Logo of Phnom Penh Post newspaper Phnom Penh Post - Drop ICT tariffs to grow: study

Drop ICT tariffs to grow: study

Operators manage channels at SingMeng’s telecommunication operations unit in Phnom Penh last year.
Operators manage channels at SingMeng’s telecommunication operations unit in Phnom Penh last year. Hong Menea

Drop ICT tariffs to grow: study

Cambodia could add an additional $320 million to the economy over the next 10 years while increasing tax revenue by $24 million if it dropped its tariffs on information and communication technology (ICT), according to new research published yesterday.

According to a study by the Washington-based think tank Information Technology and Innovation Foundation (ITIF), Cambodia could grow its GDP by nearly 1 percent over the next decade, adding $320 million to the economy, if it adopted the Information Technology Agreement (ITA).

The global World Trade Organization (WTO) accord calls on signatories to drop all tariffs on ICT goods and services – everything from electronics components and hardware to software and app development – as well as the business process outsourcing (BPO) sector.

Stephan Ezell, ITIF’s vice president and lead author of the report, said Cambodia’s adoption of the ITA would create a “win-win economic policy.”

“Increasing the use of technology in all sectors of the economy is one of the most important drivers of economic growth in developing countries because it enhances productivity, spurs innovation, and bolsters living standards,” he said.

He added that despite tariff losses, joining the ITA, which has 82 signatory members and represents 97 percent of a global industry valued at $1.3 trillion a year, would benefit both the economy and the end consumer while positioning the country to tap into global value chains.

“If Cambodia joins the Information Technology Agreement, its businesses and consumers will use more technology products because of lower prices, while becoming more deeply integrated in global value chains for ICT production,” he explained. “This will spur significant economic growth for the country while generating new tax revenues that help offset tariff losses.

“Overall, the growth from joining this agreement matters much more to Cambodia’s economic future than any tariff revenue it loses.”

According to the report, Cambodia currently has a general effective tariff rate of 3.3 percent on ICT products, well below the weighted average of the WTO-bound tariff rate for the Kingdom that sits at 13.8 percent.

The discrepancy in the percentages, the report said, was primarily due to the fact that ICT trade with Cambodia is dominated by inter-Asean trade that has its own reduced tariffs, as well as securing technology components from China.

While the report admitted that Cambodia would suffer huge governmental budgetary losses over the next decade if it joined the ITA, capturing only $153 million of a projected $720 million under the current tariff schedule, the country could offset this by a tax overhaul to reap the rewards of a digital economy.

“To maximise the economic gains from joining the ITA, Cambodia would have to restructure its tax system,” the report said. “As countries develop economically, their tax burdens tend to shift away from direct taxes such as tariffs to indirect taxes such as goods and services taxes.”

With the argument for joining the ITA hinging on short-term costs versus long-term gains, Anthony Galliano, CEO of Cambodian Investment Management, said the benefits were clear.

“With Cambodia’s membership to the World Trade Organization in 2004, it is sensible for the Kingdom to become a signatory country of the ITA and take advantage of the tariff elimination on hundreds of ICT goods and services,” he said.

“Although Cambodian consumers embrace tech products, the Kingdom is yet to establish an iota of a manufacturing base, save the low-tech and labour-intensive garment industry.”

He added that the ITA could allow Cambodia to keep up with the growth of IT productivity, not just regional but globally.

“Participating in the IT global value chain will be essential for Cambodia to remain a competing economic force,” he said. “Otherwise the Kingdom may not emerge from its developing nation status.”

Galliano also shrugged off concerns that the ITA would have a negative impact on tariff and tax revenue, adding that the General Department of Taxation has already proved effective in growing state coffers by widening the Kingdom’s narrow tax base through stricter enforcement.

“Continuing these initiatives will continue to create exponential gains in tax revenues and offset the minor downside consequences of ITA membership,” he said.

MOST VIEWED

  • Hungarian exposes 90 to Covid in Siem Reap

    The Ministry of Health has discovered 90 people who have been exposed directly or indirectly to a Hungarian man infected with Covid-19. They all are required to quarantine at home and the hospital. The ministry is searching for other affected people. Among the 90, one is the

  • PM: West unfair to Cambodia

    Prime Minister Hun Sen released a message celebrating the International Day of Peace on Monday, saying that some major powers and western countries had been systemically cooperating to put political pressure on Cambodia as they did in the 1970s and 1980s. Hun Sen said pressuring

  • ‘Bad news is an investor’s best friend’ – unlocking investment potential in Cambodia

    It is time to shop. Economic woes provide good pickings for investors if they know where to look The poem If, written by English Nobel laureate poet and novelist Rudyard Kipling for his son circa 1895, is widely perceived as fatherly advice for John who would

  • PM requests Russia’s Covid vaccine

    Prime Minister Hun Sen has requested that Russia provide Cambodia with its Covid-19 vaccine after the former announced it planned on mass vaccinating its population next month. The request came on Thursday through the prime minister’s Facebook page as he met with Anatoly Borovik,

  • PM warns of ‘new Cold War’

    Prime Minister Hun Sen said the possibility of a so-called new Cold War has become a significant concern and that all countries have to reject outright, any attempt to allow history to tragically repeat itself. He made the remarks in a speech during 75th Session

  • First ‘mobile kitchen’ in Cambodia enters service

    A catering company recently rolled out Cambodia’s first “mobile kitchen” – a $50,000 container capable of serving up to 200 people at a time. The kitchen is the brainchild of Seng Hok Heng Catering Services. At 4.4m-high, 6.8m-long and 2.4m-wide (expandable to 6.8m), the kitchen is equipped