Jean François Albrecht, Country Managing Partner; and Eric N’guessan, Country and Regional Tax Leader, EY: Viewpoint

Viewpoint: Jean François Albrecht; Eric N’guessan

Since 2015 Côte d’Ivoire has initiated reforms aimed at profoundly restructuring its economy. Among the projects launched by the Fiscal Reform Commission, one of the most important seems to be the reform of the tax framework for small and medium-sized enterprises (SMEs). Indeed, SMEs form the backbone of many of our economies, including that of Côte d’Ivoire, and serve as key drivers for job creation. In Côte d’Ivoire, SMEs make up 98% of the formal sector and contribute 20% of GDP. Furthermore, they represented 12% of national investment and 23% of jobs in 2018.

Studies of SMEs show that these companies are spread across the whole economy, notably in those that promote job growth and development. Given the low levels of resources they can access, SMEs –although concerned with primary (resource extractive), secondary (manufacturing) and tertiary (services) sectors – are generally most strongly present in the tertiary sector.

The definition of an SME in tax legislation has progressively become more straightforward, and it retains only the criterion of an annual turnover less than CFA1bn (€1.5m) to determine whether or not a company is an SME. However, under Decree No. 2012-05 of January 11, 2012, a company qualifies as an SME if, in addition to meeting the financial threshold, it employs fewer than 200 people. Article 3 specifies that this definition is applicable across sectors. Therefore, the definition is based on two main criteria – turnover and number of employees – and applies to all businesses uniformly, regardless of activity, which simplifies the calibration of fiscal policies according to business size.

Although this definition may be inapplicable for some very specific businesses, such as gas stations, it seems to align with Ivorian economic reality and should be maintained. In order to help SMEs become more competitive and create more jobs, in 2014 the government adopted a set of specific tax measures favourable to these structures. However, these commendable efforts remain insufficient, while tax measures taken over the years in response to ad hoc issues have been sparse and costly. The tax system must evolve in terms of depth to promote the achievement of economic development and transformation objectives.

Bolstering SMEs, providing jobs and creating value – especially for young people – are sine qua non conditions for Côte d’Ivoire’s goal of becoming an emergency economy by 2020. SMEs face many challenges, including heavy and aggressive taxation; limited access to finance for to launch, develop and modernise; the insufficiencies of legislative and regulatory texts; high costs in the declarative process; and a lack of state-led incentives. In particular, the informal sector suffers from weak identification policies and an inadequate tax regime, which have delayed its development. As a result, the government has lost significant financial resources, forcing the state to maintain high fiscal pressure on large corporations.

Ideally, further reform would reduce the number of available tax exemptions and normalise an attractive fiscal regime for SMEs. Such reform should revolve around four main principles: properly identifying and taxing the informal sector; reducing the tax burden through multifaceted means; simplifying and digitising the declarative process; and creating an agency dedicated to supervising and financing SMEs.

In addition to relying on best practices observed around the world, the reform would have to be preceded by several measures that would help to ensure its durability. Like its counterparts in Mexico, Brazil and Estonia have done, Côte d’Ivoire would need to set up dedicated management centres with completely digitised client file management platforms, and implement an educational verification and tax control mechanism. The government would also have to make sure that taxpayers are fully identified, by merging their different identification numbers to create one for all aspects of everyday life. Lastly, the authorities will have to engage in a resolute communications policy on tax civility.