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le of Law

I N addition to increasing the budget of various government ministries, the

mid-year Revisions to the 1995 Finance Law help strengthen the Rule of Law in

Cambodia through a number of important enforcement measures.

For one,

the law adds muscle to the Tax Department of the Royal Government of Cambodia

(RGC) through larger and better defined penalties on recalcitrant tax payers. It

clarifies critical provisions of the 1995 Finance Law that are ambiguous and

inconsistent with business reality. It also establishes general parameters for

capital participation by the RGC in a mixed public-private company.

Capital Participation - RAC

According to the 1995 revisions, the government may participate directly in

the capital of a company only to the extent authorized by the yearly Finance

Law. This was one of the issues at the heart of the Royal Air Cambodge affair

which preoccupied the press at the beginning of this year. The RGC has a 60

percent interest in Royal Air Cambodge, purchased through debt financing, cash,

and in-kind contributions. One of the questions raised at the time was whether

the RGC had the authority to commit state funds to RAC without approval from the

National Assembly. The 1995 revisions attempt to resolve any doubts that may

persist by expressly approving the RGC's capital participation in Royal Air



The 1995 Finance Law Revisions contain a number of important changes to the

current tax rules:

  • Implement larger penalties provisions for late payment,
  • Establish a new tax called the "Specific Tax on Certain Goods"
  • Modify monthly advance payment of profit tax,
  • Harmonize the Turnover Tax and Consumption Tax.

Late Penalties.

Delinquent taxpayers must pay a two percent per month interest penalty on

late payment of most taxes. If the taxpayer files all or part of its tax

declaration late, the tax amount is subject to an additional ten percent

penalty. If the taxpayer files its tax declaration more than 15 days after

receiving a demand letter from the Tax Department, the late penalty is increased

to 25 percent, plus the two percent interest penalty. If the taxpayer fails to

make a declaration, the penalty is 40% of the tax payable, in addition to the

two percent interest penalty.

A taxpayer who presents, in good faith, a

false or inaccurate declaration must pay a two percent interest penalty on any

amounts owed to the Tax Department. If the inaccuracy is given in bad faith, a

40 percent penalty is added to the two percent late interest penalty.

Specific Tax on Certain Goods.

Under a 1984 decree, certain

locally produced goods were subject to a special tax of up to 50 percent of the

value of the goods. The 1995 Revisions expand this tax to certain imported goods

but lowers the ceiling to 20 percent. The Specific Tax on Certain Goods is set

at 20 percent for petroleum products and ten percent for other


The goods listed in the 1995 revisions as subject to the

Specific Tax on Certain Goods include certain petroleum products, beverages, and

cigarettes. If the goods are imported, the tax is payable by the importer at the

border, in addition to the applicable duty and consumption tax. For goods

produced in the country, the tax is payable by the manufacturer. This tax takes

effect January 1, 1996.

Advance Payment of Profit Tax.

The 1995 Revisions decrease the

monthly advance payment of profit tax to one percent of the previous month's

turnover. However, the one percent will not be refunded - even if the profit tax

liability for the year is less than the prepaid one percent. Under the rules set

out in the 1995 Finance Law, the monthly payment is currently two percent of

monthly turnover, with 0.5 percent being non-refundable. These new rules take

effect January 1, 1996.

Turnover Tax.

According to the 1995 revisions, businesses

subject to the two percent turnover tax rate (i.e., mostly service businesses)

must pay turnover tax at four percent beginning Jan 1, 1996.

David Doran is the Resident Managing Director of law firm Dirksen

Flipse Doran & Le. DFDL has offices in Phnom Penh, Vientiane and Ho Chi Minh

City. The information in this article was taken from a French language final

draft of the 1995 Finance Law Revisions and should not be relied on as legal




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