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Cambodia: New ‘Taxation Law’ a shot in the arm for taxpayers
The newly introduced Taxation Law is devoid of any complications. As Khmer Times breaks down the 84-page law to its readers, it sees the government has launched the Taxation Law at a perfect time to strengthen tax collection and ease of compliance. It provides flexibility to honest taxpayers, but yes it comes with a rider for deliberate tax defaulters – prison sentence and fines even if they provide fake records or conceal or intentionally destruct accounting records.
The new Taxation Law encompassing the earlier provisions of the taxation law (1997), annual budget laws of the Kingdom of Cambodia time and decrees and codes of the People’s Republic of Kampuchea (PRK) and the State of Cambodia (SOC) is seen as simple, flexible and taxpayer-friendly, officials said.
The first dissemination of the new Taxation Law by the General Department of Taxation (GDT) of the Ministry of Economy and Finance (MEF) was brought into public discourse through a special live program after it was promulgated by King Norodom Sihamoni on May 16, 2023.
Kong Vibol, GDT’s Director General, said the former taxation law was approved on February 24, 1997, with six chapters divided into 142 articles that stipulate four types of taxes, but it does not include other tax types that were issued after January 7, 1979, since the People’s Republic of Kampuchea (PRK).
He said some regulations were issued in the State of Cambodia (SOC) era to cover some more types of taxes such as stamp tax, tax on fiscal stamps, transportation tax and patent tax, but these types of taxes have also not been included in the Taxation Law 1997 and even when it was amended.
“That’s why our taxation laws and regulations have been in a disorderly manner… In response to the economic development with some inputs from private sectors and development partners, we have modernised the laws. For example, our law does not allow using information technology in the context of the digital age,” Vibol clarified.
Vibol went on to explain that the new Taxation Law does not raise tax rates and most of the contents in the law remained unchanged, but their wordings have been improved to be consistent with other laws such as criminal code, investment law, criminal code and international agreements Cambodia’s government has signed and will sign.
He said the new Taxation Law is also made in response to the government’s reforms as a working group has been led by GDT’s former deputy director general Van Puthipol, who held 230 meetings at the GDT level and 12 technical level meetings participated by relevant ministries and institutions.
GDT had collected inputs from the Secretariat of the Council for the Development of Cambodia and Ministries of Commerce, Mines and Energy, Labour and Vocational Training, Agriculture, Forestry and Fisheries, Industry, Science, Technology and Innovation and Justice to detect the loopholes of the former taxation law.
On the new tax law, he said, “We did not add more burden on taxpayers. Instead, it provides more easiness and clearer wordings to be more consistent with both international standards and some agreements that we have signed regarding double taxation.”
GDT plans to disseminate the 84-page new Taxation Law which consists of 20 chapters divided into 255 articles to private sectors and taxpayers through many different means such as workshops and videos after it has been centralised with a combination of law laws and regulations issued in PRK and SOC times.
Further elaborating Vibol said, “The government clearly understands the situation, which means we would not make a law that creates economic conflicts and make the economy stuck but provides more incentives to investors and sectors. I think the new law is better, easier, more transparent, more predictable and more consistent,” said Vibol.
Bun Neary, Deputy Director General of GDT, pointed out that the structure of Cambodia’s new Laxation Law includes the 1985 decrees that stipulated four types of taxes including patent, transportation and vehicles, stamp and fiscal stamp taxes and annual budget laws that further states other six types of taxes.
Six types of taxes under the annual budget laws include house and land rent, unused land, public lighting, accommodation, the capital gain made by a physical person and real estate taxes, while the Taxation Law 1997 and amended ones consist of seven chapters divided into 155 articles.
Neary, who took over leadership of preparation of the new Taxation Law from GDT’s Puthipol, said that Cambodia’s Taxation Law 1997 and the amended ones stipulate five types of taxes that include income, salary, valued added tax, special taxes on selected goods and services and mineral resource and petroleum operations.
He said that the last part of the Taxation Law’s structure is the law that was promulgated on May 16, 2023, with 20 chapters divided into 255 articles to combine together the four types, six types and five types of taxes stipulated in 1985 decree, annual budget laws and taxation law 1997.
Nine articles of the Taxation Law 1997 have remained unchanged and are included in the Taxation Law 2023, while 246 articles have been changed.
“The government had issued sub-decrees or proclamations to support the private sector and so these documents have also been included into the law,” said Neary, adding that 52 articles or contents have been changed in large-scale, while 61 articles and 60 articles were fully added and taken from applicable regulations respectively.
The new Taxation Law changed ‘special taxes on selected goods and services’ to ‘special taxes’, ‘tax on house and land rent’ to ‘tax on real estate rent’, ‘tax on fiscal tax’ to ‘tax on advertisement board’ and ‘tax on transportation and vehicles’ to ‘tax on transportation means’.
