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Investors law slated for June passage

Investors law slated for June passage

C AMBODIA'S long-awaited, new investment law is expected to be submitted to the

National Assembly this month according to officials of the Royal Government.

Passage of an investment code is critical for both the short and

long-term economic development of the Kingdom. In the absence of an established

legal investment framework, foreign and local potential investors have been

sitting on the sidelines waiting to see what the government would produce and no

new investment applications have been submitted since the beginning of this

year.

The latest draft of the law, which has been circulating among

relevant government ministries since early May could go to the Council of

Ministers as soon as next week, after which it would be sent to the Assembly for

final ratification.

"Our goal is to have the bill passed in June," said

Sun Chanthol, secretary-general of the Cambodian Development Council (CDC) in an

interview with the Post on May 31. Chanthol said that the draft bill has been

reviewed and approved by First Prime Minister Norodom Ranariddh and Minister of

State Keat Chhon.

The CDC is the agency tasked with writing the new law.

Established by a sub-decree of the Council of Ministers on Dec 15 last year, the

CDC's primary objectives, according to Chanthol, are "to rebuild the economy and

to promote investment".

"The CDC was established because things were

moving too slowly," said Chanthol. "It has been designed to be the engine to

pull things together."

The CDC plans to have two major sub-divisions:

the Cambodian Investment Board (CIB) which would serve as a "one-stop"

government entity overseeing project approvals and the Cambodian Reconstruction

Board (CRB) which would coordinate the more than $1 billion in expected foreign

aid.

CIB Secretary-General Ith Vichit says that his agency would

guarantee a 45-day turn-around on all project approvals.

If the current

CDC draft law is passed, investment incentives in the bill would include a

corporate tax rate of 9 percent, no taxes on the distribution of dividends or

profits, a corporate tax exemption of up to eight years for certain projects

prioritized by the government, and a 100 percent import tax exemption for

capital goods on projects which export at least 80 percent of the goods produced

and which are located in a designated industrial zone and/or a Special Promotion

Zone.

However, the draft law is not without its critics.

In an

internal memorandum obtained by the Post and written by an expatriate economic

advisor to the Ministry of Planning the draft bill is deemed to be confusing.

According to the memo the draft "mixes together a law establishing a

Cambodian Investment Board with a law of principles and policies regarding

investment.

It confuses investment incentives and the regulation of these

incentives with regulation of investment per se."

Simply put, the

question is whether or not the law should even include a list of specific

incentives because if it does and these are changed then the law would have to

be amended by the National Assembly.

One economic analyst contacted by

the Post who asked to remain anonomyous said that "If you separate the

incentives from the law it wouldn't be too bad."

CDC's Sun Chanthol says

that the law includes a list of incentives so that investors will have a clear

idea of the investment environment.

"The approach that we use has to be

convincing," said Chanthol. "And the incentives that we list have to last a long

time.

"It is not our intention to change these for several

years."

Chanthol also says that the articles in the law concerning the

CIB are very short and actually designed to eliminate confusion.

Moreover, he agrues that the CIB already has a legal basis for its

existence and that the draft investment law only clarifies this

foundation.

The memo to the Ministry of Planning also says that the draft

law "duplicates all the worst provisions of the (Thai) Board of Investment law."

CIB's Vichit counters that in fact the opposite is the case. "A lot of

people just wanted to follow the Thai law," said Vichit. "For us it wasn't the

solution.

"We looked at Singapore and Thailand and modified them to suit

our situation."

Vichit said that the draft law was "tested" on a number

of private investors and reviewed by one of the world's top five accounting

firms.

Vichit also stresses that the detail included in the draft bill

was necessary to make the Kingdom's new economic policy orientation clear to

foreigners.

"Some investors think we are still a socialist nation," said

Vichit. "The law clarifies our economic policy orientation and restresses the

committment of the Royal Government to the free market system."

The one

thing all parties in the investment law debate agree on is the need to pass a

bill quickly.

Tourism revenues and public investment expenditures are

lower than expected and paddy yields likely to drop due to fighting in the west.

These factors are likely to cut in half the projected growth this year

of 7 to 8 percent, according to the memo to the Ministry of Planning.

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