Obossou Kwami, Togo Revenue Authority (OTR)

1. IMPACT OF ECONOMIC PARTNERSHIP AGREEMENT ON
CUSTOMS REVENUES AND CHALLENGES OF TAX TRANSITION
IN TOGO

2. INTRODUCTION
1. The liberalization pattern and its impact on customs revenues
2. Assessment of the impact of liberalization on customs revenues
2.1. Methodology
2.2. Findings
3. Challenges of fiscal transition in Togo
CONCLUSION
SOMMAIRE

3. INTRODUCTION
One of the main objectives of the Lomé IV Convention
and its predecessors is to improve the commercial
performance of the ACP group of countries in order to
promote economic growth and development.
ACP countries signing EPAs are asked to set up free
trade areas (FTAs) with the EU. In other words, these
countries will be obliged to open their domestic
markets to virtually all EU products over a 12-year
period (2008-2020).

4. INTRODUCTION
The main objectives of the EPA process are:
 improving access to the EU market,
 negotiations on trade in services,
 strengthening the process of regional
integration between the ACP countries,
 improving cooperation in trade-related areas
such as competitiveness and investment.
In 2014, the EU and West Africa, including Togo,
have reached a definitive EPA which will enter into
force in the coming years with a view to
establishing a free trade area.

5. INTRODUCTION
Objective of the research:
To Estimate the medium and
long-term impacts of the
implementation of the EPA on
customs revenues in Togo.

6. LIBERALISATION SCHEME
The products to be liberalized are categorized as
follows:
 Group A: essential social goods, basic necessities,
basic raw materials, capital goods, and specific
inputs;
 Group B: inputs and intermediate products;
 Group C: final consumption goods.
Sensitive Products are excluded from the scope of
liberalization (products grouped under category D).
Tariff dismantling will take place every 5 years, at the
end of each quinquennium. The new tariffs will be
applied from the first day of the following year.

7. LIBERALISATION SCHEME
GROUPS Tariff T 1/01/T+5 1/01/T+10 1/01/T+15 1/01/T+20
Group D
0%
Excluded from liberalization
10%
20%
35%
Group C
5% -0% -0% -100% -100% -100%
10% -0% -0% -50% -100% -100%
20% -0% -0% -50% -75% -100%
Group B
0% -0% -100% -100% -100% -100%
5% -0% -0% -100% -100% -100%
10% -0% -0% -50% -100% -100%
Group A
0% -100% -100% -100% -100% -100%
5% -0% -100% -100% -100% -100%

8. LIBERALISATION SCHEME
The expected positive effects of the agreement
The expected theoretical effect of a free trade
agreement is the creation of trade effect. This is due
to the replacement of less competitive imports and the
less competitive domestic production of ECOWAS by
imports from the EU.
The effect of creating trade therefore has no direct
effect on customs revenue.
Another direct benefit of the EPA is the conservation of
trade preferences for exports from West Africa to the
EU.

9. LIBERALISATION SCHEME
The expected negative effects of the agreement
One of the possible effects is the diversion of trade and
the loss of customs revenues.
The dismantling of tariffs on products from EU will
make them relatively lower than the imports from the
rest of the world.
This was one of the stumbling blocks in the
negotiations as customs revenues accounted for more
than 50% of the tax revenues of most west African
countries.

10. LIBERALISATION SCHEME
The specific case of the effects of the agreement on tax
revenue
The EPA will have effects on customs revenues
as well as domestic revenues.
In the case of customs revenues, if import
behavior remains unchanged, Togo will lose
customs revenues by liberalising products
imported from the EU.
The loss of customs revenues will be even
greater if there is trade diversion.

11. LIBERALISATION SCHEME
The specific case of the effects of the agreement
on tax revenue
For domestic revenues, there will be two types
of effects:
1. Loss of domestic duties, which are generally
collected on production’s factors;
2. Increase of domestic revenues with the
expansion of consumption following the drop in
consumer prices unless european exporters or
importers increases increase their margin.