“Regarding the income tax, associations and political parties are included in the [new] tax law as there are unclear presentations on registration that these institutions are not under registration with the general department of taxation … and so we revised pointed to be clearer,” Neary added.
Thirty out of the 61 largely-changed articles stipulate the goals, coverage, tax objectives and rules and procedures of tax collection that are consistent with guidelines on rules and procedures of making other draft laws and legal documents prepared by the Office of the Council of Ministers.
Most of the new additions are included in Chapter 18 of the new Taxation Law regarding penalties that are directed to the implementation under the criminal code, while Article 75 on the Value Added Tax (VAT) is included to be consistent with the new law on investment.
“We include the termination of the criminal lawsuits to provide a compromise to taxpayers and tax authority to settle the criminal lawsuits that the tax administration files with the court … if taxpayers have will to appear and settle tax debts. This is a right the general department of taxation has,” Neary said.
“So, this law … provides much flexibility to our taxpayers … the government shall be able to offer tax incentives, exemption or suspension immediately in part or in full as per finance minister’s request in case of economic, financial crises or emergencies or immediate needs to balance economy,” said Neary.
Puthipol, who is currently the Undersecretary of State of the Ministry of Economy and Finance (MEF), said the former Taxation Law was based almost fully on the World Basic Tax Code, but Cambodia has faced many challenges in complying with this law as the contexts of countries in the world are different.
The law on mineral resources and petroleum was issued after taxation regulation on mineral resources and petroleum had been issued but after that, it was revised. “Sometimes, discussions were done with some arguments but the experience in preparing this law has given us solidarity,” Puthipol said.
Khun Darith, Managing Partner of the audit, accounting and tax solutions at accountancy and auditing firm K Professional Accountants (KPA), told Khmer Times that the new taxation law comes at a perfect timing to strengthen the tax collection and ease of compliance.
“The new laws have offered more clear articles and interpretations for ease of implementation and compliance,” said Darith, adding that section 13 specifies the stamp taxes, section 14 on capital gains taxes, section 15 on unused land tax, and section 15 on transportation tax.
It is important to have this new Taxation Law as the former ones are outdated despite following amendments and since then lots of sub-decrees, proclamations and other regulations had been issued to support implementation and tax collections, while business situations and circumstances have changed.
“This new tax law have supersedes the old laws and will be easier for taxpayers and tax consultants to fully comply with tax laws and regulations and it also enhances tax compliance from taxpayers as it is easier to understand and they are in one document with complete and comprehensive articles,” said Darith.
“This will enhance the tax collections from now on which ensure the effectiveness and efficiency of tax administration. This is another value-added, which tax authority has made efforts towards modernisation of tax regime with digitalization. Now we have clear and comprehensive tax laws,” said the tax expert.
Another analysis made by Clint O’Connell and Vajiravann Chamnan, who are Partner and Cambodia Deputy Managing Director & Head of Cambodia Tax Practice and Tax Director respectively at the business consulting, tax and investment advisory DFDL shows that the new Taxation Law consists of 20 Chapters and 255 Articles, which is a significant increase from the former taxation law which consisted of 7 chapters and 155 articles.
Making their observation in a write-up, ‘Cambodia Tax Alert: Promulgation of the New Law on Taxation, O’Connell and Chamnan have pointed out that the new Taxation Law contains significant developments concerning how the tax authority carries out its affairs and the powers it is afforded and of note is the inclusion of electronic communication to the existing means by which the tax authority can communicate with taxpayers.
“The key takeaway being that taxpayers should ensure that their contact details, including email addresses, are kept up to date with the tax authority,” said the article, adding that the new Taxation Law also provides discretion to the tax administration to create an incentive scheme for tax officials, to fully or partially waive penalties and interest on taxpayer re-assessments.
The two tax experts pointedly said in their analysis that the tax authority’s discretion will help prioritise tax liens over general creditor rights and requires third parties such as banks to respond to tax authority requests for taxpayer information within a fixed timeframe of 30 days or face a penalty.
It stated further there is a significant increase in the level of fines and imprisonment terms under the new taxation law as tabled below.
Taxpayers shall get penalties at about $25,00 if they fail to use the recording system as determined by the tax administration, fail to issue an invoice, fail to provide information or submit reports as per the request, fail to keep accounting records and other documents, or they do not permit tax officials to check accounting or any documents.
Taxpayers shall be sentenced from one month to one year in prison, and fines from $12,500 to $25,000 if they attempt to obstruct the tax assessment and collection, provide or produce fake records, documents, reports or information, conceal or intentionally destruct accounting records, records, documents, reports or any information, issue fake invoices, or not permit the tax administration to enter their business premises to assess and collect taxes.
Source: https://www.khmertimeskh.com/501302182/new-taxation-law-a-shot-in-the-arm-for-taxpayers/