Cambodian Economy: Charting the Course of a Brighter Future - A Survey of Progress, Problems and Prospects

20. Tax System

407 Chapter 20 Tax System Cambodia’s tax system is organized around two regimes: the self-assessment regime and the estimated regime. 20.1. Self-Assessment Regime Based on the declaratory principle, the self-assessment regime implies that taxable persons determine themselves their basic taxable amount and pay their tax without the intervention of tax authorities. To start with, the tax authorities receive the tax return from taxable persons. They then audit the tax return that has been submitted of the taxable person’s own accord in order to check whether the income declared complies with the information included in the taxable person’s file and whether the latter complies with the regulatory provisions in force in terms of taxation. This system has the following benefits: • Liable persons are responsible for the information contained in their tax return. • They submit their tax return of their own accord and pay the tax calculated from the information declared. • Administrative expenses are reduced. • The tax authorities have more time to check taxable persons in breach of regulations (undeclared activities or using organized tax evasion networks). • Enforcement of laws is strengthened. Persons subject to the self-assessment regime are all kinds of import, export or investment companies with a minimum annual taxable turnover of: a. 500 million riels for companies providing goods. b. 250 million riels for service sector companies. 408 c. 125 million riels for companies that are bound by contract with the government. In late 2008, Cambodia had a total of 11,196 companies; 2,933 of which were small-, medium- or large-size activity companies (and that have submitted their tax return to the Tax Department). They are divided into 1,793 large-size companies, and 9,403 small/ medium-size companies. Self-assessment regime now spreads over all provinces and 7 districts in Phnom Penh. Revenue originating from taxes of taxable persons subject to the self-assessment regime account for 90 percent of the total revenue of the tax department with regards to taxes on industrial profits. 20.2. Estimated Regime The estimated regime is for small economic activities. They account for 39,086 enterprises that have an annual turnover lower than that of taxable persons subject to the selfassessment regime. Receipts from taxable persons subject to the estimated regime account for 20 percent of the total revenue of the Tax General Department with regards to taxes on industrial profits. The Tax General Department is responsible for collecting government taxes and provincial taxes. This taxation regime goes beyond the declaratory system: calculation of tax liability is made by the administration and based on various factors: • Location of activity (capital city or province). • Number of employees. • Type of activity. Then, the administration undertakes the collection of taxes in the field. It is a more involved procedure since, for a rather low return, it demands the mobilization of a large number of officers to collect liabilities from people who are often rather ill-informed of “tax compliance.” 20.3. Destination and Type of Tax Taxes can generate revenue for the national budget, as follows: • Income tax. • Profit tax. • Tax on rental of houses and land. 409 • VAT. • Excise duties. • Specific taxes on certain goods and services. • Slaughter tax. • Stamp duties. Taxes can contribute to generate revenue for the provincial and municipal governor budget, as follows: • Tax on unused land. • Registration tax. • Trade license tax. • Slaughterhouse tax. • Tax on motor vehicles. • Tax on tobacco and alcohol. The current tax system of Cambodia comprises direct tax, indirect tax and various duties and fees. Customs duties (CD) on foreign trade (imports and exports) are indirect levies considered separately. Direct taxes are taxes levied on wages of physical persons, on capital profits and gains. In Cambodia, a distinction is currently made between: • Tax on industrial and commercial profits (ICP) • Income tax. • Property tax, for the time being in the form of a single asset tax, rental income tax. Indirect taxes are taxes on goods and services: they are payable on the production and consumption of goods and deliveries of services, from import to release for endconsumer use, and are passed on throughout the commercial cycle of the good or service delivered. In Cambodia, the system currently lists 5 categories of indirect taxes: • Turnover tax—ToT in the flat-rate regime—and a value-added tax, VAT in the real regime. 410 • Excise duties or specific taxes on certain local or imported goods—carbonated drinks...