2 DESCRIPTION OF THE TAX SYSTEM FOR FORESTRY

The Central African Republic’s economy is an extractive type economy. Mining products (diamonds notably), cotton, coffee and forestry products are the main products for export. Already in 1993, wood was in second position after diamonds in terms of product value for export. The forestry sector played an important role in the national economy in that the contribution of the modern forestry sector to GDP (Gross Domestic Product) in the primary sector is still currently in third place in the balance of payments. There is also the importance of the sector’s share in public finances, and the share of forestry employment in the employment sector. The forestry industry also contributed significantly to the development of economic activity in the regions where it was implanted. The sector is the first private employer in the country. In 1997 for example, it had 3,500 employees but with the setting up of new transformation units, this figure could be closer to 5,000 employees for 2001. The forestry sector is the second most valuable exporter after the diamond sector with almost 15 billion FCFA. It is also the second private taxpayer, as it contributes 5 billion FCFA to the national budget, that is 15% of tax revenue.

The Central African Republic’s forestry sector thus represents an important element in the collection of new tax revenue, given that the possibilities for increasing revenue from the government are limited. Adequate taxation from the forestry sector would allow on the one hand for an increase in State revenue and, on the other hand, would promote better management of forestry resources. Indeed, all tax systems influence the behaviour of companies and as a result, the long-term use of forestry resources.

Current forestry taxation in application is that laid down in the 1990 Forestry Code and the different finance laws. This taxation is made of three main areas:

• Forestry taxes;

• Customs taxes and others; and

• Indirect taxes.

2.1 Taxes on the production of roundwood

These are the taxes said to be forestry taxes as defined by the Forestry Code and which are applied to all physical or moral persons, either publicly or privately carrying out the export or trade of wood in the Central African Republic. The Code provides for three taxes: surface area tax, felling tax and reforestation tax.

2.1.1 Surface area tax

At the outset, the rate of this tax was 125 FCFA/ha for permits granted under the old system and for permits for an unlimited amount of time. This rate varies according to the duration of the permit. It is 125 FCFA/ha for a permit lasting less than 5 years. This tax was modified by the 1998 finance law.

In 1998, It is an annual rent which can be split into two parts: a fixed part with a lump sum of 300 FCFA/ha and a variable part at the rate of 0.035% of the value calculated of the Permit for Harvesting and Development (PHD). It should be noted that for a question of availability of data on the state of the permit, only the fixed part of this tax is actually paid by companies.

The 2001 finance law has just modified the surface area tax into a rent tax based on a package of 500 FCFA per hectare of PHD per year. It represents today around 40% of forestry taxes. The PHD is granted by a presidential order for a period equal to the duration of a company – only those companies legally constituted and established in the Central African Republic, with public, mixed or private capital can request the PHD. The rent is payable at the time of attributing the permit and annually until its expiry.

All requests for a permit for harvesting and management must be accompanied by a deposit of 200 FCFA per hectare requested. The total amount for the deposit is deductible from the first rent payment.

2.1.2 Felling tax

This is applied to the volume of wood felled and it’s rate was 5% of the mercurial value per cubic metre of the species concerned. The mercurial value in itself was fixed at a quarter of the FOB (Free On Board) value of the LM quality and each year is the subject of a joint decree from the ministers responsible for forestry and trade.

The rate of felling tax is now set at 7% of the mercurial value per cubic metre by the 2001 finance law.

2.1.3 Reforestation tax

This only concerns volumes of wood exported as logs and for which the mercurial value is greater than 20,000 FCFA/m³. The rate of this tax was 8% of this mercurial value. According to article 37 of the 2001 finance law, the rate of this tax rose from 8% to 11%.

Apart from these three taxes, the authorisation for the prospecting of a production forest gives rise to the payment of a fixed duty of 200,000 FCFA, a sum which is payable when authorisation is requested. This duty, allowing for the obtaining of a prospecting authorisation essential for a PHD, is paid once and for all.

