AN ASSESSMENT ON THE IMPACT OF VALUE ADDED TAX (VAT): IMPLICATIONS FOR TAX PAYERS IN CAMEROON

CHAPTER ONE

INTRODUCTION

Background of the Study

An ongoing issue with the three-tier system of the Nigerian government is the decline in income production, which is seen via annual budget deficits and inadequate finances for economic growth and development. This economic rationale highlights the government's need for money and suggests that, in addition to bolstering current revenue streams, it is imperative for the government to broaden its revenue base in order to fulfil its constitutional obligations. According to Kryeziu & Imeri (2016), the financial capability of a government is determined by factors such as its income base, the fiscal resources at its disposal, and how these resources are created and used. Consequently, it is the responsibility of the government to effectively generate sufficient money nationwide in order to avoid economic stagnation. This mobilisation entails the implementation of economically and politically viable taxes that would guarantee simple management, bookkeeping, verification, auditing, and inquiry, all based on the principles of fairness, impartiality, and other characteristics of an effective tax system. Consumption taxes have a broader scope since the factors causing unfavourable differences may be effectively managed via appropriate administration (Odonkor, 2017). Consumption taxes may enhance the financial foundation of any economy by generating income. However, this requires taking use of the potential and implementing a consumption tax that acknowledges taxpayers as people who want to minimise their utility and prevent them from engaging in tax evasion (Ofishe, 2015). When selecting a consumption tax option, it is crucial to evaluate the administrative feasibility, revenue potential, voluntary compliance, neutrality, equity, and efficiency of each tax. By considering these criteria, it becomes apparent why the government replaced a Retail Sales Tax (RST) with a Value Added Tax (VAT) as a consumption tax. Therefore, the introduction and complete acknowledgment of the potential value of VAT in generating revenue, after carefully planning its implementation into the Nigerian tax system, has become a contentious topic that sparks debate among various authors. They argue that the objective behind introducing value added tax as a method of taxation in the Nigerian economy remains unclear.Value Added Tax (VAT) is a kind of tax imposed on the increase in value that occurs at each step of the manufacturing and distribution process for products and services. Since its inception in France during the 1950s, Value Added Tax (VAT) has gained widespread acceptance as a prevalent type of indirect taxation around the globe, including several African nations. In Cameroon, the Value Added Tax (VAT) was implemented in 1998 as a component of comprehensive tax reforms with the objective of modernising the tax system and increasing government income (Tchakoute-Tchuigoua, 2016). Cameroon, similar to several other developing nations, significantly depends on indirect taxes, such as VAT, to fund governmental spending and provide vital services. The country's tax collection is significantly supported by VAT revenue, which plays a crucial role in ensuring fiscal sustainability and promoting economic growth efforts. Nevertheless, the effects of introducing VAT on taxpayers in Cameroon continue to be a topic of discussion and investigation. Prior research has examined many facets of Value Added Tax (VAT) implementation and its effects on taxpayers in diverse settings. A study conducted by Tchakoute-Tchuigoua (2016) investigated the influence of Value Added Tax (VAT) on the economic development of Cameroon. The study highlighted the significance of VAT income in funding public investments and promoting economic activity. In a similar vein, Ntouko and Fouda (2017) examined the difficulties that small and medium firms (SMEs) in Cameroon have when trying to adhere to the VAT system. They found that administrative intricacies and limitations in resources are major obstacles to compliance. However, there is a lack of empirical research that particularly examines the effects of VAT on taxpayers in Cameroon across different industries and socioeconomic levels. Gaining a comprehensive understanding of how Value Added Tax (VAT) impacts people, firms, and the whole economy is crucial for developing efficient tax strategies, improving adherence to tax regulations, and fostering long-term, environmentally-friendly economic expansion (Okoro & Onatuyeh, 2018). This research aims to fill this void by providing a thorough evaluation of the impact of Value Added Tax (VAT) on taxpayers in Cameroon. This study seeks to analyse the economic, social, and equitable consequences of implementing VAT. Its objective is to provide important insights to policymakers, tax authorities, enterprises, and taxpayers in order to optimise the VAT system for the benefit of all stakeholders. Therefore, the researcher sought to assess the impact of value added tax (VAT): Implications for tax payers in Cameroon. 

