F oreign direct investment (FDI) in Cambodia will continue its steep decline if the
government does not stop unfair tax practices, said representatives of overseas companies
taking part in a workshop aimed at boosting FDI.
The UN Conference on Trade and Development (UNCTAD) and the International Chamber
of Commerce (ICC) held meetings between 1-2 October with members of the private and
public sectors to hear their views for a proposed investor's guide to Cambodia.
Foreign companies taking part were quick to criticize the gov-ernment's tax policies,
saying laws were applied to them but not to local companies.
"What we can't live with is the current situation where we're the only ones
paying the right amount of tax," said John Nelson, general manager of British
American Tobacco (BAT) Cambodia.
Nelson said BAT had lost a considerable amount of the $25 million it invested in
1996, but was still committed to the Kingdom because it believed the government wants
to improve the situation.
Other complaints related to taxation were both a lack of transparency and sudden
rule changes, such as raising tax rates once companies had invested.
The government has recognized it needs to improve the worsening FDI situation. FDI
has fallen steadily since 1998 when $230 million was invested. That dropped to a
mere $113 million last year, and predictions are that this year will be even worse.
"Unfortunately FDI approvals are $60 million for this year," said David
King, director of tax and consulting services at accountancy firm KPMG.
Other investors said they were deterred by the rampant smuggling of goods into Cambodia.
Teh Sing, general manager of Cambrew, said the brewing firm was forced to slash prices
just to compete with illicit imports of Thai beer. Private business and government
acknowledged smuggling was a major investment deterrent, and foisted even more difficult
conditions on established firms.
"You are actually chasing away profitable services that this government needs
very badly," Teh Sing said.
When asked about results from the anti-smuggling committee formed last December,
Teh Sing said the committee had submitted a list of improvements three months ago
which were being reviewed by senior customs officials.
While those who spoke publicly at the October 2 meetings blamed many of their problems
on junior rather than high-level officials, UNCTAD's Ludger Odenthal said many investors
had complained at the previous day's closed session of a lack of political will at
the senior level.
"It seems the principal problem is not identifying [the problems], but getting
your act together and doing something about them," said Odenthal.
The Cambodia investment guide is due to be launched in Phnom Penh and another city,
possibly Bangkok, in March 2003. The joint project between UNCTAD and the ICC is
designed to create a marketing tool for the government to attract investors.