Ministers Approve Draft Law for Investment

The Council of Ministers has approved draft legislation that will attract more foreign investment to Cambodia by streamlining the application process, while at the same time broadening the country’s developing tax base, a senior minister said Saturday.

The draft law was the result of more than a year of negotiations between the government, the International Monetary Fund and private investors, with the government caught between a need to increase tax revenue but the pro­mises made to companies which have already invested here, officials say.

The new law would increase tax revenue and also protect current investors, Minister of Economy and Finance Keat Chhon said.

The draft law creates “one-stop shopping” for new investors by streamlining application procedures within the Council for the Development of Cambodia, Keat Chhon said. All investments, public and private, currently must be approved by the CDC. Under the new law, approval will have to come within 28 days, he said.

Cambodia has seen direct foreign investment plummet since 1997, when factional fighting between the CPP and Funcinpec drove many companies away.

The number of investment projects approved by the CDC fell to an estimated 220 in 2000 from 744 in 1997, according to IMF figures.

The draft law modifies the tax holiday system, which allows companies to operate for several years without paying taxes. It provides tax holidays of at least three years for light industry manufacturing, at least four years for tourism, at least five years for heavy industry, and at least six years for infrastructure projects.

Current investors will enjoy their agreed-upon tax holidays— some as long as eight years—under a grandfather clause in the draft law.

The draft allows for a “trigger period” of up to three years after either the start of operations or a profitable year before the tax holiday begins, according to a list of agreements made between the government and private sector in January, officials say.

The draft law establishes a flat corporate profit tax of 20 percent.

Some items in the investment law were stricken so they could be addressed in a new taxation law, which is still under discussion, a source close to the negotiations said. One item was taxes on dividend money paid to overseas shareholders, the source said, asking not to be identified.

The draft investment law also clarifies duty exemptions on equipment, with incentives meant to “encourage domestically oriented investment in conformity with [World Trade Organization] and [Asean Free Trade Agreement] obligations,” according to the Jan­uary agreements.

Some private investors are not pleased with a new requirement that companies must receive an annual certificate of compliance with Cambodia’s labor laws. The investors cite more administrative work and potential for corruption.


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