Cambodia urgently needs public finance reform to address its persistent budget deficit, which is caused by one of the lowest tax revenues in the developing world, according to a report from the Deloitte University Press.
The March edition of the press’ quarterly Asia Pacific Economic Outlook says total tax revenues last year were $881 million, just above five percent of gross domestic product (GDP).
“This figure is much below corresponding levels in developing- and emerging-economy peers and is the main cause of persistent budget deficits,” the report says.
Given the need for the country to spend more on sectors such as health, education and infrastructure, the current tax system is untenable, it adds.
Although the Deloitte report did not provide comparative regional figures for tax revenue to GDP ratio, the Organization for Economic Cooperation and Development (OECD) noted in a 2013 report that Cambodia was among Southeast Asia’s least efficient tax collectors.
“The tax ratios vary considerably across Southeast Asia, with the ratios for Cambodia, Lao PDR, Indonesia and the Philippines being roughly two-thirds that for Thailand and about half that of Vietnam, the country with the highest ratio,” the OECD said.
The Deloitte report goes on to say that Cambodia’s public finances need to be more transparent.
“In the budget for 2014, more than $1.5 billion of funds remain unallocated or are placed under ‘miscellaneous’ expenses. Critics allege that this nebulous allotment encourages corruption, something on which Cambodia rates high.”
Vongsey Vissoth, a secretary of state at the Ministry of Finance, dismissed the findings in the report, saying the tax-to-GDP ratio is higher than five percent, but declining to give an alternate estimate.
Mr. Vissoth added that the government is working to increase the ratio by 0.5 percent year on year, noting recent efforts to more strictly enforce customs tax collection.
“This evaluation is not correct. On the contrary, our tax revenue grows from year to year,” he said.
Regarding a lack of transparency in the allocation of the budget, Mr. Vissoth said the government has made an effort to spend more efficiently on prioritized sectors, including education and health.
“We are strict on curbing lavish expenditures and try to focus spending on the main targets,” he said. “This is our objective to reform public finances.”
Srey Chanthy, an independent economist, said the low tax revenue was causing the government to take on increasing foreign debt to make up for budget shortfalls.
“The result is we can’t finance public services and projects and we have to keep borrowing from multinational sources.”
