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Tax breaks for wood firms

Tax breaks for wood firms

The co-Prime Ministers granted export tax exemptions for processed wood to five companies

in contravention of an agreement by the government not to do so, according to finance

officials and a timber company executive.

During the year-end debate in Parliament on the 1997 budget, it was agreed that no

new export tax exemptions would be awarded. The decision was made in the face of

increasing pressure from international donors that the Kingdom find ways to increase

tax revenues and decrease its dependence on foreign aid.

The 1997 budget includes a projected defecit, to be made up by foreign grants and

loans, of around $218 million, but some analysts predicted at the time of the budget

law's passage that the government would still run out of money due to shortfalls

in tax income.

Sources confirm that the five companies - Pheapimex Fuchan, Gat International, Kingwood,

Cherndar Plywood and Longday International - wrote to the two Prime Ministers in

mid-Janaury requesting the tax waiver on exports of plywood and veneer.

First Prime Minister Norodom Ranariddh is said to have agreed to the request Jan

17, followed by Second Prime Minister Hun Sen a few days later. The order granting

the tax exemption was issued on Jan 20 and sent to the relevant Ministries of Agriculture,

Finance, and Commerce as well as the CDC and the Department of Customs, according

to a senior official at the Ministry of Finance.

A timber company executive who had seen the waiver said, "All timber businessmen

are angry because veneer is a finished product." He added that granting exemptions

to certain companies only made it more difficult for his firm to remain competitive.

Agriculture Minister Tao Seng Hour said his ministry had not received the waiver.

"[The exemption] does not call into question my work. I also heard about this

letter from rumors but I do not know exactly what is in the letter. It also depends

on the investment law, not only on the budget law," Seng Hour said.

The minister added, "Apparently, this exemption does not concern the exploitation

of timber. You would be better to ask Keat Chhon on the details of this exemption."

The Finance Minister was unavailable for comment at press time but an official in

the office of Undersecretary of State for Finance Chea Peng Chheang said the ministry

had not received a copy of the waiver yet.

However, a senior Finance Ministry official who requested anonymity said that Minister

Keat Chhon had received a copy of the exemption and was "very upset"about

it.

"We were told that all exemptions would be stopped," said the official.

He added that it would be difficult to calculate the loss in revenues as a result

of the deal. In theory customs should calculate the amount of exports for products

even if they were not taxed but that there were no guarantees that this would be

the case.

The official also added that the tax exemptions were one of many issues that would

have an impact on any IMF decision to provide continued funding for the government.

Commenting on how much of the projected $40 million in loans for Cambodia would be

provided to the Kingdom in 1997 under the IMF's Enhanced Structural Adjustment Facility

(EASF), the official said, "I'm sure it will be zero."

He added that according to his information a decision to that effect had already

been made in Washington.

IMF Representative to Cambodia Joshua Charap denied that any such decision had been

made and said that the upcoming IMF mission to Cambodia was designed to pursue discussions

on the third year of the EASF loan program.

The IMF team, led by Michael Kuhn, Assistant Director, Asia/Pacific Dept, will arrive

Feb 24 for a ten day visit. Kuhn was the official who announced last November that

an IMF $20 million loan installment for 1996 was being cancelled because of the government's

failure to direct revenues from logging concessions to the Treasury.

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