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Logo of Phnom Penh Post newspaper Phnom Penh Post - Pre-CG lobbying reaps private sector windfall

Pre-CG lobbying reaps private sector windfall

Lobbying by the private sector ahead of the CG has resulted in the RGC indicating to investors that they will seek World Bank agreement to defer slated - and hotly controversial - changes to investment laws.

The passage of the laws, designed to cut incentives for foreign investors by eliminating duty exemptions, increasing tax on profits and cutting tax holidays, are a condition set by the World Bank for a second loan tranch that are part of the structural adjustment credit worth around $16 million.

Senaka Fernando, Chairman of the British Business Association, said both the international business community and the Cambodian Chamber of Commerce were united in their opposition to the laws. For the first time representatives of both groups have been invited to participate in the annual donors meeting.

"We spoke to the ambassadors, we really sent our message across and the government ministers know that it's not the right time to alter the investment law but their hands are tied," he said describing the changes as a case of 'one-size-fits-all' policy making.

The private sector will take their position to the CG meeting where it will attempt to torpedo the legislation.

"I think the private sector will certainly make some noise about the proposed laws," he said. "[The] IMF and the World Bank are the ones that are pushing for these changes but most of the bi-lateral donors understand that it's not the right time to change the foreign investment laws."

The RGC hopes to raise revenue to a total of 12.1% of GDP but Fernando says foreign investors are being unfairly targeted in light of the Kingdom's estimated $45-$50 million annual unpaid taxes.

"The IMF is talking about [broadening the tax base] but it is doing absolutely nothing to help the government... the IMF is taking the easy way out because they know it's easy to target the foreign business community," Fernando said.

Foreign investment drop-ped by 40% in 2000 and is showing signs falling further in 2001. Describing Cambodia's FDI to date as "peanuts" Fernando said that "...the region as a whole is suffering and Cambodia going and changing its investment law will not make it attractive at all."

Mbida-Essama countered that the current regime had not been successful. "The incentives for investment by the private sector was not leading to a substantially increase in foreign direct investment," he said.

The government was not likely to forfeit the next tranch saying that an agreement between all the parties was still possible.

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