The Cambodian government must increase its ability to collect taxes in order to maintain robust government spending and help Cambodia recover from the economic crisis, the United Nations Economic and Social Commission for Asia and the Pacific said in a statement Thursday.
Government officials and economic experts from around the region gathered in Phnom Penh from Tuesday until Thursday to discuss macroeconomic policies designed to deal with a successful economic recovery. The World Bank, Asian Development Bank and International Monetary Fund all agree that Cambodia’s GDP contracted by more than two percent in 2009.
“To increase tax collection is important both for the mobilizing of resources for physical and social investment and for enhancing the country’s fiscal space, allowing the country to respond more effectively to economic crises,” said Nagesh Kumar, chief economist for ESCAP in a statement.
According to ESCAP tax revenues in Cambodia amount to just 11 percent, compared to an average of 20 percent in developing countries worldwide.
Last year the government introduced taxes on both luxury cars and property and both are expected to add to the government’s tax revenues this year.
“It’s more to do with improving the tax administration than creating new taxes,” said Edwin Vanderbruggen, managing director the law firm DFDL Mekong in Cambodia, who has helped advise the government on its taxation system.
He added that even after introducing new taxes it usually takes at least two years before any revenues start to be generated as it takes time to actually enforce the tax and ensure that people are aware of their duties in the eyes of the law.
“In Cambodia, it’s not too easy to get all tax payers aware of their obligations. This simply takes years,” he said, adding that the government was currently focusing on registering businesses and individuals who are eligible to pay taxes.
“Managers aren’t so familiar with the process of paying tax or having financial statements, keeping proper records,” he said.
Vann Puthipol, director of the general department of taxation, agreed in the statement that the government must improve its tax administration but provided no details on how this would be achieved.
Mr Kumar added that despite the fact that economic growth projected to reach about 5 percent this year, the “policy environment is becoming increasingly challenging in both the short and the medium-to long-term.”
He warned that governments should not withdraw stimulus spending too soon to avoid another dip in the economy and should also keep a close eye on how sustained spending effects the inflation rate.
Also in the statement Finance Minister Keat Chhon said that the crisis had taught the government that it needs more leverage over its fiscal and monetary policy but did not elaborate on the government’s tax policy.
“With more than 90 percent or the banking transactions conducted in dollars, we cannot use interest rate policy to influence the economy,” Mr Chhon said.
On Thursday deputy governor of the national bank Meav Chanthana said the government would continue its push to introduce more riel into the economy in order to curb this problem.