Alongside a current two-year tax holiday on profits earned by garment factories, the government has suspended a 1 percent tax on factory expenditures, Finance Ministry Secretary-General Hang Chuon Naron said Monday, though industry officials said the new incentive is not enough to help the sector out of the trouble it faces.
From Jan 1, the government has suspended the monthly turnover tax of 1 percent on all garment factory expenditures, which include raw textile imports and worker salaries, Hang Chuon Naron said by telephone.
The tax has been suspended until December 2011 in a bid to give factories more cash flow, Hang Chuon Naron said.
In addition, he said, in 2007 the government decided to extend the profit tax holiday to all garment factories for the years 2008 and 2009. All non-garment factories, by contrast, must pay a 20 percent profit tax, he said.
“The most important thing is to sustain jobs. Even though we lose taxes, we sustain jobs for garment workers,” Hang Chuon Naron said, adding that the exemptions will not extend to other sectors.
“If you don’t collect taxes, how can you build roads, infrastructure? The problem here is not just tax. This is just one side of the coin. The other side is the demand side—the health of the world economy,” he added.
Van Sou Ieng, chairman of the Garment Manufacturers Association in Cambodia, said the profit tax exemption hardly helps because many garment factories are actually operating at a loss.
“I think you are misled by the profit tax exemption. We’re not making profit at all,” Van Sou Ieng said by telephone. “It was a good thing when it was extended [in 2007]. But it doesn’t solve the problem,” he added.
The garment industry, which accounts for about 10 percent of GDP, suffered a net loss of 20,000 jobs and 22 factories in 2008 as international demand plummeted, according to GMAC.
Revenues from Cambodian-made garment exports to the US, which account for 70 percent of the country’s garment exports, fell in 2008 for the first time on record after years of double-digit growth.
Albert Tan, senior vice president of the Bright Sky garment factory in Dangkao district, which employs 6,000 workers and produces knitwear, said the tax breaks will do little to mitigate the effects of the global economic crisis.
Orders for garments are already down this year, Tan said.
“We still expect to experience a slowdown,” Tan said by telephone Monday.
“Everybody is fighting very hard to get orders.”