1.2 Statement of the Problem

The introduction of Value Added Tax (VAT) in Cameroon has implemented a substantial fiscal policy mechanism with the objective of producing money for the government. Nevertheless, the effect of VAT on taxpayers continues to be a crucial matter of concern, requiring a thorough evaluation to comprehend its ramifications. There is a limited comprehension of the consequences of Value Added Tax (VAT) on various groups of taxpayers in Cameroon, such as individuals, small enterprises, and major organisations (Owino, 2019). This lack of information impedes the ability of politicians and taxpayers to make well-informed decisions. The installation of VAT might potentially place a financial burden on taxpayers, impacting their ability to make purchases, make investment choices, and overall economic welfare. Gaining a comprehensive understanding of the magnitude of this burden is essential in order to develop suitable policy actions to alleviate negative consequences. Ensuring adherence to tax regulations is sometimes a difficult task in many legal jurisdictions, and Cameroon is no exception (Shala, 2019). The intricate nature of VAT legislation, along with operational inefficiencies, may worsen compliance problems among taxpayers, resulting in financial losses and diminished efficacy of the tax system. VAT systems may exhibit regressive characteristics, placing a disproportionate burden on persons with low incomes and disadvantaged groups. Evaluating the fairness consequences of VAT in Cameroon is crucial to guarantee that the tax system fosters social justice and an even distribution of the tax burden (Shala, 2019). The implementation of VAT may have wide-ranging economic consequences, such as impacts on consumer spending habits, corporate competitiveness, and general economic expansion. Comprehending the macroeconomic consequences is essential for evaluating the efficiency and durability of VAT as a means of generating money. Given these limitations, it is crucial to do empirical research that systematically assesses the effect of VAT on taxpayers in Cameroon (Shala, 2019). Tackling these difficulties would not only add to scholarly understanding but also provide significant perspectives for policymakers, tax authorities, companies, and taxpayers to improve the efficiency, fairness, and efficacy of the VAT system in Cameroon. Hence, the study  assess the impact of value added tax (VAT): Implications for tax payers in Cameroon.

1.3 Objectives of the Study

The broad objective of the study is to  assess the impact of value added tax (VAT): Implications for tax payers in Cameroon. The specific objectives is as follows

Evaluate the awareness level of taxpayers  regarding Value Added Tax (VAT) in Cameroon.

Analyze the effectiveness of VAT tax collection processes in Cameroon.

Proffer recommendations aimed at enhancing the efficiency of the VAT collection system in Cameroon

1.4 Research Questions

The following questions have been prepared for the following

What is the awareness level of taxpayers  regarding Value Added Tax (VAT) in Cameroon?

How effective is VAT tax collection processes in Cameroon?

What are the recommendations aimed at enhancing the efficiency of the VAT collection system in Cameroon?

1.5 Significance of the Study

The study will contribute to the existing body of literature on VAT implementation and its implications, particularly in the context of developing countries like Cameroon. By generating empirical evidence and insights, the research can enrich academic discourse and serve as a foundation for future studies in the field of taxation and public finance.

1.6 Scope of the Study

The study focuses on the impact of value added tax (VAT): Implications for tax payers in Cameroon. Empirically, the study will evaluate the awareness level of taxpayers  regarding Value Added Tax (VAT) in Cameroon, analyze the effectiveness of VAT tax collection processes in Cameroon and proffer recommendations aimed at enhancing the efficiency of the VAT collection system in Cameroon.

1.7 Limitations of the study

Like in every human endeavour, the researchers encountered slight constraints while carrying out the study. Insufficient funds tend to impede the efficiency of the researcher in sourcing for the relevant materials, literature, or information and in the process of data collection (internet, questionnaire, and interview), which is why the researcher resorted to a moderate choice of sample size. More so, the researcher will simultaneously engage in this study with other academic work. As a result, the amount of time spent on research will be reduced.

1.8Definition of terms

Value Added Tax (VAT): Value Added Tax is a consumption tax levied on the value added to goods and services at each stage of production and distribution. It is typically collected incrementally as a percentage of the final selling price of goods or services, with businesses responsible for remitting the tax to the government.

Taxpayer: A taxpayer is an individual, business, or entity that is subject to taxation by a government. Taxpayers are obligated to comply with tax laws and regulations, including filing tax returns, reporting income or profits, and paying taxes on their earnings or transactions.

Fiscal Policy: Fiscal policy refers to the government's use of taxation and spending measures to influence the economy. It encompasses decisions regarding tax rates, government expenditures, and borrowing, with the aim of achieving macroeconomic objectives such as economic growth, price stability, and full employment.

Compliance: Tax compliance refers to the degree to which taxpayers adhere to tax laws and regulations. It involves accurately reporting income or profits, calculating and remitting taxes owed, and fulfilling other obligations such as filing tax returns and maintaining records.

Small and Medium Enterprises (SMEs): Small and Medium Enterprises are businesses that operate at a scale smaller than large corporations. The criteria for defining SMEs vary by country and industry but generally include factors such as annual revenue, number of employees, and asset size. SMEs play a significant role in economic development, job creation, and innovation.

Social Equity: Social equity refers to the fairness and justice in the distribution of resources, opportunities, and benefits within society. In the context of taxation, social equity involves ensuring that the tax burden is distributed fairly among individuals and businesses, taking into account differences in income, wealth, and socio-economic status.

Revenue Generation: Revenue generation refers to the process of raising funds for government expenditures through taxation and other sources of income. Tax revenue, including revenue generated from VAT, is used to finance public goods and services, such as education, healthcare, infrastructure, and social welfare programs.

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