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Closed factories face tax bill

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Finished men’s shirts hang on a clothing rack at a garment factory in Phnom Penh earlier this year. The government has called for a number of shuttered garment factories to declare formal bankruptcy. Bloomberg

THE Cambodian government is calling on 22 shuttered garment factories to declare formal bankruptcy or be forced to continue paying corporate taxes, according to an official from the Council for the Development of Cambodia (CDC).

The factories – the majority of which are Chinese-owned – closed between 2007 and 2010 as a result of the global financial crisis, the official, who refused to identify himself when reached by phone, said yesterday.

Cambodian tax law requires failed companies to declare bankruptcy with the CDC within 30 working days of the close of operations. The CDC yesterday announced the names of the companies in a local newspaper, in which the CDC official’s phone number was included.

“They were registered companies so they must inform us when they go bankrupt,” the official said. “They have to follow the official procedure because we want them to comply with the law.”

An inter-ministerial group under the CDC has been commissioned to handle the companies’ bankruptcy filings. Although fines will not be imposed against offending factories, the government will continue to levy taxes until their filings are processed, the official said.

“If they don’t declare bankruptcy, they will face taxes,” he said.

Some factory owners whose former companies showed up on yesterday’s list said they had long ago followed proper bankruptcy procedure.

“I don’t know why that company is on the list,” said Zhuang Zhou, the former owner of New Point World Trade Limited, once a Phnom Penh garment factory.

Zhuang said he shut his factory down nearly two years ago at a time when many garment factories faced declining orders. Within months of closure, he said he filed for bankruptcy with the CDC.

The CDC notified the Chinese, US, Malaysian and Korean embassies, among others, before publishing the names of the companies, according to the CDC official.

Spokesman for the Chinese Embassy in Phnom Penh Yang Tianyue said the Chinese Embassy was aware of the problem and was working on a solution. The procedure was standard, he added.

“It’s very normal for the CDC to clean up these companies,” he said yesterday.

Chambers of commerce and garment associations in Phnom Penh said the matter was beyond their jurisdiction.

Kang Nam-shik, chairman of the Korean Chamber of Commerce in Phnom Penh, said his organisation is not responsible for governing Korean businesses but can assist if approached on the matter.

A representative at the Chinese Chamber of Commerce in Phnom Penh said the chamber had not been informed of the taxes facing former businesses who have yet to register as bankrupt with the CDC.

Cleaning up failed factories is the responsibility of the CDC, senior official at the Garment Manufacturers Association of Cambodia Cheat Khemara said yesterday. The association cancels company membership when it has not paid membership fees but does not report that stoppage to the CDC.

“It’s the work of the CDC to contact them directly,” he said.

Cambodia has 290 garment factories, 10 percent of which have entered the market since the onset of the global financial crisis in 2008, Cheat Khemara said in August. About 20 percent of the 40 footwear factories operating in the country are newcomers, he said.

Twelve Korean garment factories closed during the first half of 2011, but about the same number of Korean companies entered the market during the same time period, Korean chamber chairman Kang said. About 40 Korean garment makers have factories in Cambodia, he said.

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