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Grey areas continue to vex maturing taxation regime

Motorists travel past the General Department of Taxation headquarters on Russian and Mao Tse-Tung boulevards in Phnom Penh.
Motorists travel past the General Department of Taxation headquarters on Russian and Mao Tse-Tung boulevards in Phnom Penh. Pha Lina

Grey areas continue to vex maturing taxation regime

As the government’s inefficient estimated tax regime fades away and the more stringent real tax regime deepens, government officials, private sector companies and tax professionals yesterday sought clarification on a myriad of topics and concerns in a country where the practice of tax law often falls into a grey area.

Speaking at the first dedicated tax forum hosted by the European Chamber of Commerce, General Department of Taxation (GDT) director Kong Vibol said that while implementing the real regime was already reaping benefits for state coffers, more needed to be done to bring taxpayers into the fold.

“We will go door to door to make sure you are registered with the tax department,” he said. “We are inspecting businesses and a business can’t operate in an environment of unfair competition.”

While Vibol admitted that in the past tax collection officials were both “lazy” and at times “nasty”, especially during the auditing and payment process, he said with full adoption of the real regime tax payments could actually fall as the revenue base broadens. “We do not need to increase taxes on any company that is compliant with the law,” he said.

The GDT director stated bluntly that there would be no changes to the Kingdom’s law of taxation before 2018.

“What we will do is expand the base of taxpayers and further audit companies,” he said, adding that auditing companies had already identified tax dodgers.

Vann Puthipol, deputy director of the GDT, aimed to waylay fears for companies that had yet to be fully compliant with the law. “For small- to medium-size enterprises that haven’t paid taxes, we don’t want to penalise them with back taxes,” he said. “We just want to encourage you to enter the system.”

The estimated tax regime, which allowed certain sole proprietorships to pay a low annual tax based on their estimated annual turnover, was scrapped last year after it was found to be grossly inefficient and widely abused.

Puthipol said the closure of the estimated tax system ended loopholes for the medium and high-paying tax brackets, while fleshing out large domestic firms that had previously hidden within its opaque regime.

Eng Ratana, director of the large taxpayer department at the GDT, said that discrepancies in the new tax system still need to be resolved with better clarification.

Despite the government’s assurances of better clarity, tax professionals and the private sector indicated that a gap exists between Cambodian laws on the books and everyday practice, particularly in regards withholding tax, tax dispute mechanisms and value added tax (VAT).

“I believe there will continue to be a grey area when dealing with the law and dispute timelines,” said Vann Sinat, tax manager at law firm Bun and Associates.

He added that one disadvantage his clients routinely brought up was that when filing a protest in a tax dispute, companies were still required to pay their tax debt before the GDT would consider the case.

“This requirement that all taxes need to be paid before a dispute is reassessed should be limited to only a percentage of the tax owed until it is resolved,” he said.

Anthony Galliano, chairman of the EuroCham tax committee and moderator of yesterday’s event, said that while the real tax regime and increased audits was certainly a burden on companies, the GDT was heading in the right direction.

“The competitive advantage that companies had under the estimated tax regime is no longer there,” he said. “And this will help to create a more level playing field.”

He encouraged companies to only do business with those registered in the tax system, pointing out that “now it is more expensive to do business with non-taxpayers” as the GDT now requires more stringent invoice verifications.

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