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Kingdom’s auto importers cast a wary eye on gov’t tax decree

A man inspects new cars on display at an Audi showroom in Phnom Penh in September.
A man inspects new cars on display at an Audi showroom in Phnom Penh in September. Heng Chivoan

Kingdom’s auto importers cast a wary eye on gov’t tax decree

Importers can expect a substantial increase in the "specific tax" component of certain products, especially automobiles and auto spare parts, according to a sub-decree by the Customs and Excise Department released yesterday.

The directive, effective on April 1, introduces changes to the import tax structure. While keeping value-added tax (VAT) unchanged at 10 per cent, it brings down customs duty on products, such as toys and the production of books, while increasing the specific tax on import products and services, in some cases to 65 per cent.

The specific tax, a form of excise tax, on auto spare parts now ranges from 15 to 25 per cent, up from the 10 per cent previously charged, with automobile imports facing up to 65 per cent specific tax depending on the vehicle’s specifications.

Antoine Jeanson, operations director at Automotive Asia (Cambodia), the official distributor of Audi vehicles in the Kingdom, said the tax hikes could push car prices beyond affordability for many.

“This increase in specific tax will have a negative impact on car affordability,” he said. “Car buyers won’t always have the purchasing power to follow that increase.”

According to Jeanson, his company will look to absorb these increases rather than pass them on to the consumer.

He said the tax hikes could be an attempt to increase government revenue while slowing down vehicle registrations to keep up with lagging infrastructure development. However, he said both these scenarios appeared unlikely to succeed.

“This is unlikely to happen as used-car importers will just bring in older or cheaper cars,” he said. “We’re just going to see more imported cars written-off from insurance companies, stolen cars, older cars and unsafe cars.”

Jeanson said Cambodia needs to institute a strategy to formalise the official car market, with a focus on authorised importers. This would in turn help increase tax collections.

“By increasing the tax, regardless of what is imported, the outcome in terms of tax collection and air quality will be very limited.”

Andre de Jong, managing director of Robert Bosch (Cambodia), said the 5 to 15 percentage point increase in specific tax rates for auto parts would inevitably spill over into the retail prices of the firm’s automotive products.

“Generally speaking, when there is an increase in government tax, there will also be an increase in the market price that the end-consumer will have to bear,” de Jong said.

However, he said Cambodians would bear in mind their growing purchasing power and recollection of past experiences with using low-quality and inferior products when selecting products.

Joseph Lovell, managing partner at law firm BNG Legal, said given that as Cambodia’s customs duties are required to drop in line with its ASEAN integration commitments, the move should be viewed as the government’s rebalancing of tax revenues.

“They are trying to balance [revenues] because they will have zero tariffs in the ASEAN community and are trying to shift the revenue,” Lovell said.

He said the move, especially in the case of auto spare parts, was the government’s attempt to push local production of these products, given there is little local production of spare parts and Cambodia relies heavily on imports from Thailand.

“They are hoping to attract some of that business from Thailand,” he said. “I think this is more of a stick than a carrot [approach] to see if they can get more of these businesses to come this way.”

Other products that saw an increase in the specific tax rates were raw materials, additives and aromatics that are mixed in with gasoline, and cigarettes.

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