Cambodia: Selected Issues and Statistical Appendix
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This Selected Issues paper analyzes the potential impact of oil on economic growth and policy for Cambodia. It shows that a hypothetical moderately sized oil sector would have a significant, but not overwhelming, impact on macroeconomic prospects; but reaping the benefits while avoiding economic problems would depend, in particular, on sound fiscal policies. The paper looks at the role of wage and employment policies within the broader civil service reform agenda. It also analyzes wage bill developments since the 1990s and proposes steps to accelerate pay and civil service reforms.

Abstract

This Selected Issues paper analyzes the potential impact of oil on economic growth and policy for Cambodia. It shows that a hypothetical moderately sized oil sector would have a significant, but not overwhelming, impact on macroeconomic prospects; but reaping the benefits while avoiding economic problems would depend, in particular, on sound fiscal policies. The paper looks at the role of wage and employment policies within the broader civil service reform agenda. It also analyzes wage bill developments since the 1990s and proposes steps to accelerate pay and civil service reforms.

V. Cambodia: A Note on the Tax System1

1. This chapter presents the key features of Cambodia’s tax system (see details in the Summary of the Cambodian Tax System) and assesses its performance in a regional context. There is also a description of the main changes to the tax system in 2007.

Figure 1.
Figure 1.

Cambodia: Central Government Revenue Collection

(in percent of GDP; excluding capital revenue)

Citation: IMF Staff Country Reports 2007, 291; 10.5089/9781451821857.002.A005

2. Cambodia’s tax revenue is collected by the Tax Department (TD) and the Customs and Excise Department (CED). CED currently collects more than 60 percent of tax revenue. Given Cambodia’s opening to trade and its obligations under WTO and ASEAN membership, the dependence on trade taxes is a source of fiscal vulnerability.

3. The tax structure is broadly comparable to those of countries in the region (see table). Direct taxes consist of the profit tax (at a standard rate of 10 percent) and the tax on salaries (0–20 percent). The main indirect tax is the value added tax (VAT), at a rate of 10 percent. Cambodia’s tax system also includes a turnover tax applicable to taxpayers for which the turnover is below the VAT threshold. Excises are collected on locally produced and imported products, such as beer, soft drinks and cigarettes. Local taxes are marginal, in the absence of a property tax.

Table 1.

Tax System versus Countries in the Region

(tax rate and revenue, in percent)

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Sources: FAD database; and various staff reports.

Non-oil revenue for Vietnam and Indonesia.

4. A recent staff study (Country Report No. 06/265) also found that Cambodia’s tax incentives appeared broadly as generous as those provided by countries in the region. Yet revenue collection is disappointing.

5. At 8 percent of GDP, the tax ratio is very low by regional standards. It is above 16 percent in China, Korea and Thailand. Cambodia’s low tax ratio is due to weak tax and customs administrations and extensive untaxed activities:

  • Human capacity remains low, while very low public sector wages encourage corrupt practices (see chapter 1).

  • The long unmanned border provides smuggling opportunities, especially on petroleum products (by sea), cars, cigarettes and beer. Petroleum taxation rates are higher than in either neighboring Thailand or Vietnam.

  • The application of the tax system is inequitable (some activities are or are not taxed depending on the owner).

  • Cooperation between the TD, CED and the Ministry of Commerce (in charge of company registration) is not strong, which limits cross-checks by the TD.

  • A large share of the formal economy is not fully covered by the tax system. For example, garment activities, which recorded a five-fold increase between 1999 and 2006, benefit from generous incentives (tax holidays, reduced CIT tax, exemption of import duties and VAT), and incomes distributed by the sector are not properly taxed.

  • Wealth taxation is minimal. A recently introduced capital gains tax is not yet operational and efforts to set up effective property taxations were rejected in recent years by the National Assembly.

  • The buoyancy of taxes is also constrained by administrative interventions. For example, the base for the excise on gasoline and diesel is set administratively at a low level (currently US$309 and US$267 a ton, respectively), and is adjusted infrequently.

  • Not all taxes collected by line ministries flow to the national treasury, due to deficient control and sanction mechanisms.

6. The government’s medium-term revenue strategy is to reduce progressively the reliance on customs revenue, by strengthening the domestic tax revenue base. At the same time, they have undertaken to modernize the CED, including a reform of import valuation,2 and the fight against smuggling. CED revenue gains are predicated on a new regulatory framework that will be facilitated by the imminent passage of the customs law.

