Cambodia: ‘Free trade agreements cause customs tax revenue loss but exports increase’

The implementation of free trade agreements (FTAs) and regional mega trade pacts have resulted in a loss of custom taxes for Cambodia, but has also boosted investment flows, created jobs, and increased exports, said Kun Nhem, director-general of Customs and Excise, while speaking at a workshop yesterday.

In a workshop yesterday, Nhem said FTAs and RCEP have reduced customs tax income.

Cambodia loses revenue from preferential tariffs under FTAs, but these frameworks benefit the county’s economy due to the flow of trade and tariff reductions, he said.

“Despite a loss of customs tax revenue from preferential tariff rates under RCEP and FTAs with China and Korea of about $400 million a year, Cambodia attracts more new investment, creates jobs for people and increases exports, contributing to national income,” Nhem said.

RCEP and the Cambodia-China Free Trade Agreement (CCFTA) came into effect in January 2022.

The RCEP free trade agreement comprises 15 Asia-Pacific countries including 10 ASEAN member states and their five trading partners, namely China, Japan, South Korea, Australia and New Zealand.

Cambodia has two institutions responsible for collecting taxes. One is the GDCE, which collects taxes on goods entering and leaving the country, and the other is the General Department of Taxation (GDT), which focuses on interior taxes such as income tax, salary tax, value-added tax, and property tax.

Official report showed that the GDCE collected $564.1 million as customs income in the first three months of this year, a decline of 5.2 percent compared to the same period in 2022.

The income represents 20.5 percent of the target set for the entire year of 2023.

During the first quarter of 2023, the main source of income was the import taxes on vehicles and machinery, which accounted for 36.3 percent of the total customs income.

Cambodia’s exports in the first five months of 2023 were worth $9.18 billion, down 2.4 percent from $9.41 billion for the same period last year, the report said.