The reform of the Cameroonian tax system is an integral part of the adjustment policies adopted in the second half of the 1980s. The focal point of this tax reform was the introduction of value-added tax (VAT). However, the importance of the informal sector was not taken into account in this new fiscal scheme. The aim of this paper is to determine the optimal tax structure for the informal sector. It, therefore, extends the methodological framework used in the analysis of optimal taxation to both the formal and informal sectors. Based on data from the 2001 Cameroonian survey on household consumption and the Directorate General of Taxation, the paper finds that in the informal sector some goods and services, such as clothing, tobacco, drinks, and health products and services, are currently unduly exonerated from VAT, and then suggests that these goods and services be taxed.