7. Over the coming years, the authorities are contemplating measures to strengthen revenue mobilization, while improving the efficiency and equity of the tax system. Among new tax initiatives, they plan to broaden the VAT base and to enhance property taxation:

  • The VAT coverage could be extended to the consumption of electricity and water (above a certain threshold).

  • The introduction of a property tax would help bring into the tax net the wealth created over recent years of high GDP growth and which is being directed into construction activities and land speculation.

Taxation of petroleum products based on the transaction value could also be helpful.

8. The following changes have taken place since 2006 (relative to Country Report No. 06/265):

  • Profits and income. A capital gain tax on physical persons was introduced in the context of the 2007 budget. Implementation regulations are still being prepared.

  • VAT. An exemption was introduced on the imports of seeds, breeding animals, and planting/fertilizing/harvesting/post-harvesting machineries, including combines and two-wheeled tractors.

  • Excises. The tax base on locally produced goods is now 65 percent of the retail price (a proxy for the ex-refinery price).

  • Hotel accommodation tax. The implementation started in 2007.

  • Export tax. The export of sand, gravel and granite is now taxed.

Summary of the Cambodian Tax System May 2007

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Cambodia: Basic Data, 2001–06

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Sources: Cambodian authorities; and Fund staff estimates.

As a percent of beginning broad money stock. Represents contributions to 12-month changes of broad money.

Excluding re-exports.

Including gold holdings.

Russian Federation debt is valued at 0.6 USSR roubles per US$ with the standard 70 percent discount.

Table 1.

Cambodia: Gross Domestic Product by Sector at Current Prices, 2001–06

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Source: Ministry of Planning, National Institute of Statistics (NIS).
Table 2.

Cambodia: Gross Domestic Product by Sector at Constant Prices, 2001–06

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Source: Ministry of Planning, National Institute of Statistics (NIS).
Table 3.

Cambodia: Aggregate Demand at Current Prices, 2001–06

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Source: Ministry of Planning, National Institute of Statistics (NIS).

Including statistical discrepancy.

Fund staff estimates based on latest balance of payments estimates.

Gross national income under the 1997 System of National Accounts (SNA) corresponds to the former Gross national product (GNP) aggregate.

Defined as GDP net of final consumption.

Defined as GNDI net of final consumption. Includes net income and transfers from abroad.

Table 4.

Cambodia: Gross Domestic Product by Expenditure at Constant Prices, 2001–06 1/

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Source: Ministry of Planning, National Institute of Statistics (NIS).

Including statistical discrepancy.

Table 5.

Cambodia: Gross Value Added of Agriculture, Fisheries, and Forestry at Constant Prices, 2001–06

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Source: Ministry of Planning, National Institute of Statistics (NIS).
Table 6.

Cambodia: Agriculture, Livestock, and Fishery Production, 2001–06

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Source: Ministry of Agriculture, Fisheries, and Forestry (MAFF).

Harvest year for crops; tons are metric tons.

Table 7.

Cambodia: Visitor Arrivals and Tourism, 2001–06

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Source: Ministry of Tourism.

Arrivals by land and boat.

Arrivals at Pochentong (Phnom Penh) airport only.

Arrivals at Pochentong (Phnom Penh) and Siem Reap airports.

Including business and other purposes.

As recorded in the balance of payments.

Table 8.

Cambodia: Consumer Price Index, 2001–07 1/

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Source: Ministry of Planning, National Institute of Statistics (NIS).

As measured by the consumer price index for Phnom Penh (Jul.-Dec. 2000=100).

Table 9.

Cambodia: General Government Operations, 2001–07 1/

(In billions of riels)

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Sources: Ministry of Economy and Finance, and Fund staff estimates.

Excludes provincial revenue and expenditure data.

Current expenditure is based on cash basis, while capital expenditure is based on accrual basis.

Adjusted to reflect expenditure classification according to the new chart of accounts implemented since 2007.

Table 10.

Cambodia: General Government Operations, 2001–07 1/

(In percent of GDP)

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Sources: Ministry of Economy and Finance, and Fund staff estimates.

Excludes provincial revenue and expenditure data.

Current expenditure is based on cash basis, while capital expenditure is based on accrual basis.

Adjusted to reflect expenditure classification according to the new chart of accounts implemented since 2007.

Table 11.

Cambodia: Budgetary Expenditure by Ministry, 2001–06 1/

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Source: Ministry of Economy and Finance.

Commitment basis. Total current expenditure different from table 9 due to VAT refunds.

Excludes externally financed capital expenditure. Before 2004, capital expenditure reported in total only.

