Low-wage workers will be able to earn up to $200 a month before their salary is taxed at the minimum 5 percent rate, raising the tax-free threshold by about $75 from the current $125, according to a notice released Wednesday by the general department of taxation.
According to the document, only workers earning above 800,000 riel, or $200, will be taxed on their salaries starting this month. The subsequent tax brackets will not be affected.
The change to the lowest income tax band aims to create a fairer wage scheme while giving those who are struggling financially some breathing space as living costs rise, said Sok Daravuth, secretary-general at the taxation department, which is part of the Finance Ministry.
“[W]e want to help low-salary employees have more income to respond to the living costs which have increased from year to year,” Mr. Daravuth said.
“And we want to narrow the income gap between high salary and low salary employees to increase the number of middle income people in society,” he said.
A report released in April by Deloitte University Press said Cambodia’s persistent budget deficit was caused by abysmally low tax revenues, which in 2013 amounted to just 5 percent of gross domestic product.
James Roberts, a tax adviser at Sciaroni & Associates, said the government had made efforts to collect more revenue in recent years, such as tightening customs procedures, and the decision to ease taxes for low earners was a “bold move.”
“As a result of this increased activity I understand that in the last 3 years alone annual tax revenues collected have increased from an estimated 650m to an estimated $1.2bn per annum,” he said in an email.
Clint O’Connell, a partner at legal and tax advisory firm VDB Loi, said the government’s move will undoubtedly mean less money in the state coffers.
However, with a large tranche of the population earning less than $200, including the vast majority of the 600,000 workers in the garment sector, many of whom will see their wage rise from $100 to $128 this month, Mr. O’Connell said the tax changes are “politically, a good move.”
“Garment workers on the minimum wage were angry that they were on the borderline and going above the $125 would have to pay tax,” he said.
“It’s a move to ensure that any gains made, such as on the minimum wage, are not going to be stripped away by the tax on salary band.”
However, Chhay Sovanna, chief of the Dangkao district taxation branch, said the tax change would affect state revenue “very little” as low-wage workers were already making a relatively small contribution to tax collection.