This last part of the report is dedicated to changes, tax per tax, in the tax system for forestry in the Democratic Republic of the Congo. It will then highlight its impact on sustainable forest development and will give an order of greatness to public spending specifically destined for sustainable management before giving a commentary on the attitude of the government in the face of changes in the country’s forestry sector.
However, before proceeding with a proper evaluation of the tax system for forestry, it is appropriate to speak here of the characteristics and criteria of eligibility for a forestry tax system on which the evaluation of the tax system for forestry in the Democratic Republic of Congo will be based.
Before dealing with the characteristics of taxation, the economics dictionary defines it as a system of laws and administrative regulations that organises tax collection.
Thus a tax system for forestry must:
- be a source of revenue based on an equitable value
of forestry resources;
- be able to promote a rational use of the
resources;
- allow for the renewal of potential for future
generations;
- contribute to the conservation of the patrimony;
-
encourage suitable growth in the industry and its exports; and
- allow for a greater contribution to GNP from the forestry sector.
Administration costs and feasibility. Certain taxes for their management require a small number of staff, other taxes need a large number of staff, involving administration costs which cancel out any profit margin. Administrative feasibility is measured in terms of manpower required for supervision, the measuring of wood and the collection of these taxes. The existence of services with a specific responsibility for forced collection of taxes (or to crack down on offences) affects administrative costs and the feasibility of a taxation system. It is the same for other costs paid for by the forestry industry to conform to the different taxes, even if the costs are not the responsibility of the tax administration. These costs affect the overall economic efficiency of the taxation system.
Economic efficiency in forestry management. A good system of forestry taxation can contribute to an improvement in forestry management by encouraging the use of secondary or not widely known species by restraining total forest deforestation and thus improving economic efficiency. On the other hand, an inappropriate tax system can lead to extra expenses in the application of forestry regulations and thus lead to management problems.
Equity in the redistribution of economic spin-offs and revenue. The different taxes or expenses associated with the taxes can, by their impact on harvesting activities, measuring, local transformation, transport or other, have important consequences on employment, the availability of transformed forestry products on price, and by the fact even of the redistribution of revenue.
The types and methods are defined according to the object liable for tax:
1. On what the taxes are collected, for example: the surface area, volume, value or profits.
2. In relation to the place where the taxes are levied, for example: in a forest, by the side of a road, in the factory at export ports etc.
According to the localisation of services mobilising revenue, the following can be distinguished:
- forestry taxes collected centrally and for which rates of tax and elements liable for tax are well known, both by the administration and by the person liable for tax; and
- forestry taxes collected by decentralised bodies (in the provinces) for which the diversity in rates of tax added to the confusing changes in the country’s socio-political situation have ended up by making their statistics inaccessible to central administration.
This part of the report will only evaluate forestry taxes collected centrally including taxes collected at export ports.
Basis for taxation |
Surface area granted in a Supply Guarantee. |
Payment |
Annual. |
Method of setting tax |
Administration. |
Revenue to the State |
This tax does not reflect the value of surface areas granted, even though it may be potentially significant. |
Administration |
Easy to administrate with a low risk of evasion. |
Efficiency |
Too low in order to encourage the freezing of forestry territory obtained in the form of a Supply Guarantee. The rate of this tax does not reflect the value of alternative use of concession. |
Redistribution of revenue |
The tax implies redistribution between the concessionaire and the State. |
Suggestion |
Putting up for auction could be used to set a rate which at least reflects the value of alternative use of the concession. |
Basis for taxation |
Volume of standing wood or the estimated value of the surface area granted and the wood to be found there. |
Payment |
Annual when results are known of allocation inventory. |
Method of setting tax |
Administration. |
Revenue to the State |
More significant than the surface area tax. Theoretically more important but this revenue is practically counterbalanced by inventory costs. |
Administration |
Tax inapplicable in most cases due to risks linked
to: |
Efficiency |
Very low rate of efficiency due to the risks of rapid liquidation of all wood having reached its industrial potential for harvesting. This would not be the case if this tax were based on a yearly possibility for felling. A tax collected on this basis would have a discouraging effect on the harvesters in carrying out a freezing of concessions. |
Redistribution of revenue |
It equally implies a redistribution of revenue between the concessionaire and the State. |
