RESTRICTED  
  
JOB/ACC/COM/19  
31 October  2023 
(23-7341) Page: 1/4 
Working Party on the Accession of  
the Union of the Comoros  Original:  French  
 
  
ACCESSION OF THE UNION OF THE COMOROS  
EXPLANATORY NOTE ON DOUBLE TAXATION  
AND INTRODUCTION OF VAT IN COMOROS  
The following communication, dated 31 October 2023, is being circulated at the request of the 
delegation of the Union of the Comoros.  
 
 
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  JOB/ACC/COM/19  
- 2 - 
  1. Double taxation  
Double taxation does not exist in Comoros. The question , raised by WTO Members, may have been 
prompted by the fact that Comoros collects a consumption tax at the border. Under this tax regime, 
the importer pays the consumption tax to customs on imported goods as an "advance". This amount 
can subsequently be de ducted from tax liabilities due later on the sale of the imported goods in 
question. In this way, the imported goods are not taxed twice. It is important to note that this regime 
was put in place due to the authorities' weak tax revenue administration capa city and the scale of 
the informal sector, which render tax collection very complicated once the goods enter the domestic 
market.  
• The consumption tax, which includes five non -zero rates, applies to all imported goods, 
purchase and sale transactions and the  production of goods or services on the domestic 
market.1 For imported goods, the consumption tax paid to customs acts as an "initial 
downpayment" or advance on the first taxable transaction in the country (Article 150, 
paragraph 2 of the General Tax Code ). Under the VAT regime, this advance would be 
equivalent to the deductible VAT. The consumption tax paid to customs by an importer is 
deductible from the amount of the consumption tax due subsequently by the importer 
when he sells the product (as is or after processing) on the domestic market. This system 
corresponds more or less to the VAT regime, the only difference being that the importer s 
who resell cannot deduct the VAT from their intermediate consumption (for example, 
electricity, billed services, et c.), and can only deduct the consumption tax paid on the 
goods. In this way, the consumption tax on intermediate consumption adds an additional 
charge to the cost of domestic production, which translates into a system that encourages 
the importation of pro cessed goods.2 This cost increase due to the knock -on effect is even 
more significant as the production activities on the domestic market often involve high 
intermediate consumption costs or a high number of transactions.  
• Companies that are not subject to tax (See footnote 1) do not apply the consumption tax 
to consumers and are therefore exempt from its collection when they sell their products 
on the domestic market. They do, however, have to bear the tax burden of the 
consumption tax applied to  their intermediate consumption, as explained above.  
• The consumption tax levied on the domestic market is paid each month and corresponds 
to the difference between the consumption tax levied on sales or services provided and 
the consumption tax already pai d to customs (See "Downpayments" in the attached form). 
If, during a given period, the consumption tax downpayment paid to customs is higher 
than the consumption tax levied on domestic sales, the taxpayer s will not pay any 
consumption tax and will enjoy a tax credit that they can use towards their next tax 
declaration.  
In sum, there is n either  double taxation nor any discrimination vis -à-vis imported goods. In fact, as 
indicated above, the current system discourages local processing/value -addition activitie s to the 
benefit of imports of finished products.  
The introduction of VAT could be feasible (as a long -term solution) at least to reduce or eliminate 
disruptions that place processing activities at a disadvantage in the country. However, the 
introduction o f VAT would require a modern and efficient tax administration to limit the risk of fraud, 
which could be heightened  with the widened scope of deduction and the obligation  to refund VAT 
credits. While VAT is obviously a modern tax which guarantees greater e conomic neutrality, if poorly 
administered, it could expose tax revenue to short -term high risks.  
 
 
1 Companies whose annual turnover before tax is lower than 20 million KMF and importers whose 
annual turnover before tax is lower than 15 million KMF are excluded from application of the consumption tax 
(Art. 141.1 of the General Tax Code). Several exemptions (Art. 141.2 onwards of the General Tax Code) are 
applied to different type s of transactions (exports, financial services, etc.), to certain sectors of activity (sale of 
agricultural products or unprocessed livestock products, distribution of petroleum products, etc.), and to an 
exhaustive list of eight essential commodities (mea t, fish, milk, etc.) drawn up by ministerial decree (Decree 
No. 23 -006/MFBSB/CAB of 21 February 2023).  
2 The same observation was made in the recent World Bank report "2022 Comoros Public Expenditure 
Review" ( See Table 2).  JOB/ACC/COM/19  
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  2. VAT 
Neither the IMF nor any other partners are currently providing technical assistance to Comoros in 
this area. A report commissioned by the World Bank i n 2019 explored the possibility of introducing 
VAT in Comoros and concluded that any preparatory work should be done with extreme caution . As 
indicated above, the consumption tax collection system at the border was adapted to the Comorian 
context. Given th e very low rate of tax revenue (one of the lowest tax to GDP ratios in the world), 
replacing this system with VAT would first necessitate strengthening the authorities' tax 
administration capacity. Any attempt to transition  too quickly to VAT could result in loss of revenue 
that the country can ill -afford, particularly in the context of stringent constraints on financing 
imposed on the government owing to the significant projected need for f inancing  in the years to 
come and a slowing of aid and grants from advanced economies to the region.  
  JOB/ACC/COM/19  
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  ANNEX* 
 
 
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* Only in French.