Taxing problems remain for Kingdom’s government

via CAAI

Friday, 03 December 2010 15:02 Steve Finch

THE latest budget disclosure this week by the government showed a 13.8 percent rise in tax revenues in the first three quarters of the year, compared to 2009, another sign the Kingdom is tackling one of its greatest budgeting headaches.

Generating some 3,462.35 billion riels, or US$834.3 million, in the first nine months of the year again represented the highest-ever tax revenue collection by the government, a promising sign given that Cambodia must significantly raise domestic revenues to offset donations by the international community.

Nevertheless, major tax collection problems exist that must be addressed, not least because the collection of taxes remains at the epicentre of Cambodia’s complex corruption challenges.

The new Anticorruption Unit is investigating road tax officials as one of its first cases, amid allegations motorists are being overcharged in Phnom Penh. But this case is unlikely to touch on the much wider problem associated with teams of policemen that levy informal fees on motorists.

Ask foreign investors about the negatives associated with doing business in Cambodia and usually top of the list are the charges levied as an informal tax within the system.

Cambodia’s taxation problems therefore represent under-enforcement of official taxes combined with over-zealous extraction of informal fees. In terms of enforcement, the country continues to enjoy successes and failures.

Law firm DFDL Mekong noted in its October update that authorities have stepped up tax enforcement in the case of international schools which are subject to the same taxes as private businesses.

However, a new property tax that was supposed to be set up this week has thus far failed to get off the ground amid reports the authorities are unprepared and questions over exactly how the Ministry of Finance subcommittee responsible for evaluations is supposed to grade properties when there are few transactions to help define values.

Cambodia needs to make sure that taxation is fair otherwise enforcement becomes even more difficult.

Aside from these problems are the classic cases of disappearing taxes and a pervasive lack of transparency. The budget declaration for the first nine months by the Ministry of Economy and Finance does not list any revenues generated from airport tax. Yet anyone that has travelled through Phnom Penh and Siem Reap airports knows foreign adults are charged a hefty $25 to leave the Kingdom, while Cambodian adults pay $18.

Ministry of Tourism figures showed some 835,000 people arrived by air in the first eight months of this year.

If we assume they all left by air and for arguments sake 75 percent were over 12 years old, then in this category alone the government would have generated some $18.37 million, or roughly 2.5 percent of the total tax revenue that appeared on the budget balance sheet for the same period. Where is this money?

If the government is really intent on accounting for taxation revenue, which by its actions it seems to be, then accounting for these blatant omissions must surely become a priority.