Sylvain Andzongo: Why do Cameroonian companies cultivate opacity around their accounts? What are the consequences of this practice on the evaluation of economic activity and the effectiveness of public policies developed on the basis of these biased data? This chartered accountant, who claims 43 years of experience, lifts a corner of the veil on what looks like a rather well maintained scandal. He has worked with multinationals such as the British firm Deloitte, and gives an indication of how to put an end to this phenomenon, which is firmly established in companies.
Sylvain Andzongo: What are the causes of opacity in corporate accounts ?
David François Nyeck: Excuse me for approaching your question with a bit of history, that of taxation in Cameroon. At the beginning, taxes were flat-rate and collected by village and neighborhood chiefs. It was therefore essentially aimed at the inhabitants of the land. In passing, I would like to point out that the service of tax collection was remunerated (cf. Article 143 of the General Tax Code of 1994). Today, the tax has changed, both in its nature (from a flat-rate tax to a tax on the taxpayer's income) and in its collection (the economic operator has replaced the village and neighborhood chief). And I should point out that the service that the latter (economic operator) renders is no longer remunerated. On the contrary, if he does not have his calculations correct on the mass of taxes collected, he is punished, and often, heavily. Moreover, because it is based on the selling price of the goods of the economic operator, the current tax ignores the borders: it is collected, wherever these goods are sold. This is the background.
I come back to your question about the causes of the opacity of corporate accounts. It is based on three elements: first, the recognition of the role of the economic operator in the taxation process. The latter is masked by the tax literature, which makes him a taxpayer; this legitimizes a fear of transparency. Clearly, he believes that if his accounts are transparent, he will pay more tax. Then comes the clarification on the nature of his interventions in this process. He calculates the tax, charges it as part of his selling price, and collects it at the time of sale and remits it to the state. This means that it is the consumer who pays the tax. Finally, there is the obligation to collect the tax. This is an obligatory service that he renders to the state: if he does not charge the tax, there is no chance that it will be collected and remitted to the Treasury.
"The economic operator believes that if his accounts are transparent, he will pay more tax.”
It is therefore the misinformation surrounding the tax activity, which induces the manipulation of business accounts. Look at how the businessman trembles when the tax authorities visit him. He is afraid: afraid to reveal everything in his accounts. But what he is trying to hide comes from someone else (the consumer). The State, whose tax is the turnover, must be more involved in this process: it must explain its role to him (the economic operator) and teach him how to do it.
There is a second explanation for the opacity of corporate accounts. It is the nature and the managerial treatment of the notion of profit. Clearly, economic operators fiddle with their accounts to give themselves the means to remunerate, in a hidden way, their own capital invested in the business. This way of doing things calls into question the responsibility of the company's manager.
Indeed, there is no management rule that obliges him to treat his profit as a residual value of his operation. However, this is what the following equation means: profit = turnover - expenses. Because the truth is that profit is an expense of its operation. Better still, the realization of a profit each year is consubstantial with the continuity of the operation, that is to say that without it, the accounting doctrine forbids the head of the company to establish a balance sheet in its classic form.
How many of them are aware of this, with the number of balance sheets that indefinitely show operating losses or whose ridiculous declared results do not allow for any distribution of dividends? Curiously, these stores do not close and their managers do not resort to the soup kitchen to survive.
Here are people who do harm to themselves and to the country in an indescribable recklessness.
SA: What are the consequences ?
DFN: It is said that bad money drives out good money. The same is true of misinformation. Convinced of the validity of this misinformation, for some business leaders, the best antidote against the prying eyes of the taxman today is the publication of two or even three versions of their financial statements, for the same fiscal year. One version for yourself, another version for the banker and the third version for the taxman. Probably, it is this last version that is used by the National Institute of Statistics (INS), to establish the national accounts. A real catastrophe! It is a risk of the same nature that one takes when using adulterated fuel for one's car. No matter how robust the engine is, it will eventually fail.
"The tax adjustments plus the penalties (penalties and interest on arrears) can no longer be incorporated into the selling price. So, we are obliged to draw on our equity to meet them"
Since these are the consequences that interest you, I could group them into two categories. First, the macroeconomic consequences. Remember that it is the data of the companies that are used to compile the aggregates of the public accounts. This means that if these data are biased, our statistics will struggle to be reliable. For example, market GDP (excluding public administration) x 17.5% (VAT rate without additional cents) compared to the VAT revenues declared by the General Tax Directorate (DGI) shows a staggering difference, which cannot be explained by tax exemptions alone.
