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NGOs brace for new payroll tax

NGOs brace for new payroll tax

THE tax exemption enjoyed by employees of non-governmental organisations (NGOs) was

struck down with the passage of the 1997 finance law, meaning workers will owe up

to 20 percent payroll tax this year, government officials said this week.

"Everyone will owe payroll tax, a maximum of 20 percent," said Secretary

of State for Finance Sun Chanthol.

Fringe benefits, including medical plans, are also taxable at 20 percent, say finance

officials.

There remain plenty of unanswered questions - including how the draft NGO law and

current government agreements with multi-lateral agencies will affect implementation

of the law, and complete details will not be available until the government completes

necessary sub decrees to the law.

Sun Chanthol said he expects the new tax laws will be finalised and put into effect

by the second or third quarter of 1997.

Up to this year, NGO workers have been exempt from Cambodian taxes, but under the

1997 finance law, all salaries are taxable, regardless of whether they are paid by

corporations or non-profit organisations.

The hit - which will also affect private business employes - is expected to take

some organisations by surprise, say those in the NGO community.

They say they will have to decide if they will put the tax burden on their employees

or try to shoulder the cost themselves - either way, a difficult prospect for those

who did not plan for the taxes in their budgets.

The confusion is worsened by the lack of a firm date on implementation of the tax

bill.

"I would hope there would be at least one budget cycle to allow NGOs who were

not clearly told this would happen to prepare to meet the law's requirements,"

said Carol Garrison of the Cooperation Committee for Cambodia.

Some NGO workers privately express outrage at the government taxing the roughly 300

aid agencies that account for almost half of the national budget, but others say

it is time to accept that as residents of Cambodia and consumers of its services,

they will have to pay.

"We are consumers of government services - however they may be - and so we are

expected to pay for those services," said one international non-profit worker.

The most common reaction, however, is confusion. Few NGOs contacted by the Post were

aware of the tax law, and how the government will inform them - and enforce the law

- remains to be seen.

What is clear is that the government stands to gain a lot of revenue - even by conservative

back-of-the-envelope calculations.

For NGOs' Khmer staff alone, if each of the 300 agencies have an average of 50 staff

making $200 per month, a tax rate of 10 percent on average would yield $3.6m for

the government each year. The corresponding amount for foreign employees, with much

larger salaries, would be far higher.

In 1996, the government estimated payroll tax revenues at $1m, according to reports

from the Ministry of Finance.

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