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Corrupt legacy stymies tax man

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Traffic passes by the General Department of Taxation headquarters in Phnom. Photo supplied

Corrupt legacy stymies tax man

Members of the private sector and civil society railed against the tax department yesterday, claiming it has not done enough to stamp out corruption during the tax collection process, which has caused them to mistrust the government’s motives for pushing companies to register with tax authorities.

Speaking at the National Conference on Business Integrity yesterday, Ok Serei Sopheak, chairman of the board for Transparency International (TI) Cambodia, the event’s organiser, said that perception and reality of corruption in the tax department remains a primary stumbling block.

“We all know that corruption is a severe issue in the taxation collection process,” he said. “We have to tackle these issues now because there is no more empathy from the international community in dealing with Cambodia’s track record.”

Sopheak added that as efforts to register small- and medium-size enterprises (SMEs) into the tax regime gain momentum, the government needs to weed out corrupt provincial tax officials.

“SMEs do not have a lot of capital,” he said. “So if they have to continue to pay bribes to tax officials, they will not be able to survive.”

However, it is not only the corruption of tax collectors that worries taxpayers. They are also concerned about how the collected taxes will be spent, according to Sim Bunthoeun, Cambodia country director of Geres, an international NGO focused on energy security.

“There is no transparency in how taxes are spent, and we need to know how our money is being used by the MEF,” he said. “This needs to be made public because the government has no respect for the people and the taxpayers.”

Srun Sroy, a TI consultant who carried out a small sample case study that interviewed 12 registered companies of varying sizes and three unregistered ones, said recent reforms appear to have helped to reduce the level of corruption.

“Before the current reforms, there were a lot of stages where corruption happens,” he said. “Now with taxes being able to be paid directly through banks like Acleda and Canadia, companies just have to fill out the paperwork and submit it.”

He said that for tax-compliant firms interviewed in the survey, companies noted measurable progress when dealing with the authorities due to recent reforms.

“Tax-compliant companies said that the self-assessment tax filings, simplification of accounting rules, increasing the minimum band on tax on salary, and reforms for monthly and annual tax returns have been positive reforms,” Sroy said.

However, he said the findings for non-compliant companies show that they still hold firm beliefs that tax officials are corrupt and demand bribes, causing them to mistrust the registration process.

“These companies think that if they register they will fall into the trap of corruption due to the reputation of the tax department,” he said. “And especially in rural areas, tax officials still have the monopoly of power to incur unofficial fees and are willing to except bribes.”

Nevertheless, Sroy laid the blame for perceived and real corruption on everyone, from top government officials down to the individual taxpayer.

“In Cambodia, corruption has become so ingrained in people’s minds and in daily practice, that to pay bribes is a thing done by habit,” he said. “Even for well-meaning reforms, the perception remains the same.”

He urged the Ministry of Economy and Finance (MEF) and the General Department of Taxation (GDT) to be more transparent in disseminating and explaining their reforms to all stakeholders involved.

“The problem we have found is that even tax officials, especially low-level ones, can’t give people the answers they need about the reforms, so people just refuse to comply.”

A representative for garment manufacturer 3 Sisters (Cambodia) Enterprise, who declined to be named, said that the company had not registered with the tax department out of fear that corruption would diminish the small company’s already narrow margins.

“We are afraid that if we register, we will no longer be able to be profitable because right now we barely are,” she said. “We have no confidence that we would not be charged for back taxes or that officials would not ask for bribes.”

Robert Porter, a director at the legal firm VDB Loi, said private sector complaints against the government were largely unfounded.

“It is too easy to put the blame on public servants, and that is quite unfair,” he said. “In Cambodia, the tax rate is already very low compared with other countries and they have taken out a whole segment of the population by allowing low-income earners to not be taxed.”

The problem, he argued, was that there are private sector companies that are deliberately noncompliant despite the sweeping reforms that have occurred over the last three years.

“I think the private sector is choosing to ignore the tax department,” he said, adding that while the bureaucracy appears complicated, the taxation laws are relatively simple.

“What the GDT needs to do is go out and find those unregistered companies and register them,” he said. “This isn’t just about broadening the base, but forcing the large companies, which the GDT knows is dodging them, to pay their tax obligations.”

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