F oreign direct investment (FDI) in Cambodia will continue its steep decline if the

government does not stop unfair tax practices, said representatives of overseas companies

taking part in a workshop aimed at boosting FDI.

The UN Conference on Trade and Development (UNCTAD) and the International Chamber

of Commerce (ICC) held meetings between 1-2 October with members of the private and

public sectors to hear their views for a proposed investor's guide to Cambodia.

Foreign companies taking part were quick to criticize the gov-ernment's tax policies,

saying laws were applied to them but not to local companies.

"What we can't live with is the current situation where we're the only ones

paying the right amount of tax," said John Nelson, general manager of British

American Tobacco (BAT) Cambodia.

Nelson said BAT had lost a considerable amount of the $25 million it invested in

1996, but was still committed to the Kingdom because it believed the government wants

to improve the situation.

Other complaints related to taxation were both a lack of transparency and sudden

rule changes, such as raising tax rates once companies had invested.

The government has recognized it needs to improve the worsening FDI situation. FDI

has fallen steadily since 1998 when $230 million was invested. That dropped to a

mere $113 million last year, and predictions are that this year will be even worse.

"Unfortunately FDI approvals are $60 million for this year," said David

King, director of tax and consulting services at accountancy firm KPMG.

Other investors said they were deterred by the rampant smuggling of goods into Cambodia.

Teh Sing, general manager of Cambrew, said the brewing firm was forced to slash prices

just to compete with illicit imports of Thai beer. Private business and government

acknowledged smuggling was a major investment deterrent, and foisted even more difficult

conditions on established firms.

"You are actually chasing away profitable services that this government needs

very badly," Teh Sing said.

When asked about results from the anti-smuggling committee formed last December,

Teh Sing said the committee had submitted a list of improvements three months ago

which were being reviewed by senior customs officials.

While those who spoke publicly at the October 2 meetings blamed many of their problems

on junior rather than high-level officials, UNCTAD's Ludger Odenthal said many investors

had complained at the previous day's closed session of a lack of political will at

the senior level.

"It seems the principal problem is not identifying [the problems], but getting

your act together and doing something about them," said Odenthal.

The Cambodia investment guide is due to be launched in Phnom Penh and another city,

possibly Bangkok, in March 2003. The joint project between UNCTAD and the ICC is

designed to create a marketing tool for the government to attract investors.