Tax-Break Talks Put on Hold

The Council of Ministers postponed its discussion to finalize a tax exemption for garment manufacturers, an official of the council said Wednesday.

Chea Sophan, secretary of state of the council, said that council members had to deal with another urgent matter Wednesday when they were scheduled to meet to finalize the tax break on the Value Added Tax. He did not elaborate on what the urgent matter was.

But he said another meeting on the tax exemption for the garment industry is rescheduled to be held today.

According to industry sources, the government plans to exempt garment manufacturers from the 10 percent tax, which could cost the government more than $20 million in tax revenue.

On Wednesday, Finance Minister Keat Chhon said the term “tax exemption” should be banned, saying he would prefer that everyone pays. It was unclear whether that will translate to the garment industry.

The VAT is considered a key component of ongoing financial reform to increase the government’s tax revenue and its ability to provide for its citizens. International donors have urged Cambodia to improve the tax-collection system.

A representative for a major donor expressed concerns Wednesday about the possibility of a tax break for the country’s fastest-growing industry.

R Natarajan, representative for the World Bank in Cambodia, said that the perception is not good, given the government’s articulated commitment to collect more revenue. He voiced concern that VAT exemptions will hinder government attempts to meet its ambitious 1999 budget.

Roger Tan, general secretary of the Garment Manufacturers Association, said early this week that the government will not collect the tax from the textile makers if finished products using imported raw materials are exported within three months. If not, such raw materials would be subject to VAT.

(Additional reporting by Jeff Smith)

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