By Teodora Mihaylova, Research Coordinator, CIPE and Erica Poff, Program Officer, CIPE; October 23, 2014
As Senegal’s largest and most representative and well-organized business association, l’Union Nationale des Commerçants et Industriels du Senegal (UNACOIS) has played a significant role in the country’s policymaking process in recent years. This case study identifies two key achievements. First, the Senegalese government adopted the association’s recommendations to reform the national tax code, Le Code General des Impots du Senegal, which established a more uniform, equitable, and proportional tax code for the small and medium enterprise (SME) sector. Second, UNACOIS worked with the Ministers of Tax and Customs, Commerce and Industry and the Prime Minister to establish a mechanism for regular public-private dialogue on issues related to the SME sector, economic development, and food security challenges.
In recent years, Senegal has experienced popular protests and high rates of unemployment and corruption; it also has one of the largest informal sectors in Sub-Saharan Africa. In this challenging political and economic context, CIPE partnered with UNACOIS in 2011 to empower small and medium-sized enterprises (SMEs) to engage in public-private dialogue and to better serve the needs of UNACOIS members. UNACOIS has 70,000 members, the overwhelming majority of whom are small and medium businesses operating in the informal sector. As a first step, UNACOIS identified and prioritized the issues confronting its members along with policy recommendations to address member needs. To achieve this, UNACOIS divided its national membership into four regions – North, South, Centre and West – and conducted regional dialogue sessions for members in each of these four regions. Complementing these regional discussions were two cross-regional business agenda forums that synthesized the regional policy concerns into a policy recommendation document.
The primary issues to emerge from the regional dialogue sessions and cross-regional forums were the need to address the complex tax code (with “different tax rates for SME operators in different provinces and districts of Senegal” ) and high tax rates, both of which were major causes of informality in the SME sector. With CIPE’s support and expertise, UNACOIS developed an evidence-based white paper with recommendations on tax reforms for the SME sector. This was the first effort by UNACOIS to include the views and interests of all its members in one comprehensive document. UNACOIS supported its tax code recommendations with an analysis of the prices of core goods and services of its members, an examination of the relative costs for the provision of these goods and services, and a projection of the relative profit margins of UNACOIS members based on the prices and costs. Soliciting input from members through elected leadership in the regions facilitated the flow of information between national and regional branches. UNACOIS distributed hard copies of the white paper to all regional offices and expanded the organization’s website to include a new section on policy advocacy that included regular updates.
Following regional consultations and the publication of the policy paper, UNACOIS participated in high level meetings with public officials from the Ministry of Commerce and Industry, and the Ministry of the Informal Sector. The main public-private dialogue event was a roundtable, which attracted 93 attendees from the Ministries of Finance, Employment, Taxes and Customs; members of the Parliamentary Committee on Tax and Customs; members of UNACOIS’s national and regional leadership teams; the Senegal National Employers’ Associations; and media representatives. The objective of the roundtable was to raise understanding among government officials of the country’s SME policy concerns and recommendations. In conjunction with the roundtable, UNACOIS conducted three national-level meetings with the Ministry of Tax and Customs, and two with the Ministry of Finance and the Economy, to advocate for their recommended tax reforms.
Results: Reforming the Tax Code and Establishing a Mechanism for Regular Public-Private Dialogue
UNACOIS’s partnership with CIPE yielded two concrete impacts. The first was the adoption of the SME tax reform recommendations by the Ministry of Tax and Customs. The ministry submitted UNACOIS’s recommendations to Parliament as part of the Parliament’s comprehensive review of the Code General des Impots du Senegal (Senegal Tax Code). On December 31, 2012, the Parliament of Senegal passed legislation to reform the Senegal Tax Code, which included all UNACOIS’s recommendations. This resulted in a more streamlined tax code for SMEs in Senegal with tax rates that are more proportional to their profit margins. Importantly, a more uniform and proportional tax code for the SME sector will help formalize Senegal’s informal sector, which in turn will expand the government’s tax base and promote accountability and transparency.
As a direct result of the new tax regulations, informal sector operators have reported a decreasing number of disputes with local authorities. Prior to the legislative changes, one of UNACOIS’s main services to members was to intervene in court on behalf of informal sector members whose businesses were shut down or goods confiscated by the police due to their informal status and not paying any taxes. On average, UNACOIS’s national headquarters intervened in over 200 cases per year. Within one year of the new Code taking effect, UNACOIS has been involved in only two such cases. Now that these informal members have an avenue for complying with local business regulations, such as payment of taxes, they are able to operate more freely and without fear of interference by local authorities.
