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Rule of law

Rule of law

T he Law on Taxation of 1997 was passed by the National Assembly in January 1997,

and enacted by Royal Decree on 20 February 1997. Since then, the Ministry of Economy

and Finance has issued a number of regulations (called "Prakas") which

provide detailed implementing rules and procedures for various aspects of the 1997

Tax Law.

One such regulation is the "Prakas on the Specific Tax on Certain Merchandise

and Services," which came into effect on 30 May 1997.

The Tax on Certain Merchandise and Services has been around since 1985, when it was

called the "Special Tax on Certain Locally Produced Goods". At that time,

this tax was levied on locally produced cigarettes, liquor, soft drinks, ice cream

and lotus seeds at rates between 20% and 50% of the price of the goods. In 1995,

the 1985 law was amended to apply to imported and locally produced goods. Rates were

lowered to the 10 and 20% range and the tax was renamed the "Special Tax on

Certain Merchandise." Petroleum products were added the list of goods subject

to the tax, and ice cream, lotus seeds and unprocessed tobacco were removed from

the list.

The scope of the tax was again expanded in the 1997 Tax Law to include automobiles

and certain services. The tax was again renamed, this time as the "Special Tax

on Certain Goods and Services" or "TSMS" (its French language acronym).

Under the 1997 Tax Law and subsequent regulations, the TSMS was extended to the services

listed in the accompanying chart.

The TSMS applies equally to imported goods and locally produced goods. For imported

goods, the TSMS is paid at the time of importation, before the goods are released

from customs. The basis for the tax is the "in customs value," inclusive

of all taxes except the TSMS and consumption tax.

For locally produced goods and services, the TSMS is paid to the Tax Department on

a monthly basis, based on the ex-factory price of the goods recorded in the invoice.

The TSMS on services is calculated on the invoiced price, with certain variations

depending on the type of service. For example, for air tickets the tax basis for

the TSMS is only 50% of the "fare basis" for round trip tickets and only

applies to tickets issued or sold in Cambodia.

All legal persons responsible for paying the TSMS must register with the Tax Department.

In general, registration must be done within 15 days after the company produces the

goods or supplies the services. For importers, registration most occur prior to import

of the goods.

The regulations also contain detailed bookkeeping requirements for each category

of company subject to the TSMS. The record books must be kept in a form approved

by the Tax Department and must be initialed and dated by the Director of the Tax

Department or his representative. Companies liable to pay the TSMS should ensure

that such records are currently being kept to avoid problems with the Tax Department.

Invoices for the sale of goods or services subject to the TSMS must now comply with

certain informational requirements set out in the regulation. For example, the invoices

issued by importers of goods for domestic sale must be serially numbered, and include

nine different items of information. Similar requirements are imposed on other items

and services subject to the TSMS. Again, it is important that companies selling services

or goods subject to the TSMS modify their invoices to comply with the new requirements.

Special documentation rules apply to the import of motor vehicles. The regulations

identify certain information that must appear in the bill of entry and require issuance

of an import tax receipt by the customs unit which clears the vehicle.

Anyone who purchases a vehicle imported into Cambodia after 20 March 1997 must be

very careful to obtain a certified import tax receipt. If the purchaser cannot produce

such a document for the Tax Department, the purchaser/owner will be liable to pay

the TSMS, according to the regulations.

- This column is provided solely for informational purposes by the Mekong Law Group,

and should not be relied on as legal advice. The Mekong Law Group is affiliated with

the law firm of Dirksen Flipse Doran & Le. This week's column was written by

David Doran.

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