I N addition to increasing the budget of various government ministries, the
mid-year Revisions to the 1995 Finance Law help strengthen the Rule of Law in
Cambodia through a number of important enforcement measures.
the law adds muscle to the Tax Department of the Royal Government of Cambodia
(RGC) through larger and better defined penalties on recalcitrant tax payers. It
clarifies critical provisions of the 1995 Finance Law that are ambiguous and
inconsistent with business reality. It also establishes general parameters for
capital participation by the RGC in a mixed public-private company.
Capital Participation - RAC
According to the 1995 revisions, the government may participate directly in
the capital of a company only to the extent authorized by the yearly Finance
Law. This was one of the issues at the heart of the Royal Air Cambodge affair
which preoccupied the press at the beginning of this year. The RGC has a 60
percent interest in Royal Air Cambodge, purchased through debt financing, cash,
and in-kind contributions. One of the questions raised at the time was whether
the RGC had the authority to commit state funds to RAC without approval from the
National Assembly. The 1995 revisions attempt to resolve any doubts that may
persist by expressly approving the RGC's capital participation in Royal Air
The 1995 Finance Law Revisions contain a number of important changes to the
current tax rules:
- Implement larger penalties provisions for late payment,
- Establish a new tax called the "Specific Tax on Certain Goods"
- Modify monthly advance payment of profit tax,
- Harmonize the Turnover Tax and Consumption Tax.
Delinquent taxpayers must pay a two percent per month interest penalty on
late payment of most taxes. If the taxpayer files all or part of its tax
declaration late, the tax amount is subject to an additional ten percent
penalty. If the taxpayer files its tax declaration more than 15 days after
receiving a demand letter from the Tax Department, the late penalty is increased
to 25 percent, plus the two percent interest penalty. If the taxpayer fails to
make a declaration, the penalty is 40% of the tax payable, in addition to the
two percent interest penalty.
A taxpayer who presents, in good faith, a
false or inaccurate declaration must pay a two percent interest penalty on any
amounts owed to the Tax Department. If the inaccuracy is given in bad faith, a
40 percent penalty is added to the two percent late interest penalty.
Specific Tax on Certain Goods.
Under a 1984 decree, certain
locally produced goods were subject to a special tax of up to 50 percent of the
value of the goods. The 1995 Revisions expand this tax to certain imported goods
but lowers the ceiling to 20 percent. The Specific Tax on Certain Goods is set
at 20 percent for petroleum products and ten percent for other
The goods listed in the 1995 revisions as subject to the
Specific Tax on Certain Goods include certain petroleum products, beverages, and
cigarettes. If the goods are imported, the tax is payable by the importer at the
border, in addition to the applicable duty and consumption tax. For goods
produced in the country, the tax is payable by the manufacturer. This tax takes
effect January 1, 1996.
Advance Payment of Profit Tax.
The 1995 Revisions decrease the
monthly advance payment of profit tax to one percent of the previous month's
turnover. However, the one percent will not be refunded - even if the profit tax
liability for the year is less than the prepaid one percent. Under the rules set
out in the 1995 Finance Law, the monthly payment is currently two percent of
monthly turnover, with 0.5 percent being non-refundable. These new rules take
effect January 1, 1996.
According to the 1995 revisions, businesses
subject to the two percent turnover tax rate (i.e., mostly service businesses)
must pay turnover tax at four percent beginning Jan 1, 1996.
David Doran is the Resident Managing Director of law firm Dirksen
Flipse Doran & Le. DFDL has offices in Phnom Penh, Vientiane and Ho Chi Minh
City. The information in this article was taken from a French language final
draft of the 1995 Finance Law Revisions and should not be relied on as legal