Gov’t Pays Auditors Incentive

The Ministry of Economy and Finance has installed an incentive program that awards employees of the General Department of Taxation (GDT) a share of the penalties incurred by firms found to have unpaid tax accounts.

Director general of the GDT, Kong Vibol confirmed yesterday that the GDT introduced the incentive program at the beginning of this year. The scheme grants government auditors 10 per cent of the total penalties imposed on any company, which that employee has reassessed and found to be non-compliant.

“The Ministry of Economy and Finance gives incentives to GTD tax auditors who can find more tax revenue, which the tax payers’ under-declared or evaded tax of their payment to GDT. By law whoever under declared or evaded of tax will be penalised,” Vibol said, adding that only auditors were granted the incentive scheme.

“This way government can get more revenue. This incentive will not affect the budget but instead increase the revenue to the government.”

The GDT’s penalties for late or unpaid taxes range from 10 to 40 per cent of the total amount owed to the authority. The penalties also carry a monthly 2 per cent interest charge. Put simply, if a company is found to owe $100,000 to the GDT, the firm could be penalised an additional $10,000 and the auditor will personally receive a $1,000 incentive payout once the company has paid its debts.

“The purpose of this scheme of incentive is to encourage tax auditors to work hard and reward them for those who can find more tax evasion and tax under-declared in order to promote tax compliance and enforcement of law,” Vibol said.

Cambodia’s GDT is on a mission to boost tax revenue to $1 billion by the end of the year.

Kol Preap, executive director of Transparency International in Cambodia welcomed the idea of new incentives for GDT auditors provided there is strict oversight of the employee’s compliance to the Kingdom’s anti-corruption laws.

“It could help them to conduct their work more effectively,” Preap said.

“Additionally, it is important that auditors conduct their assessments in an open and transparent manner. The auditing reports must imperatively be published and the private firms’ financial statements must be disclosed,” Preap said.

During the first Cambodia Tax Summit held at the Sofitel Phnom Penh yesterday, Clint O’Connel, a partner at law firm VDB Loi, said the GDT’s scheme stands to close unpaid tax accounts a lot quicker.

“But unfortunately that also means there is little chance of receiving a waiver of the penalties. You are essentially taking money away from the auditor,” O’Connel told the audience of about 300.

According to O’Connel, the GDT is also currently looking to install a raft of new reforms including a new arbitration committee, which would be charged with resolving tax related disputes.

“It would be the last stop in the government’s audit process,” O’Connel said about the proposed arbitration committee.

“But who will sit on this committee? You don’t want tax officers sitting on this arbitration committee because you want them to be independent.”

Source: Phnom Penh Post | August 29, 2014 | By Eddie Morton

US Applies Scrutiny on Tax Abroad

Cambodia has agreed to help the United States in its global effort to crack down on tax evasion by working with local banks to hand over financial data on US residents and business interests abroad, according to tax experts and officials.

Speaking at the 17th Government-Private Sector Forum held at the Peace Palace in Phnom Penh, Prime Minister Hun Sen confirmed the government’s intention to aid the US with its Foreign Account Tax Compliance Act (FATCA), which takes effect on July 1.

The Internal Revenue Service, the US tax collection arm, estimates that $100 billion in taxes is lost every year from offshore bank accounts.

Although FATCA regulations were crafted to go after tax dodgers with at least $50,000 in assets, any US citizen with a foreign bank account in Cambodia and in participating countries abroad will also face an extra level of scrutiny.

“This is simply an overarching law for the US to be able track down its citizens’ overseas financial activities and tax them accordingly,” said Clint O’Connell, a partner at Phnom Penh-based tax firm VDB/Loi. “Cambodian banks still have to report the details of all US citizens to the IRS even if they have assets of less than 50k. The IRS then makes the decision as to whether the US citizens conform or not.”

The measure also looks at dividends, stocks, insurance information, investments and other pertinent financial data that would be held by foreign financial instutions, or FFIs.

In other words, whether you’re a US citizen teaching English and earning $20,000 per year in Phnom Penh with only a motorbike and an iPad to your name, or a US business executive with more than $100,000 in financial and non-financial assets, foreign banks such as Acleda and ANZ Royal, to name two of the biggest, will have to pass along your financial information to the IRS after July 1.

“As the reporting institutions, banks will need to submit the person or company’s nationality, any financial statements or bank accounts,” In Channy, CEO of Acleda, explained.

Cambodia, along with the rest of the participating countries, will file its first list of financial information in March 2015 for the 2014 period.

When asked if he thought FATCA would affect US business interests in Cambodia, Channy said the law would put almost every country on an equal playing field.

“All businessmen go where the opportunities are. If the FATCA applies globally, then businessmen will not be left with much choice,” he said.

The Foreign Account Tax Compliance Act was signed in 2010 with an initial deadline for all countries of January 2013. Privacy and diplomatic concerns, however, delayed the global reporting requirement twice. Some of those concerns, of course, still exist.

Channy stated yesterday that the law “may abuse the sovereignty” of Cambodian law, and called on the government to spearhead talks with the IRS.

The IRS website declares that any foreign institutions found to be non-compliant with the terms of FATCA could face penalties.

“It seems like the US law could order around foreign banks to comply,” he said.

Firms can either independently supply the information, or they can enter into an agreement in which banks can go through a level of the host government, which then deals with the US. Cambodia has not picked either way yet.

As head of a banking and financial sector working group, Channy concluded that Cambodia’s compliance with FATCA would be better served working through governments, rather than private firms voluntarily and independently reporting the financial information to the IRS.

Asked about the impact of the enforcement on American citizens and American-owned businesses in Cambodia, John Simmons, deputy public affairs officer for the US embassy, provided a link about the law from the IRS website.

The embassy also did not respond to a question regarding the size of the American expatriate community in Cambodia.

According to the IRS webite, exemptions exist for non-profits, certain small financial institutions and some retirement entities.

Speaking at yesterday’s forum as the head of the private sector working group on Law, Tax and Governance, Bretton Sciaroni, chairman of the American Chamber of Commerce in Cambodia, called on the local government to take the lead on the FATCA negotiations.

“There are two options available and, in the interest of continuity and consistency, the banking association prefers if the Royal Government takes the lead in dealing with the US authorities,” he said.

Source: Phnom  Penh Post | March 5, 2014 | Eddie Morton & Joe Freeman

Cambodia’s Tax Increases By 17.3% in 9 Months

In the first nine months of the year, Cambodia’s tax revenue increased more than 17.3 per cent from the corresponding period in 2012, data from the General Department of Taxation show.

Total tax revenue rose to $678.1 million from $578 million. Of the whole, salary tax increased by 24.4 per cent, income tax went up by 19.5 per cent, value added tax by 18.1 per cent and special tax went up by 16.1 per cent.

Opposition Cambodia National Rescue Party whip Son Chhay, an outspoken critic of the allegedly insufficient tax collection system, said that revenue is low compared to Vietnam and Thailand, countries that bring in taxes of roughly 20 and 30 per cent of GDP, respectively. Cambodia, by contrast, collects only 11 per cent, he said.

Tax department director general Kong Vibol said in September that he is strengthening tax collection to increase revenue and attract investors to Cambodia.

Source: Phnom Penh Post | October 14, 2013 | By: May Kunmakara