Two of the world’s largest multi-lateral donors Wednesday defended recommendations to the Cambodian government aimed at generating revenue by cutting, or eliminating, incentives to private investors here.
The World Bank and the International Monetary Fund issued joint statements backing up recommendations made early last month by the World Bank’s Foreign Investment Advisory Services—recommendations private investors called “fundamentally flawed.”
The two donors met with private investors and government officials in a closed-door meeting Wednesday morning to discuss concerns by both parties.
In helping the government beef up cash flow, both the IMF and World Bank maintained the government will have to repeal or reduce most tax incentives.
“The main point of the changes is to provide a transparent system…that provides adequate incentives for investment,” they said. “These revisions are not ‘an eleventh hour attempt to generate revenue.’”
FIAS has recommended that when the new investment law is solidified, duty exemptions originally aimed at steering investment toward Cambodia should be eliminated, tax holidays cut, and tax on profits be increased, among other changes.
Private investors issued their own counter-proposal, saying taxes should be levied equally across the board to both small and large investors. It also recommended a tax on employee salaries as a revenue generator.
But the multi-lateral agencies maintained the importance of incentive reduction, saying, “to reduce revenue leakage, something must be done about the extent of import duty exemptions until significant improvements in customs administration can be made over the medium term.”
Despite obvious points of contention between the private sector and the massive donor agencies, the meeting went relatively well, said David Doran, a member of the private sector’s working group on taxes and governance. However, there were some “lively exchanges” between parties, he said.
The government is still dependent on aid agencies like the World Bank and IMF, he said, so they still have a lot of power.
But, he said, investment means jobs for graduating students and increased money to the government’s coffers, so the private sector is “also huge.”
The World Bank and IMF play key roles in the development of the country, he said, “so they [also] played a key role at the meeting.”
World Bank country representative Bonaventure Mbida-Essama refused to comment after the meeting.
“That was a meeting between [the private sector] and the government,” he said. “I was just an observer at that meeting.”
Before closing the media out of what he called a “delicate process,” Minister of Finance Keat Chhon said the meeting was part of “good governance,” and that the government was interested in the views of the private sector when it comes to development.
After the meeting, Keat Chhon referred all questions to Sok Chenda, secretary-general of the Council for Development of Cambodia. Sok Chenda refused to comment.
Wednesday’s meeting provided a chance for all parties to air their views, said Van Sou Ieng, head of the Garment Manufacturers Association in Cambodia.
However, he urged more “concrete discussions” in the future. “Now it’s time to go to details,” he said.
The government will meet April 18 to discuss both private and FIAS proposals.