Basis for taxation |
Volume exported. |
Payment |
When currency is brought back into the country. |
Method of setting tax |
Administration following consultation. |
Revenue to the State |
Major source of revenue. Can bring in even more if the rate were set so as to reflect the real value of species and if it were adjusted depending on price fluctuations (selling price and inflation). For example, the sawing of African Mahogany and Tola indiscriminately bring in 2% of their FOB value to State coffers, whereas Mahogany is a more valuable species compared to Tola. |
Administration |
Administration is straightforward except that the assessment by volume brings about many abuses because of measuring leading to a lower volume compared to the real volume, a common occurrence in export ports. |
Efficiency |
Encourages selective felling. Does not reflect the real value of the best species. A rate that would represent the real value would encourage felling of more species and would become a forestry management tool. |
Basis for taxation |
Value of logs and exported transformed products. |
Payment |
Ad valorem when currency is brought back into the country (% on FOB value). |
Method of setting tax |
Administration or according to a conventional formula.. |
Revenue to the State |
Logs - constitutes the most part of forestry revenue to the state and encourages domestic transformation, all bearing profit. Export tax of transformed products - is usually low in order to stimulate local transformation. |
Administration |
Administration is easier than those taxes based on volume. |
Efficiency |
Influence of forestry management in the same way that taxes are based on volume. Can vary according to species, quality, transport distances and harvesting conditions. The same applies for taxes on transformed products. |
Redistribution of revenue |
By encouraging local transformation, these taxes imply redistribution because they: create employment; generate additional revenue; influence prices and product availability; and increase state revenue for greater added value. Taxes on the export of logs can be substituted for taxes based on volumes of felled wood. They can turn out to be a good source of revenue with the incentive for local transformation. However, they alone cannot reach the two objectives if they are not linked to other forestry taxes on logs and export taxes on forestry products. |
Basis for taxation |
Inspection expenses in measuring, grading, ports and other. |
Payment |
Punctual. |
Method of setting tax |
Administration. |
Revenue to the State |
It is solely used to cover service costs. |
Administration |
The tax should reflect costs and be adjusted depending on these. This does not seem to be the case because these same costs can be collected by more than one body (the CMO, the CEO). |
Redistribution of revenue |
This sometimes involves additional charges for the exporter. |
Basis for taxation |
Equipment for harvesting and transformation and the number of expatriate workers. |
Payment |
Annual. |
Method of setting tax |
Administration. |
Revenue to the State |
Generally speaking, it is not high. |
Administration |
This is simple and easy because it is based on items that are easily identifiable and quantifiable. |
Redistribution of revenue |
It influences the use of equipment and the substitution of labour and capital. |
Basis for taxation |
Products, companies, and individuals who produce them |
Payment |
Per item or on value |
Method of setting tax |
Administration or ad valorem |
Revenue to the State |
This is symbolic out of a concern to redistribute revenue and to circumvent the problem of tax evasion. |
Administration |
This is simply applied. Several small-scale producers dispersed throughout the country who are difficult to monitor generally carry out the harvesting of forestry product menus. A simple tax, not too high, and simply levied is necessary to avoid tax evasion. |
Efficiency |
Tax is too low because it provokes over-harvesting of forestry product menus. |
Redistribution of revenue |
Very good as the tax is low. Encourages production. Can lower imports and petroleum products. The production of firewood benefits the rural population on low incomes. |
Surface area tax which today is USD 0.147 per 100 hectares continues to favour the freezing of forestry territory in the Democratic Republic of the Congo. Suggestion: either to proceed by putting forests up for tender or to set taxes depending on stock tables or volumes per stratum of the forest so that it can more or less reflect the value of alternative uses of concessions.
Tax on felling permits can remain at its current rate. Felling tax collected by decentralised bodies (in provinces) today encourages tax fraud in that there is no means of follow-up nor of monitoring the land. Only the good faith of harvesters counts. However it is a yawning gap for setting up a participatory management of forestry resources with resident populations who would benefit from these taxes.
It is the same situation for other provincial and agricultural taxes that vary in the provinces. There is room to harmonise those that are justifiable and to remove those for which the “agricultural” interest is not justified in the forestry sector.
Duties on wood products for export. This tax levied by the FRFC makes up the greatest part of the Congolese State forestry revenue. It could produce even more if it were set according to market prices instead of the FOB price in the Democratic Republic of the Congo.
