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Tax dispute procedures tightened, onus on taxpayer

Tax dispute procedures tightened, onus on taxpayer

Having recently disbanded the so-called estimated tax regime, a flexible scheme that reduced the tax obligations of small and medium enterprises, the General Department of Taxation has issued a new prakas aimed at hastening tax audits and the appeals process, but which also increases the onus on the taxpayer to adhere to strict procedural timelines.

The prakas, issued late last month, will bring in changes to rules and procedures around settling tax disputes. While the dispute process will be shortened, it will increase procedural requirements and reduce the flexibility taxpayers enjoyed with the old process, according to legal experts.

Clint O’Connell, head of the Cambodia Tax Practice at regional tax advisory firm DFDL, said in the past there was more flexibility, by both the taxpayer and officials, to adhering to these timelines. However, with the new prakas, the tax department has signalled that there will be stricter compliance to established timeframes.

“But this [flexibility] is going to change, which means that businesses need to be much more aware of their tax management with respect to tax audits,” he said.

According to O’Connell, once the audit is completed and the tax department sends businesses their reassessed tax obligation, the firms will have 30 working days to respond with a protest letter, failing which it will deemed that taxpayer has accepted the reassessment.

“Businesses need to be aware of this thirty day period, and if they want to argue they should send [a protest letter] before the expiry of the 30 days,” O’Connell added.

After receiving this protest letter, the tax department is expected to respond within 60 days, but is under no obligation to do so.

In the past, when the Tax Arrears Office sent a letter asking a taxpayer to pay their tax debt, the taxpayer could ask the officials to hold off because they were protesting this assessment. However, now the Tax Arrears office wants these arrears to be paid up front, even if under protest.

“Now in practice, the tax department is saying even if you are protesting your tax reassessment, if you get a notice of tax debt you are required to pay it,” O’Connell said. “And then if the business is successful in winning the tax protest the tax department will refund that amount.”

Kimsroy Chivv, tax director at Deloitte (Cambodia), said the new prakas should help clear a number of outstanding cases and improve the tax dispute procedures. She added that the strict adherence to procedural timelines has been in place since 1997, with the new directive only driving home the point.

“This issue of a new prakas specifically places emphasis on this matter purposely to strictly enforce tax collection from the taxpayer, but does not give equal obligation on the tax department’s side for missed delivery.”

She added that despite an increase in the number of taxpayers in the real regime following the abolition of the estimated regime, many of these will be smaller enterprises with less complex business operations, making it easier to deal with disputes.

For the first 10 months of the year, the tax department collected a little over $1 billion, upping its revenue by 24 per cent as compared to the same period last year.

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