Togo: Between tax reform and preserving purchasing power, the challenge of VAT exemptions is imperative
In Togo, the International Monetary Fund (IMF) encourages the authorities to review their fiscal policy in order to increase public revenues. Among the proposed measures are the reduction of VAT exemptions, the expansion of income tax, and the adoption of a global minimum tax for certain companies. However, the government prefers to take a cautious approach, thoroughly analyzing the fiscal arrangements before making any decisions.
VAT exemptions are at the heart of the debate. In 2023, these exemptions represented a revenue loss of 60.8 billion CFA francs, or 2.6% of GDP. This is a significant amount that could replenish state coffers, but a sudden removal could impact certain economic sectors and increase the cost of living for households. Therefore, the government plans a thorough study by June 2025 to identify exemptions that truly benefit the poor and those that are more advantageous to wealthier categories or privileged sectors.
The issue is crucial: reducing exemptions means raising taxes on certain goods and services, which could directly affect citizens’ purchasing power, particularly the most vulnerable. For example, companies currently benefiting from tax advantages could pass these additional costs onto prices or reduce their investments, thus affecting economic competitiveness.
The IMF proposes compensatory solutions, such as targeted cash transfers to support the poorest households. Togo is already working on implementing a biometric identification system to improve the targeting of social assistance. By the end of 2025, half of the population and more than half of vulnerable households are expected to be registered, with a complete register planned for 2026.
The debate remains open. Some experts defend exemptions as an essential tool to protect the most disadvantaged, while others point out the revenue losses that limit public investments. Furthermore, special tax regimes, although attractive to investors, also generate revenue losses for the state. The IMF suggests limiting these advantages to special economic zones.
Togo must find a delicate balance between strengthening public revenues and preserving purchasing power, while avoiding weakening its economy. A well-thought-out tax reform could be the key to achieving these goals.