The felling of wood, for the purposes of the production of fuelwood, consumer wood or other industrial roundwood gives rise to the payment of a tax of 50 FCFA per stacked cubic metre.

The validity of a transfer of a PHD is conditioned by the payment of transfer duties, which is 50 FCFA per hectare.

2.1.4 Mercurial values and FOT

The amount of felling tax, reforestation tax and exit duties (see customs taxes) is based for the most part on the mercurial values of each species for the first two taxes and on the FOT (Free On Truck – departure from the Central African Republic per truck) values for the exit duties.

The mercurial value per cubic metre for each species is established by a joint decree based on the average value of the price of wood, FOB Douala of the preceding year expressed in FCFA. It is set according to article 54 of the finance law 95-001 at 40% of this annual FOB value of the LM quality. However, applying article 47 of the 1999-finance law, the FOT value is established on a three monthly basis by joint order from the minister for finance and the minister responsible for forestry. It is calculated every three months by deducting from the FOB Douala value of the three months just passed, the transport costs and the setting of the FOB Douala (TMF). Where the FOT value calculated is negative, it is set at the fixed rate of 5,000 FCFA per cubic metre.

Exit duties	=	X% x FOT value
FOT	=	FOB Douala – transport costs

Felling tax	=	7% of the mercurial value
Reforestation tax	=	11% of the mercurial value
Mercurial value	=	40% FOB Douala

The mercurial values, defined in Article 72 of the Central African Republic’s Code, are established as follows for the year 2001 (see Table 1)

Table 1 Mercurial values for the year 2001

Since 1999, with the creation of two tax areas, the FOT value depends on the geographical position of the forestry permits:

• Area 1 is made up of Basse Lobaye for which the amount of TMF costs is fixed at 90,000 FCFA/m³; and

• Area 2 including the rest of the Central African Republic’s forest in the Southwest where the amount is set at 70,000 FCFA.

2.2 Taxes on non-wood products and services provided by forests

2.2.1 Taxes on non-wood products

In forestry areas, but also in the savannah regions, native populations carry out harvesting for their food and other services. The products thus harvested vary according to the regions. They extract palm wine; they collect wild fruit, and mushrooms, caterpillars, snails, insects and vegetables notably the Gnetum africanum (Koko) very much prized by people in the Central African Republic. The caterpillars, often collected in large quantities according to the season, are only interested in a limited number of tree species.

Certain products from forests other than wood are traded with other countries. Thus, the Forestry Office had to issue Certificates of Origin (CO) for plant species used for medical purposes and others such as Rotin, Rauwolphia vomitoria, Piper guinesse, Xylopia aethiopica, Kilinga erecta. The quantity exported every year varies between five and 10 tons.

The different taxes on these products are the following:

• Technical taxes: They are set according to a decision from the General Management of the Office for Regulation and Trade and of the Monitoring of Conditioning of Agricultural Produce (ORTMAP). The taxes are declared as follows:

- Piper guinesse (wild pepper) = 7 FCFA/kg

- Bark of rauwolfia vomitoria = 15 FCFA/kg

• Dues on issuing the Certificate of Origin : These dues are paid to the Forestry Office and are set at 1,500FCFA per CO (this certificate does not take into account the volume of produce); and

• Customs taxes on export: Exit duties and tax on turnover for export.

According to the Technical Services of the ORTMAP, the statistics on these products are not kept because the irregularities noticed in the export of these products is often carried out fraudulently in the direction of Nigeria (notably wild pepper and the Xylopia aethiopica). However, it is estimated that a quantity of three tons/ha of wild pepper is taxed, which is equivalent to a profit gain of 21,000 FCFA/year for the ORTMAP.

Another product which is consumed a great deal locally is the maranthacée leaf which is used for packaging and other cooking purposes.

2.2.2 Taxes on services provided by forests

In the area of hunting, forests in the Southwest and the east are overflowing with many species of mammals, birds and many families of reptiles and insects. Traditional hunting is widespread in these areas and is practised all year round. Game constitutes an enormous source of revenue and protein for populations in rural areas. Game meat is thus traded in towns where markets are stocked practically the whole year.

