Hun Sen talks to reporters after his meeting with business leaders. At left is Minister for the Council of Ministers Sok An.

Prime Minister Hun Sen met with the business community last week as part of a bi-annual

review process. Some participants expressed their frustrations during the meeting;

others waited until later.

"The subsequent meetings with our government counterparts, where issues are

supposed to be followed up, are often bereft of any agenda," one participant

told the Post, requesting anonymity. "Even the invitation to such meetings is

sent at the last minute, giving us little time to prepare."

Another regular participant complained that issues were not followed up by ministries.

"For most of the seven working groups, the exercise ends up as one step forward

and two backwards. It seems that within each ministry, for each force there is a

counter force."

Other delegates said that what had started as a good way to influence change was

increasingly turning into an official exercise featuring the Prime Minister, who,

in the presence of his Cabinet colleagues and the donor community, merely promised

solutions to economic problems.

However, the main concern of business remained government moves to reduce private

investment incentives, a requirement under World Trade Organization rules.

Under review are the eight-year tax holiday, tax-free repatriation of profits, import

duty exemptions and a corporate tax rate of 9 percent.

Uncertainty has caused a drop in foreign investment approvals of 36 percent in the

first half of 2001, a Council for the Development of Cambodia report said.

The Prime Minister said that incentives for private investors would be reviewed "to

ensure a transparent, fair and equitable treatment acceptable to all". He would

ask the World Bank and IMF to give serious consideration to local objections to the

proposed changes.

"After all, Cambodia is not the only option that foreign investors have. If

these changes reduce the country's attractiveness, they might instead go to Myanmar

or Vietnam," he said, adding that the priority was to restore the confidence

of existing investors.

Although investors applauded the Prime Minister's sentiments, some said privately

that these did not seem to be shared by some of his ministers.

The working group on law, tax and governance, which covers the most important private

sector concerns, said a major headache for investors was that there were too many

authorities dealing with private sector regulations. The tendency to issue decrees

on short notice only served to confuse investors further, the group said.

Bretton G. Sciaroni, chairman of the American Cambodian Business Council, who also

heads the working group, lauded the government's recent offer for private sector

involvement in the drafting of decrees, and offered some recommendations.

"There should be a comprehensive publication of laws to ensure transparency,"

he said. At another workshop a few days earlier he was more specific.

"As Cambodia tries to integrate itself into the global economy, there will be

a need for the enactment of increasingly sophisticated laws and regulations [governing]

the entire range of commercial activities and concerns," he said. He added that

greater transparency was necessary when enforcing laws.

Van Sou Ieng, chairman of the Garment Manufacturers and Exporters Association, said

higher production costs and tariff barriers made exports less competitive.

"For trousers produced in Cambodia, importers in the USA have to pay an import

duty of 17 per cent. If the same trousers come from sub-Saharan countries like Madagascar,

they don't pay any duty," he said.

"Naturally Americans, or Europeans for that matter, prefer to buy goods only

from countries which have preferential tariffs with the US."

A further problem was the lack of an organized domestic market for procuring raw

materials, which disadvantaged manufacturers relative to their counterparts in Vietnam

and China.

Tax law 'flawed'

The government needs to fix the tax regime before drafting new tax laws, International

Business Club chair Denise Lauwens told a two-day workshop this month.

The government was losing $155 million in tax revenues due to a flawed taxation system

that was plagued with leakages, she said.

"Only 120 companies in Cambodia pay their taxes, out of 2,000 registered businesses.

Putting more tax burden on these companies will drive this small taxpayer base out

of the country," she said.

The IBC said that $52 million was lost every year due to non-collection of Value

Added Tax; smuggling of goods accounted for a $32 million loss, while $20 million

was not collected on the lease withholding tax.