‘Big Four’ accountants usher in legitimacy

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Heng Thy of PricewaterhouseCoopers and Kimleng Khoy of Delloite. Pha lina Hong Menea

‘Big Four’ accountants usher in legitimacy

With the world’s four largest accounting firms present, insiders say businesses have more opportunities to obey tax law

When Deloitte set up office in Phnom Penh last September, its presence marked the last piece of the “Big Four” puzzle, the quartet of the world’s largest accounting firms – Deloitte, KMPG, PricewaterhouseCoopers (PwC), and Ernst and Young (EY) – had all arrived in Cambodia.

With multinational clients all over the world looking to expand into the region, the Big Four are helping businesses – large and small – to navigate Cambodia’s challenging tax regulations.

“Cambodia’s economy is growing fast, so it’s getting noticed [by companies], including our regional and international clients,” said Kimleng Khoy, director of assurance and advisory services at Deloitte.

Deloitte opened its office following in the footsteps of some of their larger multinational clients, according to Khoy.

The firm services many local and international businesses in several key sectors in Cambodia, including telecommunications, real estate and manufacturing.

EY was the first of the four firms to arrive in Cambodia in 1993, but left in 2000, only to return again nine years later as the economy continued to grow, according to Sinratana Lan, director of assurance services at EY.

Today, the firm has about 100 clients on its books.

The longest serving of the quartet, KMPG last year celebrated its 20th year in Cambodia.

Warrick Cleine, chairman and chief executive of KMPG in Vietnam and Cambodia, said that to cater to the increasing number of Chinese investors, KMPG offers Mandarin-speaking capability with its audit and tax services.

Meanwhile, PwC, which will celebrate their 20th anniversary in the Kingdom this year, currently serves more than 200 clients in its tax assistance department and has worked for the some of the largest investors in Cambodia.

Most of their clients are multinational firms from all over the world, including China, Thailand, the UK and Australia.

“We have a good understanding of the business network and in-depth local experience to support our clients and community, and this will continue in the future,” PwC Tax Partner Heng Thy said.

Tax auditing and assistance are among the Big Four’s most demanded services, which is due largely to Cambodia’s at-times puzzling tax laws.

“The tax authority may interpret certain transactions as taxable, while the taxpayers may interpret differently,” Thy said.

“In other countries, tax regulation may be more transparent and the tax authority updates their regulations quite quickly to adapt to the changing business environment.

The grey area of tax regulations and level of uncertainty [in Cambodia] is quite a lot.”

Weak enforcement and misreported taxes have historically plagued the local economy, but it is improving, according to Thy.

Consequently, the General Department of Taxation (GDT) has called on businesses to be more transparent, which, combined with reforms within the tax authority, has seen tax revenues increase by 18 per cent in 2014, to more than $1 billion.

For the first seven months of 2015, the GDT collected $803.53 million from profit, salary and VAT taxes, which represents about 70 per cent of the target set for this year’s budget law, according to government figures.

Despite these efforts, many businesses remain under the radar, having not registered with the tax department.

Just 5 per cent of businesses in Cambodia contribute 90 per cent of tax revenue, according to Deloitte’s Khoy, who is also a board member of the Kingdom’s National Accounting Council.

Not all businesses can afford the price tag that comes with using the more prestigious auditing firms. Second- and third-tier firms cater to those SMEs on tighter budgets.

Insiders estimate that there are about 50 tax auditing firms in Cambodia, but the quality among that bottom tier also poses a challenge to the local business environment.

Senaka Fernando, a former employee of a couple of the Big Four firms in Cambodia, said that some tax auditors are operating with a “paid-for” degree from a “Mickey Mouse” university, which he said can be damaging to the industry.

“I’m sure if a review is done to that extent, there will be a few firms who will be suspended,” he said.

Yet, in spite of the challenges, the presence of the Big Four is lifting standards, and competition is driving down prices for tax services throughout the industry, said Clint O’Connell, a partner at local accounting firm VDB Loi.

“The demand for audit services in Cambodia is fairly limited due to the size of the market here,” he said.

“Now, with Deloitte also re-entering the market in Cambodia, there is even more competition for audit work, which in a number of cases has led to the lowering of fees by audit firms looking to secure strategic clients.”

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