THE FIFTH government-private sector forum was held in Phnom Penh February 28 with

calls for lower private sector taxation and an end to smuggling to reverse falling

levels of foreign investment.

Bretton Sciaroni, chairman of the working group on legislation, taxation and governance,

told the Post that he wanted the government to "either stop the smuggling or

impose taxes on smuggled goods". Without this, he said, new taxes on legitimate

products meant "the worst of both worlds" for the private sector.

While most economic indicators were positive, the figure for new investment approved

by the Council for the Development of Cambodia, the government's investment arm,

fell by $48 million in 2001 to $218 million.

"We also notice the continued downfall in new investment approval by the CDC,"

said Prime Minister Hun Sen. He said that the decline was common to the region, but

admitted the trend was "worrisome".

To combat the decline in investment Hun Sen publicly reiterated his executive order

of December 2001 countering smuggling and called for the cooperation of the armed

forces, police and local authorities.

"[Smuggling] does not only result in substantial loss of revenue, but also undermines

investment and the business climate," said Hun Sen. "At the same time we

should recognise that the key to resolving this problem is to strengthen customs

and tax administration, which is the government's priority over the medium term."

One investor commented wryly that the biggest competitor to Coca-Cola Cambodia was

not Pepsi, but Coca-Cola Thailand.

The government won plaudits for its cooperation with the private sector when drafting

the new Investment Law. Sciaroni said negotiations were now down to the final 5 percent.

Among criticisms from the private sector were complaints over the mounting costs

of doing business. The chairman of the working group on energy and infrastructure

called on the government to tackle the high level of "hidden costs", particularly

those relating to port fees.

Hun Sen said he was aware that the charges required to load a single 20-foot container

onto a ship in Sihanoukville ran to almost $140. He promised to set up a working

group to review the costs and separate them from legitimate expenses. However he

said the blame did not rest solely with government officials, saying that "company

employees take some of the money and blame officials".

International financial institutions also came in for flak over their policy of encouraging

the government to increase taxes to boost revenue. Sciaroni said policy makers in

Washington with little knowledge of local conditions were pushing "a number

of measures without calculating the effects they will have on legitimate investors".

Bonaventure Mbida-Essama, the World Bank's country representative, dismissed that,

saying the ideas came from within Cambodia.

There was some common ground on taxes, with Hun Sen agreeing to try to amend the

upcoming investment and tax decrees to provide an incentive to import equipment which

could be used to manufacture goods that are currently imported.

On what some attendees felt was a less critical point, the tourism working group's

main call was for the government to improve the toilets at Angkor Wat.

"Tourists ask, first of all, where is the public toilet? So we should have good

and clean public toilets," said the working group's representative Sathol Miura.

That received enthusiastic support from Hun Sen who threatened to sack the head of

the Apsara Authority if he was unable to provide more than three toilets at Angkor

by March 28.

One delegate derided Miura's comments saying that it showed his speech was "probably

written at 10 o'clock last night. It shows how seriously they take this process."

Sciaroni said transparency on legislative changes had helped the private sector's

position, but said he was keen to see still greater improvements. He said new tax

laws were often passed under pressure from the multilaterals with little or no private

sector consultation.

Much of the rest of the discussion was taken up with talk on costs of transport and

the state of the country's infrastructure. Hun Sen said he had given high priority

to improving roads and bridges. Khy Taing Lim, Minister of Public Works and Transport,

said his department would allocate $15 million on a budget for road maintenance,

the first of its kind.

In his speech, Sciaroni warned that the country needed to improve its position as

a country that served the long and short term interests of investors.

"If we cannot improve the attractiveness of Cambodia for foreign investment,

the good investors will be driven away and only the bad investors will come here,"

said Sciaroni. "And Cambodia will achieve the status of a permanent aid-recipient

country with no real economic prospects of its own."