Remunerative tax should reflect costs and be adjusted in relation to the variation in services granted instead of being an all-inclusive sum. Tax on forestry product menus can be maintained low because if it were too high it would not lessen the risk of over-harvesting resources but would bring about tax evasion.
Tax on equipment can be used as an incentive to renew ever more efficient forestry equipment. It can be removed for the arrival of new equipment. On the other hand, we recommend, taking into account the dispersion of their harvesters and the difficulties in monitoring them, that the forestry administration finalise their census already begun, in order to organise these countless small harvesters who annually take volumes of wood, estimated to be two to three times greater than quantities of industrial roundwood for processing taken by wood industrialists. The objective would be to tax this sector whose activities continue to escape State monitoring. Making this so-called informal sector subject to tax would allow for:
- more tax revenue for the State who badly need it;
- to establish justice in the population (Buabua Wa Kayembe, 1995); and
- make the sector benefit from the advantages envisaged by tax law in the Democratic Republic of Congo.
The forestry economy in the Democratic Republic of the Congo, like its economy in general, is an economy essentially directed towards foreign trade. This also implies a tax policy for forestry favourable to the expansion of industry and the significant increase in volumes of exports.
Now, a quick overview of wood exports from the Democratic Republic of Congo for the 1994-1998 period reveals a certain stagnation for the last three years of this period and a drastic drop of almost 50% for the last two years (see Table 11). This is also true for the value of these exports. If the drop can be attributed to the different wars that paralyse the economy of the Democratic Republic of the Congo, the stagnation observed even in the pre-war period can be attributed to the absence of a forestry policy directed towards the renewal and expansion of forestry equipment.
Year |
Logs |
Sawnwood | ||
Volume (m3) |
Value (BEF) |
Volume (m3) |
Value (BEF) | |
1994 |
111,589.082 |
580,184,368 |
58,352.426 |
349,363,156 |
1995 |
97,156.301 |
513,063,435 |
38,333.814 |
413,514,787 |
1996 |
112,687.618 |
554,775,125 |
57,112.325 |
902,561,333 |
1997 |
64,372.912 |
313,754,740 |
20,520.087 |
246,373,853 |
1998 |
45,591.414 |
228,729,204 |
18,816.263 |
211,248,017 |
Source: FRFC. Note - the standard prices of wood in the Democratic Republic of Congo (prix mercuriales) are in Belgian Francs.
For this reason we suggest:
Short term. The assessment of tax duty on exported logs, currently set at 4% ad valorem whereas Indonesia takes 20% ad valorem, is awaiting the industry in the Democratic Republic of Congo to develop more.
Long term. Total removal of export of logs from the Democratic Republic of Congo. In 1982, Indonesia reserved export quotas for logs for only the firms building factories in the country. In 1985, there was a total ban on the export of logs. The result was that from 40 units in 1981, the industrial stock in Indonesia went to 107 units in 1987, that is an increase of 37%. Closer to home, in Cameroon, similar measures taken in 1982 encouraged log exporters to become wood manufacturers. For the Democratic Republic of Congo, these incentives can be applied to more expensive logs such as Afrormosia, Wenge, Doussie and Longhi.
Weak points of the system. Multiplicity of taxes. Absence of follow-up and monitoring with the consequence of tax fraud at all levels particularly in forestry and at exit ports. Qualitative and quantitative under-valuation of products. Volumes measured include sapwood as well as log, which is harmful to the producer country and the exporter. Freezing of forestry concessions due to the low level of surface area tax.
Strong points of the system. Substantial contribution of revenue to the State. The system both redistributes revenue horizontally and vertically due to the low level of most of these taxes. Provides incentives. Simple application for most of its taxes.
Follow-up. Follow-up leaves much to be desired. The government could increase revenue it receives by improving the efficiency of collection and by widening the tax band in the informal forestry sector.
Recommendations:
- to keep the number of taxes low;
- to raise
taxes on untreated products (logs);
- to motivate and equip the tax
administration; and
- to reactivate the procedure for follow-up and monitoring.
Improvement in management by encouraging people to use secondary species, said to be “other species”. Loss in competitiveness of products on foreign markets in relation to the multiplicity of taxes. Exhaustion of resources by harvesters of forestry product menus. Unrestrained harvesting of cheap resources with the threat of extinction of certain endemic species of the flora and fauna. Destruction of forests by holders of purchasing licenses and for sale of wood or charcoal.
