Phnom Penh municipality’s tax revenues in 2009 plummeted 36 percent to $37.6 million, according to statistics released by the municipality which reflect the decline in the capital’s economy.
Economists said the decrease shows the worst effects of the economic recession last year, particularly for the real estate sector where sales stagnated, though other major sectors such as tourism and garments played a role in the slump.
Om Chan, director of the municipal tax department, blamed the world economic crisis for reducing taxable revenues in construction and manufacturing, adding “major building construction shut down and did not work,” according to a presentation he gave City Hall on Monday.
Reached by telephone, Mr Chan declined to say how the municipality will deal with the loss in revenue. He said he did not know exactly how much the real estate market affected the decline.
He said the municipality must improve its tax collection methods. as it suffers from the limited cooperation from taxpayers and the limited ability of tax collectors.
“We will enhance law enforcement on tax collection,” he said.
Chan Sophal, president of the Cambodian Economic Association, said revenue loss is not surprising given the bursting of the real estate bubble after years of skyrocketing prices and a high number of sales.
“It reflects the worst part of the Cambodian economy, especially in the property and real estate market compared to good years,” he said adding declines in garments, and tourism were not as severe. “They were negatively affected but not as badly as real estate.”
International financial institutions at the end of last year projected that the 2009 economy would shrink by several percentage points with the International Monetary Fund predicting a 2.75 percent drop, and the World Bank predicting a 2.2 percent contraction.
Neou Seiha, a senior researcher for the Economic Institute of Cambodia, said the decline in tax revenue is so much steeper than the GDP decline because sales taxes, profit taxes and other taxes mainly affect the formal sectors of the economy, which were most battered by the crisis.
The main sector in Cambodia’s economy to grow last year was agriculture, which was of little help to tax collectors in the country’s urban center, he said.
“The tax is very related to the economic activity. They can collect tax from active economic operators if they have economic activity. If they don’t have economic activity they can’t collect,” he said.
Sung Bonna, the president of Bonna Realty, said that in 2008 real estate transactions sometimes reached 100 a day but after the real estate bubble burst in the second half of 2008, transactions reduced to 10 or fewer. With the government levying a 4 percent tax on real estate sales, the loss is not small, he said.
“Because of the economic crisis, I am sure that the government has lost a lot of income taxes,” he said.
He added that revenues are less than they could be because buyers and sellers routinely report smaller amounts for real estate transactions to avoid paying higher taxes.
He said the government needs to implement tougher measures to collect taxes on real estate sales such as requiring real estate sales to be verified by licensed realtors.
