Government revenues increased by nearly 50 percent in the first six months of the year, thanks largely to the new value-added tax, according to a Ministry of Finance report.
VAT alone accounted for $44.2 million in revenue, more than 60 percent of the total revenue collected by the government, according to the report. The figure was 24 percent above projections. Roughly 20 percent of the money, however, will be refunded to companies who have paid too much, the report states.
The report, detailing Cambodia’s economy for the first six months, also predicts the country will experience 4 percent growth in its gross domestic product this year. While the government made the same prediction at the start of 1999, observers have said—and continue to say—GDP is more likely to grow only by 2 to 3 percent.
Donors have demanded the government broaden its tax base and make extensive fiscal reforms. And donors and business people said the six-month report shows that positive steps have been made.
“The introduction of the [VAT] has been done rather successfully, judging by the amount collected,” British Ambassador George Edgar said. “Efforts are clearly being made by the government for economic reform.”
Iain Williams, general manager of MobiTel, added: “From the government’s point of view, [VAT] has been a good revenue generator.”
That being said, observers said that some of the concerns voiced late last year before the VAT was instituted Jan 1 still are an issue.
In December, Cambodia’s largest foreign investors asked the government to delay the tax for six months to allow more time for preparations.
They also recommended the 10 percent rate be reduced by as much as half to soften the blow on consumers and prevent smuggling.
Finally, investors complained that the tax was not being levied equally, as only large companies are required to pay the VAT and garment factories are exempt.
Kit Heffner, general manager of Caltex Cambodia Ltd, explained there are still inequities in terms of which companies are paying and which are not. Although small companies are required to pay the old 4 percent turnover tax, it is much lower than the 10 percent VAT, he said.
But “the VAT is not a bad thing,” Heffner said. “It can be a very efficient way for the government to collect taxes, provided they get rid of the glitches.”
Canadian Ambassador Gordon Longmuir said that the government has done a “reasonably” good job collecting the VAT but has failed in collecting income and other taxes. “There are still serious revenue-collection problems, but it certainly is not as serious as in 1997 or 1998,” he said.
Observers were skeptical of the government’s prediction of 4 percent growth in GDP.
Toshi Kato, a researcher at Cambodian Development Research Institute, said he was unsure if 4 percent was achievable.
Craig Martin, president of International Management & Investment Consultants Ltd, also said “4 percent may be a bit on the optimistic side,” but he agreed that Cambodia’s economy is on the rise. “If you go out in the evening, there are more people riding motorbikes; more people are flying kites,” he said.