Specific mechanisms for protecting forestry resources: export quota linked to certain species like Limba; demand for a special permit for harvesting certain species like Wenge; and ban on industrial harvesting of certain species like ebony.
Incentive for good management is low. Inefficiency is there also due to a lack of follow-up. The effect of taxes can be considered equitable but economic efficiency is affected by the existence of a service particularly responsible for the forced collection of taxes.
Recommendation: measures to promote the conservation of resources must be used in waiting for the promulgation of forestry law. Reduce as much as possible the number of taxes depending on the “age” of the forestry industry of the country.
The stage of implementing the criteria and indicators for the sustainable management of forests has not already been crossed in the Democratic Republic of Congo because of the hesitation of sponsors (USAID) following the war which paralyses the country. It would seem premature to me to mention financing before the end of the war.
The absence of budgetary autonomy for certain forestry services. Excessive centralisation of revenue to a central fund, payments from which are always late, thus paralysing all planned activity. Recommendation - internal financing: allow retention of 50% of the revenue to the service who generates it or centralise only 50% of revenue collected; and put in place a mechanism for the rigid monitoring of use. Recommendation - external financing: use a “budget for order” accompanied by a mechanism for rigid monitoring.
The quest for new agricultural land in the framework of food self-sufficiency is accompanied by the destruction of forests. Shifting agriculture clears forests. A beneficial action would be the introduction of agro-forestry in village agriculture.
The Democratic Republic of Congo’s government favourably welcomed the advent of sustainable forest management (SFM) and its positive attitude is witnessed in the will clearly expressed to be present at all meetings concerned with this area in spite of fluctuating economic difficulties.
The socio-economic and environmental future of the Democratic Republic of Congo and of all humanity is at stake. The government’s overall support of the forestry sector is 2% of the spending budget. The sector employs a staff of approximately 3,581 people and it is always quoted in speeches on general policy. Two conferences were organised in May 2000 with the aid of FAO and the UNDP on the country’s forestry policy. It is appropriate to take on board the improvements suggested above so as to increase the contribution of forestry resources to finance SFM.
Exactly ten years ago, we were able to conclude with Ouellet (1991) that even the best tax system for forestry that there could be, could not be applied successfully in the Democratic Republic of Congo, which was then the Republic of Zaire. This was taking into account a large number of obstacles to overcome in order to bring the country’s forestry revenue under control.
Today, since the political changes which took place at the head of the country, it is noticed that something has changed, and better still, certain tax and non-tax parameters have changed particularly:
• the political will to do things better is evident;
• the setting up of the GOALR which today channels all revenue towards State funds;
• the restructuring of the Ministry responsible for forestry in order to make it more effective; and
• the drafting of a new forestry law which awaits promulgation, replacing the old law of 1941.
There are so many factors which militate in favour of the dawn of a new mentality, so creating a new attitude in the management of public affairs.
In spite of difficult economic circumstances throughout the Democratic Republic of Congo, we believe that the forestry industry is still able to make an ever greater contribution to the economy of this country, even if it means pruning the current tax system in order to free it of all aspects constraining it by:
• harmonising provincial taxes;
• reassessing and legalising royalties;
• obtaining the promulgation of the new forestry law;
• removing the duplication of certain taxes such as TOT (6.75% and 18%);
• taxing the informal forestry sector for increasing State tax revenue;
• establishing tax justice in the population;
• enabling the informal forestry sector to benefit from tax advantages envisaged by tax legislation;
• doing away with entry duty on new forestry equipment;
• reasonably increasing exit duties on logs; and
• re-evaluating the FCFC in conformity with the decree creating it.
Once rid of these constraining tax and non-tax burdens, associated with non-tax parameters and harmonised with other tax systems for forestry in sub-regions, the tax system for forestry in the Democratic Republic of Congo can become an important source of financing for the sustainable management of forestry resources and a factor in integration and sub-regional cohesion.
Managed on a long term basis, the immense forestry resources in the Democratic Republic of Congo are able to effectively contribute to the maintaining of a delicate balance between the conservation of nature, the socio-economic development of populations of this country and the quality of the environment for the largest number of human beings, for present generations and those to come.
