Beginning this year, the Ministry of Economy and Finance is imposing a new tax regime with focus on four sectors of the economy, claiming that the procedures will ensure that all kinds of taxes will be collected more effectively.
Prakas dated January 15 will implement classification of taxpayers through a self-declaration system, the ministry said, specifying the agriculture, industry, service and commerce sectors as targets of the regulations with liabilities to be based on the scale of annual turnover by companies in each sector.
“This prakas was intended to categorise taxpayers using self-declarations to make management consistent and collect all kinds of taxes effectively, transparently and equally in accordance with the growth of the nation’s economy,” the ministry said.
The ministry explained that taxpayers would be classified into three categories – small, medium and large taxpayers.
Small taxpayers include private and co-owned enterprises with annual revenues of between 250 million and one billion riel ($61,700 and $245,000); businesses in the agriculture, services or commerce sectors and those with annual revenues of 250 million and 1.6 billion riel; industrial sector and private and co-owned enterprises with annual revenues of 60 million riel and up for three months in a row.
For medium-tier taxpayers, the ministry included individuals with annual incomes of one to eight billion riel in the four specialised sectors as well as registered enterprises and legal entities, representative offices, state institutions, associations, national and international NGOs and diplomatic missions and foreign consulates.
In cases where taxpayer declarations do not reflect their visible turnover, the General Department of Taxation has the right to re-classify taxpayers based on the value of assets used in the business of each enterprise.
Finance minister Aun Pornmoniroth explained in the letter that the re-classification of taxpayers was based on asset income values with three classifications – small, medium and large taxpayers.
“Small taxpayers in the sectors of agriculture, services and commerce are considered to have annual business asset incomes of 200 million to one billion riel, and small taxpayers in the industrial sector have annual business assets of 200 million riel up to two billion riel,” he said.
For medium taxpayers, he said: “These have annual business asset incomes of one to two billion riel for the sectors of agriculture, services and commerce or assets of two to four billion riel for the industrial sector.”
The minister added that large taxpayers were enterprises with annual business asset incomes of two to four billion riel for these four sectors.
Transparency International Cambodia executive director Pech Pisey said on January 17 that the classification of taxpayers via a self-declaration regime would better facilitate tax collection and improve revenues.
Pisey cautioned, however, that the ministry should conduct further study of the measures and examine the possibility of tax breaks at this time, particularly for small and medium enterprises which have faced serious downturns during the Covid-19 crisis.
He explained that with the partial withdrawal of the EU’s Everything but Arms (EBA) trade scheme and the expiry of the US’ Generalised System of Preferences (GSP), the government should instead look to provide more financing to ensure that affected businesses can remain operational.
An upwards of 90 per cent of the country’s workforce could potentially face job losses or scaled-back earnings, Pisey warned.
“I don’t dare conclude that the ministry delay or not delay collecting taxes from these sectors, but it should study the impacts clearly. If small and medium companies have to carry such serious burdens that they cannot continue operations, then it could affect people across the country,” he said.