CHAPTER ONE
GENERAL INTRODUCTION
This research work is carryout to evaluate the effects of custom duties and tax evasion by small
and medium size enterprises on the gross domestic product (GDP) of Cameroon, identify the
loopholes and to determine what measures can be taken to close this gap. In recent times,
research has shown that many individuals, small and medium size enterprises do not fully respect
the custom procedures or regulations, which they turn to evade from taxes. This action is
affecting the government negatively by reducing the GDP of the country.
1.1 Background of the Study
Custom duties are tariff or tax imposed on goods when transported across international borders.
These duties are implemented in order to protect each country‟s economy, residents, jobs, and
environment by controlling the flow of goods especially restrictive and prohibited goods into and
out of the country. Taxes have been existing since the earliest days of civilizations, although
regarded as a necessary evil. Indeed, according to Webber and Wildausky (1986), in the ancient
Egypt language, the word “Labor” was a synonym for these taxes. On the other side was a
contribution of one tenth of the amount of something being tax. Today the most advanced form
of tithe is the income tax. According to Adam (2006), the earliest records of regulated tax
system, as well as anti – evasion apparatuses, date too from the Egyptian culture where the
pharaohs established a tax collecting mechanism at the core of which were the highly paid tax
collectors known as scribes.
Furthermore, in history, the earliest taxes were customs duties on imports and exports known as
“portoria” Adams (2006). Two emperors are distinguished as great tax strategists throughout the
glorious Roman era; Ceasar Agustus and Julius Casar. While the former is remembered for the
introduction of the inheritance tax, which today is referred to as the “Augustus Tax” by both
English and Dutch modern governments; the latter is remembered for imposing the one percent
sale tax; today perhaps most commonly known as Value Added Tax (VAT). According toBartlett (1994), the latter taxes included a modest contribution on all forms of wealth, including
land, houses, slaves, animals, money and personal belongings. Although the basic rate was
symbolic, roughly 0.01 percent, tax evasion was a notable problem in the Roman Empire.
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Slemrod (2007) cites works that have identified tax evasion around the third century, when the
Romans buried their jewelry or gold coins to evade the luxury tax.
Adams argues that historically excessive taxation led not only to evasion, corruption, bribery,
inefficiency; but also, in some cases, it led to war or conflict, reduces the gross domestic product
of that country, sometimes even to revolutionary changes Adams (2006). For instance, according
to Ralph (2003) a combination of high taxes with unsuccessful wars led to the rebellion of
English feudal barons against King John of England and the creation of the Magna Carta
Libertatum or The Great Charter of the Liberties of England; an important part of the historical
process that led towards constitutional law.
On the other hand, Evasion today is a global disease that is faced by all countries in the world. In
2013, the British accountant Richard Murphy by comparing World Bank data to Heritage
Foundation data estimated global tax evasion to be around 5% of the world‟s Gross Domestic
Product (GDP), or roughly around 3.100.000.000.000 (3.1 trillion) US dollars Murphy (2013). 

