COMMON economic sense usually dictates the state should never over tax a subdued economy – doing so usually only stifles growth, just ask many of the governments in Europe. But in the case of Cambodia’s property market, the government has rightly prioritised tax sooner rather than later.
Following a 60-percent rise last year in the collection of property transaction taxes to $20 million, Phnom Penh Governor Kep Chuktema’s stated aim last week to collect $12 million in new property taxes in the capital for the first year up to the end of September is a positive sign, even with the sector still struggling.
Better enforcement of taxes and the new property tax will help calibrate fiscal regulation of a sector that has escaped taxation in the past. Cambodia should therefore avoid a return to the days of speculative selling in which money was disproportionately poured into an unregulated housing and property market and unrealistic rents and sale prices went through the roof. As soon as possible was definitely the right time for the government to act despite landowner complaints the property rebound may take even longer as a result.
On property, the government therefore seems to be demonstrating it is ready to enforce taxation law and apply taxes that largely avoid discriminating against the poor, crucial steps in a country renowned for poor legal enforcement and a general unwillingness to hold the rich and powerful economically accountable. With the threshold set above 100 million riel (US$24,510) and agricultural land exempt the new tax will avoid poor landowners including the key farming sector. Importantly, buildings under construction will also remain exempt, meaning the tax will have little or no adverse impact on struggling projects such as stalled Gold Tower 42.
There are potential problems with this new tax, however. Valuations have been questioned given the difficulties associated with determining price in a market that has seen so little activity in the past two years. Also, the government has to make sure exemptions that include agricultural land in particular are not exploited as loopholes.
Perhaps the biggest cause for conflict exists in the requirement that possessors of land will not be exempt, even if they do not own land titles and therefore remain vulnerable to land-grabbing. If the government expects people in this situation to pay taxes on property then it surely has to address the major problem of land rights with far greater urgency. It is surely unjust to tax people on land that can be taken away so easily, and therefore this new tax category will only add to housing insecurity in the category of people just above the 100-million riel threshold.
Still, this tax represents a major step in the right direction that will generate much-needed funds for urban development. The construction and property sectors, once fully recovered, will be better regulated as a result.