The program’s second major impact was establishing a mechanism for regular and ongoing public-private dialogue between UNACOIS and the Government on issues related to the SME sector, economic development, and food security challenges. The quality of the tax code recommendations and the process that led to the recommendations, which demonstrated the extent of UNACOIS’s national scope and grassroots reach, provided credibility to UNACOIS in the eyes of senior government officials including the Minister of Tax and Customs, the Minister of Commerce and Industry, and the Prime Minister of Senegal. UNACOIS’s potential as a valued partner was clearly demonstrated and led the Government of Senegal to engage the private sector on finding solutions to the country’s persistent food security challenges. This unprecedented partnership is intended to leverage UNACOIS’s broad-based nationwide membership to improve the supply-chains of imported goods to all parts of the country. The aim is to create efficient, coordinated import and distribution channels that will subsequently lower the costs of basic commodities and the cost of living for all Senegalese. To this end, Government officials seek meetings with local UNACOIS members and branches throughout Senegal to obtain SME input on agricultural policy.
A more recent example of the ongoing public private consultations is UNACOIS’s formal public-private partnership (PPP) with the Senegalese Ministry of Small and Medium Enterprises to progress implementation of the Emerging Senegal Plan (PSE). The PSE is a multi-decade, comprehensive economic development plan initiated by Senegal’s President in 2012. UNACOIS’s involvement will ensure that Senegal’s informal SMEs have a voice in the reforms that affect them most.
UNACOIS has also achieved policy reforms through dialogue with government at the regional level. In April 2011, UNACOIS members from the Central region organized a meeting with the Tax and Customs Bureau of the Mbour district to discuss how multiple and random taxation is a major burden to their enterprises. The meeting led to the suspension of tax payments in the district until the tax code had been effectively streamlined and the mode of payment clarified. Similarly, UNACOIS members from the West Region hosted a series of meetings with the regional Tax Department Office to highlight the issue of multiple taxation among UNACOIS members in the region. As a direct result of a series of meetings with UNACOIS, the regional Tax Office eventually suspended a number of taxes, pending the findings of a government investigation into their legality.
UNACOIS’s issue advocacy has contributed to a democratic culture of inclusion, accountability, and transparency in Senegal where the government has committed to soliciting the participation of the private sector in the policymaking process on economic issues.
Throughout the partnership, CIPE has provided assistance in various aspects of association management, including the role of an association in a democracy, the governance structure of an association, membership development and retention, and basic advocacy. This support has helped build UNACOIS’s capacity as a leading private sector association in Senegal, often at the forefront of policy dialogues about issues that affect its members and the broader private sector.
CIPE helped UNACOIS develop the methodology to segment its membership by region, provided input in the preparation of the member survey for use at the regional dialogue sessions, advised UNACOIS on how to collect information on members’ policy needs, and helped develop and edit the final version of the white paper on tax reform. CIPE also helped moderate group discussions at the regional dialogue forums. Finally, CIPE provided technical assistance to help UNACOIS prepare for meetings with the Ministry of Tax and Customs and the public-private dialogue roundtable.
Lessons and Success Factors
- A decentralized approach was key to the success of this initiative. Instead of identifying the needs and interests of its membership across the country based on information available from members in Dakar only, UNACOIS segmented its membership by region and then actively involved each region in the public-private dialogue process. This not only ensured buy-in among the wider membership for the advocacy campaign on tax reforms, but also contributed to better representation of members’ interests at the national level.
- Regular, ongoing public private dialogue between UNACOIS and the national government is an important tool to ensure that Senegal’s most vulnerable entrepreneurs – SMEs and informal sector operators – have a voice and are able to participate in the policy-making process.
- The development of a comprehensive, evidence-based white paper with clear and actionable policy reform recommendations strongly contributed to UNACOIS’s success because it established their image as a professional and knowledgeable partner that the government could trust. Molding this image is particularly important for organizations that work with large informal sector populations, who are often unfairly stereotyped as unprofessional and disorganized.
- The causes of informality in Senegal are wide-ranging and complex. Instead of developing a broad program to address informality, UNACOIS instead chose to intensively focus on one major issue affecting formalization – taxation. Taxation is an issue that is equally important to the public sector (in that it generates much-needed revenue) and to the informal sector (informal businesses face having their businesses closed due to lack of payment). Because of these shared interests, UNACOIS was able to gain the buy-in of both stakeholders to work towards meaningful reforms. In addition, by tackling one issue at a time, UNACOIS ensured the transition towards formalization would not be too jarring or burdensome for either the government or the informal operators. As a result of these approaches, UNACOIS managed to achieve tangible success, resulting in greater tax revenue and less business closures, while also opening up opportunities for future reforms that will continue the process of formalization in Senegal.