The Finance Ministry has changed its tax policy for certain domestically produced goods including beverages and tobacco, prompting an increase in price for several Cambodia-brewed beers, officials said this week.
Sing Eang, director of the Finance Ministry’s Tax Department, said Monday that the ministry issued a prakas changing its tax policy on April 27, and that the new rules went into effect at the beginning of this month. The change was made after several months of talks with the affected companies, he added.
“The objectives are to strengthen respect for financial law and also for the revenue,” Sing Eang said.
Lieven Van Der Borght, general manager for Cambodia Brewery, Ltd, which produces Tiger and Anchor beer, said items such as beer used to be taxed based on how much they cost to produce. But they are now being taxed based on the price at which the brewery is selling the beer to customers, according to the prakas. Producers now have to pay tax on 65 percent of gross sales, though the tax rate depends on the specific product.
Van Der Borght said his company has already increased the price of ABC stout and plans to do the same for their Gold Crown brand starting next month. Van Der Borght said he was uncertain how much ABC cost prior to the price hike, though at Star Mart on Tuesday it was selling for $1.25 per can, the same price as imported Irish Guinness Stout.
Jim Gregory, financial director for British American Tobacco (Cambodia) Ltd, which produces Ara and 555 cigarettes, said the new formula has increased the tax burden on about half of their brands, but “so far we have not been able to increase prices due to competitive pressures.” Gregory said that the taxes would likely cut into profits to the tune of $400,000 to $500,000 this year, and might make it necessary for the company to raise prices next year.
Cambrew Ltd, the producers of Angkor beer and Black Panther stout, placed advertisements in several local newspapers this week announcing the increase in the price of many of its products. Twenty-four cans of Angkor now sell for $10.50, or about $0.44 each, while Black Panther sells for $11, or about 46 cents each, the adverts state. Cambrew officials declined to say how much the beers cost previously. Despite the potential for revenue losses, companies said that the new system represents something of an improvement.
Gregory said the previous tax formula was “very ambiguous—i.e. complicated, easy to manipulate and difficult for the tax authority to audit and enforce.” The new methodology is considered simpler and more transparent, he said.
But companies expressed concern that the new formula is only being applied to local products and not imports. On top of the potential issues regarding legitimate imports, smuggling is having a serious impact on the beer industry, according to a report released earlier this month by the Economic Institute of Cambodia.
Millions of bottles and cans of imported beer make their way from Thailand and Singapore to the Cambodian border each year, where they seem to disappear, EIC said. EIC added that this cost the Cambodian government $22 million in lost tax income last year.
The EIC report also states that contraband beer accounts for 29 percent of the entire beer market. Smuggled beer can be sold for significantly less than if it had gone through legitimate channels, cutting into domestic producers’ markets and profits in the process.
On top of this, Gregory said the ability of legitimately imported goods to escape the new tax formula could eventually raise serious issues for domestic producers. “It does beg the question: Why have a factory in Cambodia if you can import goods for cheaper?” he said