Includes unclassified items and VAT refunds.

For 2001-03 no information is available about the ministerial breakdown of capital spending.

Table 12.

Cambodia: Official External Assistance to the Budget, 2001–06

(In billions of riels)

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Source: Staff estimates based on discussions with donors and data provided by Ministry of Economy and Finance. Estimates may differ from the authorities’ data due to differences in timing and coverage.
Table 13.

Cambodia: Profile of the Commercial Bank System

(As of May 2007)

Exchange Rate: US$1 = KHR 4,046

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Subsidiary of foreign banks.

Insolvent banks.

Registered Capital in Riel

Table 14.

Cambodia: Monetary Survey, 2001–06

(In billions of riels; unless otherwise indicated)

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Source: National Bank of Cambodia.

Ratio of nominal GDP to average stock of broad money.

Table 15.

Cambodia: Reserve Money, 2001–06

(In billions of riels; unless otherwise indicated)

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Source: National Bank of Cambodia.

Effective May 1994, deposits required of new commercial banks prior to their commencing operations.

Consists mainly of holdings of short-term securities issued by foreign governments.

Table 16.

Cambodia: Consolidated Balance Sheet of Deposit Money Banks, 2001–06

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Source: Cambodian authorities.

Predominantly in foreign currency.

Virtually all loans to the private sector in Cambodia are denominated in foreign currencies.

Table 17.

Cambodia: Prudential Regulations

(As of end-April 2007)

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Table 18.

Cambodia: Balance of Payments, 2001–06

(In millions of U.S. dollars; unless otherwise indicated)

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Sources: Cambodian authorities; and Fund staff estimates.

Includes estimates for unrecorded exports.

Excludes unrestricted foreign currency deposits at NBC and valuation changes.

Includes debts owed to the Russian Federation and the United States. The debt to the Russian Federation is valued at SUR0.6/US$ with the standard 70% upfront discount applied.

Table 19.

Cambodia: Merchandise Exports, 2001–06 1/

(In millions of U.S. dollars)

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Source: Cambodian authorities.

Includes estimates for unrecorded exports.

Table 20.

Cambodia: Merchandise Imports, 2001–06 1/

(In millions of U.S. dollars)

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Source: Cambodian authorities.

Includes imports for re-exports.

Includes goods procured by resident carriers.

Table 21.

Cambodia: Investment Approvals by Sector, 2001–06

(Total fixed assets approved; in millions of US dollars)

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Source: Council for the Development of Cambodia.
Table 22.

Cambodia: Investment Approvals by Investor Country of Origin, 2001–06

(Total fixed assets approved; in millions of US dollars)

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Source: Council for the Development of Cambodia.
Table 23.

Cambodia: Foreign Debt, 2001–06

(In millions of U.S. dollars)

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Sources: Cambodian authorities; and Fund staff estimates.

Includes debts owed to the Russian Federation and the United States. The Russian debt is valued at 0.6 USSR Roubles per US$ with the standard 70 percent discount.

Table 24.

Cambodia: Financial Operations of State-Owned Enterprises, 2005–06 1/

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Source: Ministry of Economy and Finance.

The 20 enterprises include: Electricité du Cambodge (EdC), Sihanoukville Port, Caminco, Green Trade, Cambodia Telecom, Agricultural Supplies, Construction Public Works, Rural Development Bank, Publication Establishment, Royal Railway, Phnom Penh Water Supply, Phnom Penh Port, Cambodian Shipping Agency (CAMSAP), and 7 rubber plantations. For the list of state-owned enterprises sold to the private sector as of May 2006, see Table 24 of Country Report No. 06/265.

Including direct payments by government on behalf of state-owned enterprises.

Table 25.

Cambodia: Employment by Sector of Activity, 2001–06

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Source: National Institute of Statistics (NIS).

Based on the results of the Labor Force Survey of Cambodia (LFS 2001).

Based on the results of LFS 2001, CSES 2004, extrapolation/interpolation.

Based on the results of the Cambodian Socio-Economic Survey (CSES 2004).

Based on the results of CSES 2004, extrapolation.

1

Prepared by Joseph Ntamatungiro.

2

Import duties for automobiles, petroleum products, steel, cigarettes, and chemical fertilizers are determined on the basis of values set administratively by the Minister of Finance (reference prices).

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Cambodia: Selected Issues and Statistical Appendix
Author:
International Monetary Fund
  • Figure 1.

    Cambodia: Central Government Revenue Collection

    (in percent of GDP; excluding capital revenue)