Second, the microeconomic consequences. False accounts give a false picture of our companies. This feeds, in the first place, the reputation of patent fraudsters which is the basis for the terrifying controls of the tax authorities. But more serious are their financing problems. Their only window seems to be the bank, or even tontines, whereas the stock exchange has existed for a few years, and offers them long-term funds, provided of course that they show their credentials.
SA: What could be the benefits of transparency for these companies ?
DFN: The blossoming of all social actors: investors, economic operators, employment. The pride of being rich that is observed in English-speaking African countries scares Cameroonians, that is to say French-speaking Africans in general. So much so that every young person today dreams of being a feyman. That is to say, a rich person whose wealth cannot be traced. Normal, this is the image that he observes in the current Cameroonian society.
However, Mr. Aliko Dangote (the richest man in Africa) has just been decorated by the Head of State, Paul Biya, in person. Quite a symbol. But the event went almost unnoticed in our world where we are used to looking the other way.
Another advantage of transparency is the avalanche of investment offers from both households and institutions to companies. One only has to look at the competition between the banks in the market to obtain the favors of some companies that are more or less transparent in their management. It is normal that banks are looking for security in their investments. Not only is their access to credit easy, but they generally benefit from subsidized rates for loans or cash advances.
"There is a sneaky battle between management and other shareholders over a fair share of the results. Often, the managers create expenses to their advantage, which reduce the profit to be shared"
It's the same with employment. Bees only go where there is honey. Better executives, very good salaries, better social image, these are the visible effects of companies that succeed because they are transparent in their information (financial and other).
In addition, they run less risk of tax adjustments. It is worth remembering that tax adjustments plus penalties (penalties and interest on arrears) can no longer be incorporated into the sale price. Therefore, one is obliged to draw from the equity to face them.
SA: Doesn't the business environment force opacity ?
DFN: There is a trap in your question. The business environment can imply the non-existence of administrative constraints. If it is that, it is even an incentive to opacity. An example: a few years ago, the employers had the State admit that the certification of the Statistical and Fiscal Declarations of Enterprises (DSFE) by a professional accountant, member of the Onecca (National Order of Chartered Accountants of Cameroon, NDLR), was a superfluous administrative complication. The measure has been removed. However, it is a requirement that should encourage the reputation of these professionals, as "companions of trust".
Once this ambiguity is removed, we can tackle the fundamental problem, namely what is the purpose of opacity ? In general, it aims at three things. First, the substantial confiscation of the added value produced. Let's be clear! A complicated business environment means an unequal sharing of value added in companies. Specifically, wages (especially those of nationals) are at a great disadvantage in Africa compared to the remuneration of capital, and the state must touch as little as possible. As a result, company managers tend to conceal part of the results in order to avoid possible wage and tax claims. Things must be told as they really are.
"The result is that company managers tend to conceal part of the results in order to avoid possible wage and tax claims"
Second, the unequal sharing of real profit. There is a sneaky battle between executives and other shareholders over a fair share of the results. Often, the managers create expenses for their benefit, which reduce the profit to be shared.
Finally, there is the concealment of the amount of tax. It is facilitated by the confusing literature of the Cameroonian tax system, which reproduces school teachings and refuses to look at the company as it is. That is to say, an organization called to last, a requirement that can only be achieved with programmed profits, monitored and noted at the end of the year, as a means of remunerating the invested equity capital.
However, as Henry Ford would say, we often forget that it is not the employer who pays the salaries. He is only the manager of the money. It is the consumer who pays the wages. Wage earners who are paid the minimum wage can only consume the amount of the minimum wage, which is not much. In fact, it is this state of affairs that is at the origin of a sluggish consumption in our countries, with all its consequences, notably a sluggish economic growth.
The same paradox influences taxes. Briefly, it is to say once again that it is the consumer who pays the taxes collected by the companies, including the corporate tax and the related distribution tax. Suffice it to say once again that it is the consumer who pays the taxes collected by the companies, including the corporate tax and the related distribution tax.
SA: In an environment like Cameroon, what could be the means to encourage companies to be transparent ?
DFN: There are several links in the tax chain. To encourage transparency, we need to study how it will impact the functioning of each of them. At the center of the chain is the business operator, since it is his business actions, especially his expenditures, that create the tax. We must, therefore, change the paradigm, including the recognition, for once, of the cardinal role of the tax mercenary of the State, the economic operator. He deserves consideration, training and assistance. And even, why not, remuneration, if only as a token?
Secondly, it is the State that fights to improve the tax-bearing economic activity. Paradoxically, it is this hypothetical tax that it distributes blindly, through tax exemptions, without knowing who really benefits: the economic operator or the consumer. And if this mechanism benefits the economic operator, would it be in his interest to make it known?
