Thailand
Cambodia: Taxpayers caught between two exchange rates
Taxpayers and tax practitioners in the country have been caught in the middle for the last couple of months with the Kingdom now following two official foreign exchange rates – one fixed by the National Bank of Cambodia (NBC) and the other by the General Department of Taxation (GDT).
Though the two official rates for the US dollar to Khmer riel transactions differ only slightly, they complicate the tax calculation work of the companies using the NBC rates for accounting purposes as they get a different calculation from the GDT for taxes.
For example, the NBC exchange rate published on its website yesterday (September 28) was 4,118 KHR/USD whereas the rate of the GDT on its website was 4,124 KHR/USD. The issue is of particular concern in Cambodia as the US dollar is widely used for transactions in the country.
The GDT started having its own official rate from June 1, 2022, with a directive to the taxpayers that it would take over the NBC rate for tax valuation and payments.
NBC updated its exchange rate determination mechanism on August 2 this year after the announcement on various platforms such as Facebook and now it closely reflects the foreign exchange market rate.
NBC now fixes the official exchange rate before 8am every day based on the closing time volume-weighted exchange rate traded on the National Bank of Cambodia Platform (NBCP) the previous day. Some tax practitioners are of the view that since the NBC rate is now a true reflection of the market rate, it should be used for tax purposes as well. But this cannot be a problem for those doing the calculations in local currency KHR as all taxes are now collected in KHR, said Ruwan Hulugalle of BNG Legal.
The issue largely concerns multinational firms that normally do their internal audits using USD and firms having a large base of foreign shareholders who insist on having their balance sheets in USD.
“The challenge faced by the corporates is that the exchange rate published by GDT is mostly higher than the exchange rate published by NBC as well as other banks in Cambodia. This leads to exchange rate losses for the corporates. It may not affect small organizations but it affects bigger companies such as garment factories,” said Babulal Parihar, Vice President of the Indian Chamber of Commerce (InCham).
“As the GDT and NBC issue different exchange rates, it also creates a lot of confusion for auditors and taxpayers,” he said, adding that the companies functioning in Cambodia will be glad if there is one uniform exchange rate that can be issued by the government for accounting purpose as well as for the tax purpose.
Advocates of the NBC rate cited that it is now a true reflection of the real market rate as the calculation is based on the actual completed transactions rather than based on a mere quotation. The NBCP official exchange rate is determined without any adjustment to provide the general public with a foreign exchange reference rate that can be used for any transaction or purpose, it was pointed out.
The NBCP platform is a proprietary system developed by the central bank enabling over 70 banks and financial institutions in the country to buy or sell and settle the exchange value of the KHR against the US dollar. The NBCP has a daily average trade volume of $11 million from January to June 2022.
But it is still not mandatory for the banks or the GDT to follow the NBC official exchange rate, though this rate can easily serve as a reference rate for the general public for their transactions, contracts or accounting purposes.
As the NBCP is only available to the NBC, it allows the central bank to accurately capture the transactions made by banks and financial institutions and publish the exchange rate for the benefit of the general public ensuring that they have a rate that is transparent, fair and true, said an official of the bank.
According to the provisions in the Organization and Conduct of the NBC, the central bank regularises the domestic exchange rate and is authorised to declare the official foreign exchange rates for the riel to other currencies and is also to participate in international financial agreements on behalf of the government.
Source: https://www.khmertimeskh.com/501158888/taxpayers-caught-between-two-exchange-rates/