The report uses data for more than 98% of the world‟s GDP and over the 92% of the world‟s
population. It first estimates the absolute size of a country‟s shadow economy (from the World
Bank), then it calculates the tax share to GDP for each country (from the Heritage Foundation)
and, finally, it applies the same share to the shadow economy in order to reveal the estimates of
lost taxes by each country. The assumption made in this study is that all the economic activities
in the shadow economy are subject to tax evasion. We note here, however, the importance of
distinguishing between “lawful” and “unlawful” activities within the shadow economy; with the
latter representing zero potential tax income if detected given their “unlawful” nature (such as
prostitution, gun trafficking and/or drugs). Their detection, at best, cannot yield any additional
income in taxes; it will rather just terminate them. Unfortunately, this distinction is not taken into
the accounts in the Murphy (2013) report. Still the estimates provide a good indication that tax
evasion costs are substantial. And in Africa, it is an ailment that all the countries face. It is also
known that Africa is one of the continents that is faced with high rate of corruption hence
making the country to be underdeveloped and one of the reasons why these countries are under
developed is due to the evasion of taxes which intense affect the gross domestic product of these
countries like Cameroon, Gabon, Nigeria, Ghana and Chad British accountant Murphy (3003).
In Cameroon‟s economic development, Small and Medium Sized Enterprises (SMSEs) play an
extremely vital role. Therefore, the government has recognized that their activities are necessary for real economic progress and has made significant efforts to encourage it by establishing trust
among population through the recognition and regulation of the activities of SMSEs. As a result,
Mr. Laurent Serge Etoundi Ngoa, the Minister in charge of Small and Medium Sized Enterprises,
is responsible for these functions. Small and Medium Sized Enterprises (SMSEs) account for a
significant component of the business sector in Cameroon and especially in Douala. Since the
source and residency principles of taxation are in effect, these businesses are considered tax
payers.
Despite the potentials contribution that taxing can make to Cameroon‟s GDP in general it is
critical for the Cameroon government to pay close attention to the impact that these taxes have
on SMSEs. These enterprises have been found to be more vulnerable to the negative
consequences of taxation, which have been documented so far. They are often regarded as the
foundation of economic development in all countries. Smaller businesses account for more than
ninety percent of all private businesses in Africa, and they account for more than half of all
employment and GDP in the majority of African countries. SMSEs in Cameroon are claimed to
be distinguished elements of the country‟s manufacturing environment, accounting for around
85% of the county‟s manufacturing companies, SMEs are also estimated to generate over 70% of
Cameroon‟s GDP, and they account for more than 90% of all firms in the country. With this,
SMSEs have a critical role to play in promoting growth, creating employment and contributing
to poverty reduction in African countries, considering their economic weight in the region
UNIDO (2009).

Nevertheless, considering the positive contribution that taxation can make to a country‟s GDP in
general, more emphasis must be made to the negative consequences of taxation on the growth of
SMSEs in Douala in particular. This is due to the fact that SMSEs are critical drivers of
economic growth in Cameroon especially in Douala. Cameroon has been known for its selfdeclarative tax system which the inhabitants of Douala are fully aware of which means that
businesses and individuals must take the initiative to file their taxes, which help to decrease the
country‟s tax administration costs. All tax payers in Cameroon and in Douala are subject to the
self-assessment system of taxation, which requires individuals to determine their own income,
declare it, and pay their taxes. An individual taxpayer should understand the taxes they are
responsible for paying when those taxes are due, how taxes are calculated (including knowing
the rates that apply), and where to file and pay the taxes in question. Several types of taxes are
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levied by the government in Cameroon with the goal of protecting and controlling the activities
of SMSEs, protecting other domestic and infant industries (protectionism), and ensuring fair
competition among SMSEs.

1.2. Problem Statement
Trade flows by importer and exporters contributes a great deal to the growth of any economy,
Cameroon inclusive. Regardless of the importance of importer and exporter relations within the
economy of Cameroon, there are some barriers what the researcher has found to exist within this
area of study. The main issue realised here is the increase in tax evasion actions performed by
most international traders. Although there is a tendency for SME‟s to gain an unfair advantage
from their competitors and peer businesses when they engage in tax evasion practices, this issue
of evasion of custom duties is an action which greatly deters the government‟s revenue in that
direction and brings down the expected revenues of the Government as per budgets. This
disparity in budget from expectation caused by tax evasion of customs duties is the object of this
research and it is for this reason that the study therefore sought to answer the following questions
1.3. Research Questions
1.3.1. Main Question
What are the effects of customs duties and tax evasion by small and medium size enterprises on
the GDP of Cameroon?
1.3.2. Specific Questions
1) What are the causes that lead to custom duties and tax evasion by SMSEs in Douala?
2) How does customs duties and tax evasion by SMSEs lead to a distortion of the market in
Douala?
3) What measures can be implemented to reduce customs duties and tax evasion by SMSEs
in Douala and promote sustainable economic growth?
1.4. Objectives of The Study
1.4.1 Main objective
To determine the effects of customs duties and tax evasion by small and medium size enterprises
on the gross domestic product of Cameroon

1.4.2. Specific objectives
1. To investigate the causes that leads to custom duties and tax evasion by SMSEs in
Douala.
2. To determine the extent to which customs duties and taxes evasion by SMSEs lead to a
distortion of the market in Douala.
3. To find out measures implemented to reduce customs duties and tax evasion by SMSEs
in Douala and promote sustainable economic growth.