12. IMPACT OF LIBERALISATION ON CUSTOMS REVENUES
Methodology
Customs data of 2015 from ASCUDA database
with the basic assumption that the imports
structure does not change significantly.
In this regard, we mainly analyze the relative
effects (the proportion of customs duties lost in
the total of all estimated customs duties at the
beginning of liberalisation) rather than the real
value of the loss of customs revenues.

13. IMPACT OF LIBERALISATION ON CUSTOMS REVENUES
Methodology
If DD is the level of customs duties collected on
imports; VDi the customs value of item i; N1, N2,
N3, N4 and N5, respectively, the number of
imported items taxed at the rate of 0%; 5%; 10%;
20% and 35%.
At the entry of the agreement, only the products
of 0% are liberalised for the first five years.

14. IMPACT OF LIBERALISATION ON CUSTOMS REVENUES

15. IMPACT OF LIBERALISATION ON CUSTOMS REVENUES

16. IMPACT OF LIBERALISATION ON CUSTOMS REVENUES

17. IMPACT OF LIBERALISATION ON CUSTOMS REVENUES

18. IMPACT OF LIBERALISATION ON CUSTOMS REVENUES

19. FINDINGS
Imports released for consumption and inherent customs duties by
area of provenance in 2015 (in Bn XOF)
Area of origin CIF value Collected DD
Estimated
DD
West Africa 107,9 8,0 15,3
Rest of the world 446,0 46,6 56,4
European Union 300,1 23,0 28,8
Overall total 854,0 77,6 100,5

20. FINDINGS
Evolution of customs duties estimated by zone of origin
Area of origin
Estimated DD
at T (in Bn
XOF)
Estimated
DD at T+5
Estimated
DD at T+10
Estimated
DD at T+15
Estimated
DD at T+20
West Africa 15,3 100% 100% 100% 100%
Rest of the
world
56,4 100% 100% 100% 100%
European
Union
28,8 83% 64% 47% 45%
Overall total 100,5 95% 90% 85% 84%

21. FINDINGS
On 1st January of the year T+20, there will be
total tariff dismantling on all the products subject
to liberalisation.
Customs duties on imports from the EU will
then fall by 55%, resulting in a 16% decrease
in customs duties.
As a solution to the probable loss of customs
revenues, the EU proposes to implement a
fiscal transition program in order to assure
higher revenues through domestic taxes.

22. CHALLENGES OF FISCAL TRANSITION IN TOGO
The program of tax transition was adopted by Decision
N° 10/2006 /CM/UEMOA of 23 March 2006 by the
WAEMU Council of Ministers.
The main areas covered by the Fiscal Transition
Program are as follows:
 the consolidation of the common market;
 the support for growth and financing for
development;
 the optimization of the mobilization of fiscal and
customs revenues;
 the capacity building and synergy between tax and
customs administrations.

23. N°
CRITERIAS AND
INDICATORS
STANDARDS 2012 2013 2014 2015 2016
A- MAIN CRITERIA
1
Taxes collected at the
border to total tax
revenue Ratio
≤ 45% 24,0% 33,4% 25,6% 25,7% 23,0%
2
Domestic tax revenue
to total tax revenue
Ratio
≥ 55% 76,0% 66,6% 74,4% 74,3% 77,0%
3
Domestic tax revenue
to Foreign trade
revenue Ratio
≥ 1,5 3,17 2,00 2,91 2,90 3,35
Evolution of the criteria and indicators of the fiscal transition in Togo
EFFECT OF THE FISCAL TRANSITION

