Prime Minister Hun Sen announced yesterday that the minimum income tax threshold will be raised to $200.
Under current law, taxable income kicks in for anyone earning over $125 per month. Speaking at a university graduation ceremony in Phnom Penh yesterday, the prime minister said this would be raised to the $200 mark when the 2015 budget law is passed later this month.
“There has been an initiative from the Ministry of Economy and Finance to reduce the number of taxpayers,” Hun Sen said yesterday, referring to low income earners. “Therefore, those whose salary is at 800,000 riels ($200) will be obligated to salary tax. Under 800,000 riels will not be obligated to salary tax,” he said.
The announcement comes just a week after the General Tax Department held a seminar with garment union representatives advising them of their tax obligations as they seek a raise to the current $100 minimum wage, which would move them closer to the minimum threshold.
GTD director Kong Vibol said last Wednesday that the government would not move away from the $125 threshold, which has been in place since 1997, as the state revenues were needed to invest in public infrastructure.
But, the prime minister said yesterday despite losing state revenues, the rise would benefit some of Cambodia’s lowest paid. “With this [raise], government will lose $10 million of income [this year].
However, it is not a big deal, because our civil servants and garment workers will now not be obligated to pay tax,” he said.
The prime minister reminded the audience of students that salary tax is still a requirement in any country.
The decision to raise the income tax limit was applauded yesterday by the Cambodia National Rescue Party chief whip Son Chhay. “In many countries, the wage that is not taxable is an income that gives people enough to live a comfortable living,” he said.
But the government should not be framing this decision as lost revenues when hundreds of millions goes missing each year from state coffers, Chhay said. Ghost workers receiving an income from the state and tycoons not paying their tax dues where just a few examples Chhay said.
“To allow the poor to be tax-free by just letting go of $10 million is nothing,” he said.
Ath Thon, head of the Coalition of Cambodian Apparel Workers Democratic Union, also welcomed the increase, but said with a rise to the minimum wage in the garment sector due soon, an income tax-free limit of $250 was more appropriate.
“It is good for now that government has raise[d] it up to 800,000 riels ($200), but we are asking for $177 as minimum wage, and $177 plus overtime wages will achieve $200. It means garment workers will have an obligation to pay tax soon after the minimum wage reaches $177,” he said.
The president of the Cambodian Independent Teachers Association, Rong Chhun, said yesterday it was good that the government was revising the tax bracket, but cautioned the devil was in the details.
“I hope they do it clearly on whether the threshold is calculated on the minimum wage, or based salary, or if it includes other benefits,” Chhun said.