"There is a sneaky battle between managers and other shareholders over a fair share of the results. Often, the managers create expenses to their advantage, which reduce the profit to be distributed"
In the same vein, the state, in the first instance, believes that the penalties and late interest following the tax adjustment are a financial windfall that improves its budgetary revenues. Is this more profitable than creating a climate of trust between the economic operators and the State, for which transparency is the only guarantee?
Then, there are the operational ones: the tax staff (bonuses on sanctions), the tax consultant (fees) who fights for his client, and the consumer (reduction of sales prices).
The principle that reconciles these divergent interests is that one cannot base advantages on the error or ignorance of one link in the chain. The double consequence of its application is, on the one hand, the supervision of the economic operator so that he plays his role fully, and on the other hand, that he learns that his turnover is the sum of his expenses. Thus, he will understand the best techniques to incorporate the profit, the income tax and all other taxes in the selling price. Yes, I would argue, these techniques are not clearly laid out in the textbooks.
SA: Some people think that the stock market could be a solution to encourage transparency. But, are our companies competitive from your perspective? Why is that?
DFN: One thing is certain: you can't go to the stock market without being transparent. Because the essential conditions required of listed companies are the regular publication of reliable information on their operations and incentive information on the distribution of dividends. Is it a really lucrative business or not?
It is therefore a real opportunity for the long and medium term financing of companies: an unlimited capital market, in which attractiveness and transparency are required, with three major advantages : it is the company requesting funds that sets the rate of return on the money received (which is different from a loan where the interest rate is set by the person giving the money); apart from bonds, there is no deadline for recovering the money invested in a company; finally, the icing on the cake, the crumbling of the participation in the capital is the best way to perpetuate companies, especially family companies.
It is therefore true that the stock market is a significant lure that could encourage companies to be transparent in their financial information. But on one condition, let's remove the mortgages denounced above, namely fear and ignorance.
For no one would be willing to entrust his savings to an entity that is not able to guarantee the return on his investment. Better still, this return must be both sustainable and competitive with competing investment offers.
When the conceptual framework for financial reporting requires that it be done on a going concern basis, this means, at a minimum, that every company must produce a substantial profit every year.
But how is this possible when companies only know their profits at the end of the year? How can they be sure that the expected profit is actually in the selling price of their goods or services?
SA: What could be the gains of corporate transparency for the economy?
DFN: It is a common saying that "money doesn't like noise". Companies are where wealth is created. So why is its activity fuelled by all kinds of disputes? Simply because the tool of peace, the structured cost price, is ignored.
My wish for the Cameroonian Nation, State and private sector, is that it appropriates the concept of structured selling price. This is the condition for transparency in the management of companies and the economy. Because it is the strategic tool that guarantees the sustainability, security and performance of economic entities.
Look, this is what we are talking about in this quarrel on the cost of living where we discuss without evidence of dialogue on the table. You only have to look at the structure of fuel prices. Is it not that simple?
"My wish for the Cameroonian Nation is that it appropriates the concept of structured selling prices. This is the condition for the establishment of transparency in the management of companies and the economy"
Knowing that every commodity sold (carries a known tax) you imagine what a boon for the state budget? The game of hide and seek is over. Each economic operator knows what he has to pay in taxes and the State knows what it will receive from each sale. This technique exists. Let's try to master it and implement it. You will see that the State will feel obliged to spearhead the creation and monitoring of companies, because it will have understood that they play the role of mercenaries on its behalf.
What are the arguments today to justify or denounce the setting of the minimum collection rate at 1.5% or 2% of turnover? The exercise is not easy. With the structured sales price, we will finally have the answer.
In addition, it should be noted that today taxes are globalized. This means that any Cameroonian goods that go abroad, where the purchasing power is much higher than ours, carry Cameroonian taxes that must be collected and repatriated to finance our budget. From now on, no goods will leave Cameroon without a strict control of the structure of its selling price, to monitor the tax to be collected. That's it! We will no longer joke with the repatriation of the sums collected from exports.
Knowing that the price of each good sold yields a certain rate of net profit to be distributed to investors in the company, there is no longer any concern about guaranteeing this remuneration. As a consequence, companies would become the best collectors and fructifiers of national savings, which are struggling to be invested in peace. And finally, youth employment and economic growth will only be the collateral consequences of this adjustment.
Interview between Sylvian Andzongo and David François Nyeck (Chartered Accountant)
Originally published on Investir au Cameroun