24. EFFECT OF THE FISCAL TRANSITION
B- ADDITIONAL CRITERIA
4
Direct domestic tax revenue to
total tax revenue Ratio
19,5% 22,1% 23,9% 21,3% 26,6%
5 Indirect domestic tax revenue
to total tax revenue Ratio
56,5% 44,5% 50,4% 53,0% 50,4%
6
Direct domestic tax revenue to
total domestic tax revenue
Ratio
25,6% 33,2% 32,2% 28,6% 34,6%
7
Indirect domestic tax revenue
to total domestic tax revenue
Ratio
74,4% 66,8% 67,8% 71,4% 65,4%
8
Custom duty + Statistical
charge to total tax revenue
Ratio
22,6% 22,4% 20,9% 22,3% 19,7%
9 VAT + Excise duty on imports
to total tax revenue ratio
34,2% 29,1% 31,8% 34,8% 33,3%
N°
CRITERIAS AND
INDICATORS
STAND. 2012 2013 2014 2015 2016

25. C- PERFORMANCE INDICATORS
10 Domestic tax revenue/PIB ≥ 10% 12,6% 13,3% 15,4% 15,9% 16,8%
11
Tax revenue collected on
Foreign trade to GDP
ratio
≥ 7% 4,0% 6,7% 5,3% 5,5% 5,0%
12 Total revenue to GDP Ratio ≥ 20% 16,6% 20,0% 20,7% 21,4% 21,8%
D- MONITORING INDICATORS
13
Amount of tax shortfall
(tax and duty
exemptions) to total tax
revenue Ratio
16,1% 24,8% 16,4% 16,3% 22,6%
EFFECT OF THE FISCAL TRANSITION
N°
CRITERIAS AND
INDICATORS
STAND. 2012 2013 2014 2015 2016

26. The table shows that the main criteria are
met by Togo over the period indicated.
The same applies to the performance
indicator linked to the tax burden (with the
exception of 2012).
The analysis also reveals a predominance
of indirect taxes mainly VAT in total
domestic revenue.
EFFECT OF THE FISCAL TRANSITION

27. Challenge Action to be taken
Expanding
the tax
base
Assure a better control of the management of tax declarations through
the responsiveness of the tax services
The systematic sharing of information between the various national
administrations (OTR, Police, Documentation Service, public treasure,
social security, Transport department, etc.) for cross-checking
purposes
The fight against the underground economy (illegal production, the
visible and fraudulent informal sector)
The systematic identification of taxpayers through the tax
census using the techniques of geolocation and biometrics as
well as control of the taxpayer's file
The reform of the cadastre and the taxation of land property
Exploiting the potential of personal income tax by tracking individuals'
incomes from a unique identification number
SOLUTIONS TO THE CHALLENGES OF FISCAL TRANSITION IN
TOGO

28. Challenge Action to be taken
Expanding
the tax
base
Improvement of the billing system (promotion of computerized cash
registers, reform of the standard invoice system, etc.)
Better control of the collection of VAT
The fight against the underground economy (illegal production, the
visible and fraudulent informal sector)
Exploiting the potential of excise duties through the combination of the
specific and ad valorem tax in order to increase the revenue from
these taxes (tobacco, alcohol, plastic bags, etc.)
The reform of Unified business tax to make it simpler and more
bearable for small taxpayers in the informal sector (adopting the
patent system for example)
Strengthening the system of tax and customs audit and control based
on risk analysis and better enforcement of transaction value at
Customs level
SOLUTIONS TO THE CHALLENGES OF FISCAL TRANSITION IN
TOGO

29. Challenge Action to be taken
Promoting tax
compliance
Involve high-level actors in raising awareness: members of the
government; the National Assembly, civil society,
Introduce transparency in the use of public resources
(consolidation of the spending circuit, fight against corruption,
overbilling, double expenditure, luxury expenditure, etc.)
Strengthen measures to fight corruption and tax frauds;
Implement decentralization in Togo to promote local
governance
SOLUTIONS TO THE CHALLENGES OF FISCAL TRANSITION IN
TOGO

