn at a rate of 0.2% of the amount of money transferred or withdrawn.
To demonstrate how this will practically operate, take this example: Joseph transfers FCFA 100.000 to Mary through an instrument of electronic payment, such as through the electronic money transfer services offered by telephone and internet service providers and is charged a money transfer tax of FCFA 200. Mary withdraws the money transferred to her electronically by Joseph and is charged a further FCFA 200 money withdrawal tax. This does not include VAT (19.25%) and the fees charged by different service providers for providing the electronic money transfer platform, which vary averagely between 1% and 3%, depending on the amount, the nature of the transaction, the circumstances of the transaction and the payment service provider.
Although persons liable to pay this tax are those sending (transferring) and withdrawing money through traceable technical means or medium, these taxes are actually imputed and collected by other taxpayers, that is, payment service providers who provide the technical means or medium of money transfer. Once withheld, they are paid to the tax department latest the 15th of the following month since collection.
The bank penetration rate of the active population in Cameroon aged 15 years and above as at June 2020 increased to 34.5% according to the Africa and Development Department of Banque de France. In spite of this remarkable progression in the banking world, there are even more mobile money accounts held on mobile phones, which is the closest thing most Cameroonian citizens have to a functional bank account.
According to a report of the Central Bank of Central African States (BEAC) titled “payment services by electronic money in the CEMAC region in 2020”, there are about 20 million electronic money accounts in Cameroon alone, representing almost 65% of accounts in the Economic and Monetary Community of Central Africa (CEMAC) region. Still according to this report, in 2020 and in spite of the economic effects of the pandemic, there were over 1,102 billion money transfer transactions within the CEMAC region, 73.13% of which were carried out in Cameroon, that is, almost 806 million transactions. Per the BEAC report, the value of money transfer transactions in CEMAC increased from CFAF 1,631.7 billion in 2016 to over CFAF 14,822 billion by the end of December 2020. The financial stakes are very high, and represent approximately some FCFA 25 billion in tax revenues for mobile money only. To put this in perspective, the average monthly payroll bill of the State of Cameroon is about FCFA 90 billion.
The institution of this new tax on money transfers in Cameroon is preceded by similar tax measures in several other African countries (Ghana 1.75%, Uganda 1%-5%, Zimbabwe 2%, Kenya 20%, Cote d’Ivoire 3%, Zambia 17.5%, DRC 10%, Malawi 10%, and Rwanda 10%) who are facing the rapid increase of mobile money transactions and the informalization of the economy by the digitalisation of the financial industry.
The introduction of this new tax has equally aroused public outrage and commentators have criticized it for being regressive, stifling development, discouraging technical and technological innovation, disregarding generally accepted principles on the avoidance of double taxation, being discriminatory against the underdog segments of the financial industry and being against the poorer classes thus discouraging financial inclusion, as forewarned by the Central Bank.
Fintech industry analysts have also questioned the imposition of such a tax on electronic money transfer payments but not on payments by checks, cash payments and traditional bank transfers, etc. Local and sub-regional financial experts have voiced fears that the massive gains made in financial inclusion in the last decade which was made possible because of various retail electronic payments platform via mobile phone transactions may be reversed, prompting a counterproductive return to cash transactions.
Traditionally, the enactment of public finance laws is followed by a complementary circular from the Minister of Finance specifying the modalities for the implementation of the public finance law. The main function that this circular is to shed light on certain provisions of the public finance law that may be obscure, unclear or open to misconstruction.
Accordingly, following the enactment of the public finance law for the 2022 financial year, the Minister of Finance signed Circular no 00000456/C/MINFI of December 30, 2021 on the instructions relating to the execution of the finance law, the monitoring and control of the execution of the budgets of the State and other public entities for the 2022 fiscal year. Unfortunately, this circular bears no further explanations relating to the new tax on money transfers in Cameroon, which was very much anticipated.
For example, it is not known what will become of the special mobile money accounts with little or no charges created by payment service providers, nor is it known what will become of mobile payments made to public bodies such as the National Security Department which accepts mobile money payments for passport applications. The same question arises in relation to mobile money payments of tuition fees to State universities, mobile money payments of water utility bills to the State corporation in charge of water supply to the general public, etc.
It is trite per the provisions of the public finance law, amidst popular dissent against the new tax on money transfers, that the new tax can be easily rolled-back. As it happens, Sections 63 to 65 of the public finance law permit the President of the Republic to amend public finance, tax and customs laws by ordinance subject to Parliamentary ratification. Additionally, Article 28 (3) of the Constitution provides for the President’s ordinance to remain in force as long as Parliament has not expressly refused to ratify the ordinance.
This article is authored by Ferdinand Doh Galabe and Agbor Regina Ebob, Advocates of the Cameroon Bar Association, and Partner at Dayspring Law Firm. The information in this article is provided for informational purposes only, and should not be confused as legal advice on any matter. For proper legal advice, we recommend that you contact us directly (ferdinanddoh@dayspringlaw.com or call +237 243 807 359) or request legal advice from your legal counsel.
We at Dayspring Law Firm understand the evolutions that have recently transpired in the digital financial services industry, as well as the legal and regulatory challenges fintech companies face as they stir disruptions in the banking and financial services industries, changing the way people spend, invest, and lend money.
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