Sellers of hunting meat pay taxes to the tax services said to be a game traders licence. The hunters themselves pay for annual licences according to a particular category (small, average or large-scale hunting).

The management of the fauna, like forestry, is entrusted to the Department for the Environment for Water, Forestry, Hunting and Fisheries. This Department has put strategic orientations into operation, amongst others, the promotion of the setting up of private operators in the hunting safari networks, and ecotourism. Thus, three safari companies have permits in the forest areas. These companies pay amongst others, the lease payment and an area charge:

The following table presents the other taxes on hunting and fauna products.

Table 2 Other taxes on hunting and fauna products

2.3 Taxes on transformed products

Forestry companies (holders of harvesting permits) based in the Central African Republic are subject to the payment of forestry taxes, customs taxes and indirect taxes.

Several indirect taxes are generated through the economic activity of the forestry sector. They are: taxes on wages (spontaneous taxes), taxes on turnover (currently Value Added Tax or VAT), exit duties (ED), taxes for social development (TSD) paid by holders of harvesting permits to personnel, company tax (CT), and the minimum fiscal tax (MFT).

All these taxes are applied to transformed products such as sawnwood and plywood.

2.3.1 Taxes on wages

These concern money from wages being retained at the source. Companies who transform forestry products are to take 5% of the net sums at the source to be paid to the account of the Public Treasury Department.

2.3.2 Value Added Tax (VAT)

It was instituted by law number 2000-001 of 29 February 2000 decreeing the Central African Republic’s budget for the year 2000 and came into operation from 1 January 2001.

It is neither a new tax nor an additional tax. It replaces the Tax on Turnover (TOT) for which it make up its shortcomings. The general rate applicable to all operations is 18%.

Zero percent is applied to direct exports having been subject to a declaration issued by the customs services.

2.3.3 Exit duties (ED)

These are customs taxes. For transformation products like sawnwood and plywood, the exit duties are 10% of the taxable value.

In 1995, the share of ED (sawnwood, plywood and logs) in the total value of direct taxes was estimated to be 43% (1,046 million FCFA). This represents 53% of the total direct taxes from the forestry sector to the Public Treasury Department.

2.3.4 Taxes for Social Development (TSD)

They are set for each budgetary tax year on the amount of net retributions of all kinds, paid for or provided free of charge to a company’s personnel during the civic year corresponding to the forementioned tax year. They represent 10% of the wage bill.

2.3.5 Company tax (CD)

This tax is only payable when companies make a profit. Indeed, at the end of each budgetary tax year, companies are supposed to assess their state of affairs. If results are positive, that is, if there is a profit, the tax services will deduct the amount of minimum fiscal tax paid as a down payment and companies pay the difference by way of company tax.

2.3.6 Minimum fiscal tax

This tax is paid off jointly by the licence paid in advance by those eligible for tax in three monthly payments and without forewarning before 31 January, 28 February and 31 March of the year following the end of the tax year, to the fund of the principal receiver of taxes. In the case of where the beginning of the activity took place during the year, if the amount of turnover or revenue is lower than 6 million, the minimum amount of tax due will be calculated for that year at pro rata temporis (article 15 of the 1998 Finance Law, modifying the clauses of article 125A 7 paragraph 1 of the General Tax Code).

Table 3 Amount of minimum tax

Source: Finance Law (1999)

2.4 Taxes on trade of forest products

2.4.1 History of production

Forestry harvesting was a small affair for a long time, the production of logs only reaching 100,000 m³ from 1960 onwards. Following that, it grew to reach a peak of 670,687 m³ in 1974. It was with the beginning of harvesting in the Sangha region (Southwest) towards the end of the 1960s that statistics on log production began to be kept. In 1966, log production reached 128,000 m³ then 260,000 m³ in 1984 with a peak of 400,000 m³ in 1973. Nevertheless, this production dropped to its lowest level in 1991 to 114,000 m³. It has continued to grow over the past number of years, culminating with 553,000 m³ in 1999.

