Cheap Car Imports Present Challenge
Prime Minister Hun Sen, in an apparent gesture to international lenders, declared Wednesday his new administration will outlaw automobile import tax exemptions for generals, parliamentarians and government officials.
The decree is both an effort to collect revenue for the cash-strapped government and to crack down on the practice of selling the tax-free certificates to businessmen, officials said.
But opposition leader Sam Rainsy immediately labeled the measure merely “cosmetic.”
The practice of automobile tax exemptions has been castigated by the International Monetary Fund and the World Bank.
Hun Sen’s declaration, made during the new administration’s first Council of Ministers meeting Wednesday, affects about 600 army generals, parliamentarians and government officials who were allowed the exemption for most of the last administration.
“Now, no one is allowed to import cars without paying taxes,” Sum Manit, a CPP secretary of state for the Council of Ministers, said Wednesday.
Chhay Than, a former state undersecretary for Finance, said the allowance sapped $4 million over the last five years from a government heavily criticized for its inability to gather revenue.
Most officials said they believe enforcing the duties will result in higher government revenues, despite a porous border that allows many items to be smuggled, including vehicles.
Government spokesman Sieng Lapresse on Wednesday said Hun Sen cited the stagnant economy and the “need to help the needy” as reasons for the measure.
“The country needs more than just these duty-free tax exemptions because [recipients] turn around and sell it to the businessmen,” Sieng Lapresse.
While the practice is not allowed in the Law on Investment, “ad hoc exemptions were granted for rubber exports and luxury automobile imports during 1996, due in part to a lack of clarity in the Law on Investment,” a 1997 World Bank report said.
Sam Rainsy, who served as finance minister from 1993-94, said he granted a one-car allowance during the last government’s mandate under heavy pressure from parliamentarians.
Parliamentarians and army generals often sold their tax-exempt certificates to businessmen who wished to import expensive new cars, officials confirmed Wednesday. “Even those who already had a car and did not need another one, they still took these tax exemptions and they sold it to any businessman who wanted a car,” Sam Rainsy said of his tenure as finance minister.
Another duty-free vehicle import was allowed in 1996 during a government budget crunch to allow parliamentarians another way to make money, Sieng Lapresse said.
Duties at the time ranged from 15 to 120 percent of the automobile’s value, depending on the size of the engine, according to customs officials.
In 1997, Finance Minister Keat Chhon ended the exemption practice after the previous year saw at least 400 generals and 120 National Assembly members import automobiles duty-free.
One government insider said that military, police or government officials with connections were able to exploit the tax-exemption beyond the one-car allowance. “If well-placed and connected with high places, there is no limit on how many [vehicles] one could bring in one year,” the source said, speaking on condition of anonymity.
Customs and Finance officials maintained Wednesday that no automobiles have been imported duty-free by parliamentarians or generals following Keat Chhon’s 1997 order. International organizations and embassies, as provided for in the Law on Investment, are still allowed the vehicle exemption, officials said.
Less than 100 cars belonging to international organizations or the National Election Committee have been imported duty-free this year, Customs Director In Saroeun said Wednesday.
General Nem Sowath, chief of Cabinet for the Ministry of Defense, on Wednesday lauded the move and said he does not expect many generals to be upset by the new policy.
“I think everyone will understand if the new policy on tax exemptions is implemented fairly and equally for everyone,” he said by telephone.
Hun Sen has previously promised to target tax-exempt allowances provided for outside of the Law on Investment. The recently approved coalition government’s political plan and Hun Sen’s seven-point speech in October both touched on the subject.
Sok An, a CPP standing committee member and Minister of the Council of Ministers, on Wednesday said the decree is a step toward enforcing the law.
“It’s very specific. It’s a step forward and an implementation of the rule of law,” Sok An said.
The 1997 World Bank report raised questions of budgetary transparency in light of such exemptions and encouraged the government to review the allowances, which it called “generous provisions compared to other countries.”
Sam Rainsy said the move to halt exemptions was gave smugglers or businessmen one less loophole with which to exploit the national budget. However, he said, there are other more expensive “tricks,” such as rubber exemptions and cement smuggling, on which the government should set their sights.
“Five million dollars per legislature is nothing. If they really want to really impress people they should tackle more important issues,” Sam Rainsy said.
(Reporting by Lor Chandara, Mhari Saito, Marc Levy and Chris Decherd)