Challenging a plan to repeal almost all investment incentives, Cambodia’s private sector has drawn up a counter-proposal on how to increase tax revenues for the government.
Business leaders called the recommendation to repeal incentives, made last month by the World Bank group’s Foreign Investment Advisory Services, a “quick fix.” They say the plan would place the entire burden of additional revenue collection on investors who have already been paying various taxes.
Instead, they say, national revenues would increase if existing taxes are enforced and applied to all tax payers. The counter-proposal, scheduled to be discussed today at a government-private sector workshop at the Council of Development of Cambodia, lists seven ways of generating more revenue from items that are not taxed or undertaxed.
The counter-proposal, prepared by various business associations and business leaders, says the FIAS recommendations failed to show how much additional revenues might be garnered from the incentives repeal.
The group says the corporate profit tax should not exceed 15 percent if it needs to be increased, the eight-year tax holiday should be maintained, and the import duties should remain exempted.
Instead, the private sector recommends alternatives, such as collecting taxes from thousands of businesses that are currently not paying taxes due to the country’s disorganized business registration system and its weak tax management.
Currently, various ministries and government entities accept a registration of business, but the tax department does not have all the lists of those registered businesses, the counter-proposal maintains.
“The identification and collection of taxes from these businesses should provide a major increase in revenue to the government,” the proposal states.
The proposal suggest customs duties be applied more strictly and criticizes loopholes in collections which allow many non-exempt goods to go free.
It also recommends the tax on employees’ salaries be levied from all taxable employees, including expatriate staff of NGOs who are currently free from such taxation.
Property tax should be levied on all property, rather than only on unused land, the private sector recommends.
“If the FIAS proposal is adopted, new investment will dwindle, the economy will slow and revenues decline,” the counter-proposal concludes.
FIAS has suggested that the government eliminate most of the tax exemptions now granted to registered investors. It seeks to raise the corporate tax from the current 9 percent to 20 percent and to repeal the existing tax holiday granted for up to eight years. It also recommends import duties on materials and equipment for a wide range of industries that now enjoy tax exemptions.
“This cannot be the best solution,” the counter-proposal states.
The private investors have said the recommendations are too theoretical to apply to Cambodia, which has inadequate infrastructure, high cost of operation, a weak legal system, corruption and smuggling.
Investors say the current tax exemptions are Cambodia’s only competitive edge over neighboring countries.