Log production in the Central African Republic is subject to a great many ups and downs of all kinds. It is conditioned not only by the international market situation, but even the distance of this market limits the number of species for export, thus obliging companies just to concern themselves with species of great value in economic terms, such as species from the Méliacées family. The percentage of log exported, around 25-30% of the volume felled, is on the decrease since 1980, the foreign market essentially being Europe (almost 65% in volume).

Sapelli represents more than 75% of the volume of log exported and Sipo more than 20%, Acacia, Kossipo and Tiama make up the rest for export.

The place of sawnwood is dominating in the volumes of transformed wood (almost 80%). The changes in their production follow that of log. Sapelli represents approximately 60% of log sawn, Ayous around 30%, Sipo around 5%, Acacia, Kossipo, and Tiama less than 5%. For sawnwood, the domestic market is weak, being in the region of 20,000 to 25,000 m³. The percentage of sawnwood exports is close to 60%. Around 30% is sent to Europe, Chad, Sudan and some countries of the Central African Economic and Monetary Community (CAEMC). These figures have not grown for quite a while now.

The production of veneer (products almost all of which are exported) and veneer sheets (around 80% in Sapelli, 12% in Ayous and less than 5% for Sipo) has been falling since 1983. Plywood is maintaining its position somewhat better, half of its production being destined for local markets.

2.4.2 Main taxes on trade in forestry products

Four taxes are defined in the finance law. The main ones are tax on turnover for export and the exit duties on log and products having undergone a first transformation. In 1995, the proportion of exit duties in the total value of direct taxes was estimated to be 43% (1,026 million FCFA), this figure thus representing 53% of the total of direct or indirect taxes from the forestry sector destined for the Public Treasury Department.

Several indirect taxes are generated from the economic activity in the forestry sector. The four most important ones are:

• Taxes on wages;

• Tax on Turnover (TOT), which became Value Added Tax (VAT);

• Customs taxes on imported products;

• Social contributions paid by the holders of permits to the territorial communities.

The means of determining these taxes are:

• Tax on Turnover for export = 2% of turnover;

• Statistical tax = 0.25% of turnover;

• Tax on Central African Republic’s shippers = 0.25% of turnover;

• Exit duties = 20% of taxable value (TV) according to the species per m³ exported (for log) or 10% of the taxable value according to the species per m³ exported (sawnwood and plywood).

From 1995 onwards, the finance laws reformed this taxation in the following areas:

• The 1995 finance law, article 53, in effect from 1 January 1995: the mercurial value per cubic metre of each species was set at 40% of the FOB value of the LM quality. Concerning sawnwood, veneer sheets and plywood, the mercurial value was set at 30% of the FOB value. It will be revised when required, at least once a year (before, this value was set at a quarter of the FOB value for all types of products).

• The 1999 finance law: exit duties applicable to wood (one of the customs taxes) are set as follows:

- log:	= 10.5% of the FOT value;
- sawnwood:	= .05% of the FOT value; and
- Minimum Inclusive Tax (MIT)	= 2% of the FOT value.

The FOT in the Central African Republic is determined every quarter by an inter-ministerial order.

2.5 Other taxes

In the schedules of conditions concerning permits for development and harvesting, there is a mention of particular clauses pertaining to the upkeep of tracks and listed roads as well as social clauses. The obligations that can be assimilated to these taxes are the following:

• The company is to contribute to the maintenance of all roads and tracks listed, these constituting the means of removing forestry products. They are also to take part in the construction or upkeep of works of art;

• The company must assure ongoing training and living conditions for its personnel, notably accommodation, sanitary and schooling facilities, built in durable materials;

• It is committed to receiving and granting the use of facilities to research projects in forestry and to students during study trips or during their professional training; and

• In the case of a breach of laws or forestry regulations, notably the clauses of the Forestry Code, the repression of offences is covered in the sixth clause. The penalties envisaged range from imprisonment to a fine varying from 100,000 to 1,000,000 FCFA according to the offence as well as other penalties laid down in the penal code.