Value Added Tax (VAT) is a tax on the estimated value added to a product or raw material

at each stage of its manufacture.

The Cambodian VAT, inaugurated on January 1, 1999 , replaces a range of other taxes

such as the 4% Turnover Tax, 2% Importation Tax and 4% Sales Tax.

"VAT is designed to get the consumer to pay, but [allowing] the government to

get the revenue earlier," explains Craig Martin of Cambodia's British Business

Council.

Under Cambodia's VAT, companies that are charged VAT for raw materials can later

apply to the government for VAT refund.

"In principle [VAT] is good because it encourages businesses to keep paperwork

in order to get their [VAT] money back," Martin says.

Ideally, VAT encourages widespread business compliance by structurally penalizing

those companies who don't charge VAT.

"If you're operating in a gray area, you can't claim back 10 percent VAT,"

Martin explains. "The idea [of VAT] is to draw in non-paying [companies]."

However, Martin cautions that there remain doubts among the Cambodian business community

about the ability of the Cambodian government to reliably remit VAT refunds to compliant

companies.

"It's unclear whether [the government] will be able to meet its [VAT] payment

responsibilities," Martin warns