Workers in Cambodia will pay less income tax from January as the government raises its lowest tax threshold from 500,000 riel ($125) to 800,000 riel ($200).
Previously, the lowest monthly income tax bracket, which was taxed at 5 per cent, started at $125 and went to $312.50. Following an announcement from the General Department of Taxation on Tuesday, the floor for taxable income will rise to $200 per month. This effectively puts about $3.75 a month, depending on exchange rate fluctuations, back into the disposable income of workers in Cambodia earning more than $200.
Although the saving is small, the government’s decision to raise the minimum threshold was welcomed by workers and industry leaders alike yesterday.
Sokhan Kolab, a financial controller at a private company in Phnom Penh, was used to paying about $73.70 in taxes from his $955 monthly salary, but the change will now put that tax bill closer $70.
Though admittedly a minor change, he said it would still help.
“It is good in some ways. At least I can save $3.69 and use to spend on gasoline to drive my motorbike for three to four days.”
Acleda Bank CEO In Channy estimated that about 600 of the bank’s 12,000 workers – mostly cleaners and customer service associates – were paid less than $200 a month.
Channy said they would benefit most from the tax reduction, along with the bank itself.
“If it’s good for the employees, it’s good for the employer,” he told the Post.
The government’s move to raise the lower tax threshold came on the heels of its decision to increase the minimum wage for garment workers starting in January of this year.
Since the wage was raised to $128 per month – which would have put the workers just above the old tax bracket – Prime Minister Hun Sen announced in October last year that the threshold would be raised to $200.
Hun Sen said at the time that the move would cost the government about $10 million in lost revenues.
Albert Tan, treasurer for the Garment Manufacturers Association of Cambodia, said he was “sure workers will be happier with this new monthly salary tax revision”.
“This will help workers increase their take home [income.]”
Although the total amount of money saved by Cambodians is small, Hiroshi Suzuki, chief economist at the Business Research Institute for Cambodia, agreed that it would help the garment sector’s workers secure their wages.
“This change is indispensable for all the workers to enjoy the wage increase.”
Suzuki added that the losses to the government’s coffers were minute – $10 million compared to expected tax revenues of $2.1 billion in 2015 – and that the effect of the extra money in workers’ pockets would also be “limited”.
“However, combined with the increase in minimum wage, the purchasing power of workers and their families is expected to increase and it could provide some good effect on the local economy,” Suzuki added.
Nevertheless, not all salaried Cambodian workers will be impacted by the threshold’s reduction.
Employees contracted under a net salary, in which their taxes are paid directly by employers, will see no change to their take-home income.
But Clint O’Connell, tax partner with firm VDB Loi, said those workers would experience little, if any disadvantages.
“Those employees that negotiated a net salary would have done so to pass the overall cost of the tax on salary [tax] to their employer hence the benefits obtained from that position would greatly outweigh the recent change,” he said.