30. Challenge Action to be taken
Better control of
exemptions and
other
derogating
measures
The prohibition of the granting of exemptions by non-legislative acts;
Computerization of the procedures for the management of
exemptions
Revision of all texts and agreements granting exemptions (Free
Trade Zone Act, Investment Code, Mining Code, etc.)
The rationalization or even the abolition of the treasury checks
mechanism (contracts financed out of external resources)
Periodic preparation and publication of tax expenditure reports in
accordance with Decision No. 08/2015 / CM / WAEMU of 02 July
2015 establishing the modalities for the assessment of tax
expenditures in WAEMU Member States
Operationalization of the Fiscal Policy Unit set up by act N ° 095 /
MEF / CAB of 29 June 2017
SOLUTIONS TO THE CHALLENGES OF FISCAL TRANSITION IN
TOGO

31. Challenge Action to be taken
Strengthening
the fight against
corruption,
fraud and tax
evasion
The prohibition of the granting of exemptions by non-legislative acts;
Computerization of the procedures for the management of
exemptions
Revision of all texts and agreements granting exemptions (Free
Trade Zone Act, Investment Code, Mining Code, etc.)
The rationalization or even the abolition of the treasury checks
mechanism (contracts financed out of external resources)
Periodic preparation and publication of tax expenditure reports in
accordance with Decision No. 08/2015 / CM / WAEMU of 02 July
2015 establishing the modalities for the assessment of tax
expenditures in WAEMU Member States
Operationalization of the Fiscal Policy Unit set up by act N ° 095 /
MEF / CAB of 29 June 2017
SOLUTIONS TO THE CHALLENGES OF FISCAL TRANSITION IN
TOGO

32. Challenge Action to be taken
Strengthening
the fight against
corruption,
fraud and tax
evasion
Price transfer
Mining sector
Telecommunication
E-trading and e-services
Financial activities (banking, insurance)
SOLUTIONS TO THE CHALLENGES OF FISCAL TRANSITION IN
TOGO

33. OTHER CHALLENGES
Improve management of public enterprises
Normally, like private companies, public enterprises are subject
to the payment of taxes and dividends on fiscal benefit.
However, a number of state-owned companies often have
negative balance sheets, and as a result they pay very little
taxes (except for the Minimum flat rate tax at 1% of turnover and
capped at 500 million FCFA).
The same applies to dividends paid into the State budget, which
are eroded year by year. It would therefore be advisable to pay
particular attention to the transparent and efficient management
of public enterprises in order to generate more revenue and
dividends from the State budget.

34. AUTRES DÉFIS À RELEVER AU NIVEAU NATIONAL
Better optimization of non-tax revenues
In recent years, there has been little financial
participation by state-owned enterprises in non-tax
revenues. There are even royalties and other
parafiscal revenues collected for the benefit of certain
government departments.
As the fiscal transition involves increasing domestic
revenues (tax and non-tax revenues), it is necessary to
optimize the collection of non-tax revenues which also
include tax niches in order to put less pressure on the
OTR which is considered the sole provider of
resources to the state budget.

35. RECOMMENDATIONS
 For the time being, OTR and the government must prepare
for the entry into force of the agreement by making the
necessary reforms to the tax transition to mitigate the loss of
border revenues;
 Upon the entry into force of the Agreement, OTR needs to
strengthen risk analysis and post-clearance control as the
risk of tariff slippage will be high due to the exclusion of the
5th band products and most of the products of the 4th band;
 Strengthen the training of the Office's staff on the
liberalization scheme provided for in the agreement before its
entry into force in order to ensure better implementation of
tariff dismantling;

36. RECOMMENDATIONS
 Increase the awareness of economic operators
(importers and exporters) on the changes
introduced by the agreement in order to prepare
them for the tariff dismantling;
 Train economic operators on product quality
standards and the opportunities offered by the EPA
in order to get them ready for competition and,
above all, to exploit the potential offered by the
European market;

37. MERCI