Think Tank Calls for Elimination of Gas Tax

The Economic Institute of Cambodia called for the elimination of the gasoline tax, saying it decreases the country’s global competitiveness, encourages smuggling and has not increased government revenue.

“In 2002, the gasoline tax was more than 100 percent of the import price,” EIC economist Chea Samnang said at the launch of the economic think tank at the Hotel Cambodiana on Wednes­day. “The high tax rate encourages smuggling.”

While the number of cars has in­creased steadily in the past decade, an EIC report said, the gasoline tax revenue has gradually fallen since 1994—a result of fuel smuggling.

“With poor governance, loose border control and widely ac­knowl­edged rampant corruption in the country, fuel smuggling for quick windfalls is simply too irresistible,” the report said.

Lower gas prices, the report argues, would give the 36 percent of people living under the poverty line more money for food and health care. It would also put the country’s gasoline prices in line with Thailand and Vietnam, where prices are about 75 percent lower. Eliminating the tax would make the country more competitive globally now that it is on the verge of joining the World Trade Organization.

Speakers at the EIC launch debated the pros and cons of WTO membership and discussed how to retain the garment industry, which accounted for more than 96 percent of exports in 2002. Worldwide garment quotas expire for WTO members at the end of next year.

After 2004, “there will be a big washout among garment manufacturers worldwide,” said

Mich­ael Keller, economic and commercial officer for the US Em­bassy. He said that only about 10 countries worldwide will ma­n­u­fac­ture garments after next year.

“If Cambodia makes itself known as a place that respects labor standards, my hope is that it will become one of those 10 countries,” Keller said.

Cambodia is the only country to sign a formal agreement linking labor standards to garment quotas. Reports from the UN’s International Labor Organization consistently show that the country is free of child labor, forced labor and sexual harassment.

Since competing on cost with other nations is not feasible be­cause of high utility, bureaucracy and corruption costs, industry leaders are working to exploit the niche market of socially conscious buyers.

“We need to promote a national brand based on compliant labor standards,” Ray Chew, secretary-general of the Garment Manufac­turers’ Association of Cam­bodia, said. “Today, buyers are talk­ing about social accountability.”

Though nobody could say for sure if the niche market will sustain the country’s garment factories, which employ about 200,000 mostly female workers, re­cent signs appear encouraging. An Israeli firm recently moved some production here after pressure from buyers, Ray Chew said. Also, he said, a major US brand decided to shut down all of its North American factories recently and is close to opening a factory here.

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