SOC Streamlines Tax Collection in Bid to Cut Deficit
The cash-strapped Phnom Penh regime plans to revise its tax collection system in
a bid to boost funds, improve efficiency, and thwart dodgy excise collectors.
On Oct. 17 the State of Cambodia (SOC) cabinet discussed a program of economic stabilization-prepared
with UNTAC, International Monetary Fund (IMF), and World Bank advice-which would
include political and administrative measures aimed at boosting budget funds, according
to SOC Deputy Minister Cham Prasidh.
"We'd like to show we can deal with economic deterioration by ourselves,"
Prasidh said, adding that the SOC planned "to increase revenues and most would
come from taxes."
But to do so, the SOC will need a major overhaul of its collection system. "We
are quite concerned at the deterioration in revenue collection," said UNTAC
Economic Advisor Roger Lawrence.
Lawrence said revenue collected as a proportion of national income had fallen and
revenue, when deflated by price increases, had also declined-with the trend persisting.
Fiscal revenue was estimated at less than five percent of gross domestic product
in 1991, covering only 50 percent of state expenditures. A June World Bank report
reckons this will fall below four percent this year. The private sector, especially
foreign businesses, is likely to be the main target of the tax drive by an administration
which relies on almost half its revenue from customs duties and tax on private enterprises.
Prasidh said the focus would be on increasing the efficiency of tax collecting rather
than introducing new taxes, though the World Bank has recommended charging for construction
permits, and introducing taxes on urban property and agricultural land.
Tax collectors attached to the municipality and people's committees in the provinces
currently visit businesses every three months to assess turnover, and return later
to collect the money and issue a receipt.
But the system is open to abuse and stretches the understaffed and ill-equipped tax
departments, which in some cases have only one or two people to oversee an entire
"Since people have no accounting books we collect tax on visual assessment.
. .now we'll do it in a more systematic way," Prasidh said, adding that businesses
would soon be required to go by themselves to tax offices and pay what they owed.
Malpractice must also be wiped out, said Prasidh. "There are people disguising
themselves as tax collectors ," he said.
An expatriate staff member at one of Phnom Penh's new bars agreed. "You have
to be very, very careful," he said. "I had about 30 people coming in asking
us to pay tax."
Part of the problem, according to the World Bank, is that "the same assessment
teams are assigned to a single market for long periods, which contributes to familiarity
and collusion with taxpayers."
The World Bank recommends measures that would separate tax assessment from tax collection
to allow cross-checking, introduce internal auditing and computers in the tax departments,
increase staff, and launch an extensive training effort.
It also calls for the compulsory recording of business transactions and preparing
an updated census of taxpayers.
The 1985 State of Cambodia tax code introduced an annual business license of one
percent of assessed turnover in the previous year and established taxes on imports
and exports, turnover (one or two percent) and profits (eight to 35 percent).
It was supplemented through legislation last year implementing a motor vehicle tax,
stamp duty, property transfer tax and a tax on slaughtered animals.A visitors' tax
on hotel bills is also in the pipeline.
But personal income tax is seen as a thing of the future, with Prasidh noting that
"a lot of people say Cambodia is a financial paradise for [business people]
because we have no income tax-maybe next year when we have the regulations."
The government may fear that it might stir the wrath of the voting public if it introduced
a tax on individual wealth before next year's elections.
Turnover assessments have also generally been arbitrary, unrealistic, and on the
low side, in part for the same reason as well as corruption.
The 1992 budget document, presented by the cabinet to parliament in December last
year, refers to the need for a "tender but active attitude."