Despite the General Department of Taxation (GDT) collecting more than 64 percent of its tax revenue target within seven months, Director Kong Vibol believes economic uncertainties caused by global crises may prevent the nation from hitting its 2023 goal.
On August 16, GDT announced that it collected $2,312.95 million in tax revenue in the first seven months of 2023. This is equivalent to 64.76 percent of its $3.128 billion full-year target.
Despite collecting this amount, Vibol said in a weekly bulletin that he is not confident about the country's ability to meet its full target for the year. He cited the uncertainties of global crises, such as the Russian invasion of Ukraine and declining global growth, as factors that could lead to a reduction in foreign direct investment (FDI) in Cambodia.
“Global uncertainties affects countries that have large investment in Cambodia and cause inflation; therefore, these two factors may prevent GDT from hitting its 2023 target, ” Vibol said.
This, in turn, could prevent the GDT from collecting the full $3.128 billion in tax revenue, said the director general.
The International Monetary Fund (IMF) projects that global growth will decline to 2.5 percent in 2023 from 3.6 percent before the pandemic hit in 2020. This slowdown in global growth could have a negative impact on Cambodia's economy, because FDI plays a key role.
Hong Vanak, an economic researcher at the Royal Academy of Cambodia, believes that the GDT will be able to collect the full $3.128 billion in tax revenue as planned.
He said that if the GDT does collect more than $3.128 billion in tax revenue, this will be a positive sign for the Cambodian economy.
It would show that businesses are doing well and that the government is collecting enough revenue to fund its programs, he explained.
In contrast, if the GDT does not collect the full amount, it could be a sign that the economy is facing challenges, Vanak said.
He explained that if the GDT is unable to collect $3.128 billion in taxes by the end of this year, it suggests that business operations in Cambodia are not functioning well and are not profitable.
He said, “This is because the amount of tax revenue collected by the GDT is directly linked to the income of businesses. For example, the more income a business generates, the more Value Added Tax (VAT) the GDT can collect.”
VAT is a type of indirect tax, which means sellers or firms are the ones who collect tax from their customers before paying it to the government. However, it is still the final consumers of goods who bear the burden of this tax.
In Cambodia, VAT is collected based on the amount of annual sale of a business. For example, if annual sales surpasses $62,500, VAT of 10 percent will be applied on all goods or services of that business.
That is why when goods or services are bought from well-known brands, such as Starbucks or Brown Coffee, 10 percent VAT is included in the price. This suggests that the annual sale of those businesses surpass $62,500 per year.
However, when you buy foods from small retailers such as street foods there is no mention of 10 percent VAT on the goods purchased.
While there are many types of taxes, Vanak highlighted monthly salary tax as an example. He said that if a skilled worker such as a professor has a high income, the GDT can collect more monthly tax from that person's salary.
In Cambodia, the monthly salary tax rate is progressive, which means that the tax rate increases as the salary increases.
For a salary of less than $320, no taxes are paid. For a salary between $320 and $500, the tax rate is 5 percent. For a salary between $500 and $2055, the tax rate is 10 percent. And for a salary over $2,055, the tax rate is 20 percent.
So, if a salary is $500, a total of $50 would be paid in income tax.
Vanak said if a business is not profitable, employees’ salaries also decrease. This means that the GDT collects less tax accordingly. Before the pandemic hit, workers received high salaries; therefore, GDT could collect more income tax, he added.
Vanak said that if the government does not collect the expected $3.128 billion in tax revenue by the end of this year, it is possible that the tax system is not functioning well. However, he believes that the GDT has a strong tax system.
He explained that if the government does not collect the full amount of tax revenue, it will have to cut back on its spending in 2024. This could mean spending less on public goods, such as infrastructure and education, and salaries for government workers.
It could also mean that the government will have trouble paying its public debt because less tax revenue means it has to reduce national savings, Vanak added.
The impact of the government's tax revenue on its expenditure is a complex issue. There are a number of factors that could affect the government's spending, including the level of economic growth, the size of national debt, and the government’s priorities.
However, it is clear that the government's ability to collect tax revenue is an important factor in determining its ability to spend money on its set priorities.
Ry Roth Sophany, a 35-year-old seller at Kilo Lek Buon Market, expressed concern that the increase in fuel prices will affect the price of other goods. “Now, it is hard to earn money, not like before the pandemic. Now, I can only earn 30 percent of my previous income,” she said.
The goods that she sells in the market have increased up to two times in price. As a seller, she said she does not know much about how the economy works; she only knows that recently the price of goods has increased across almost all items sold at markets.
For example, a bag of garlic cost 80,000 riels to 90,000 riels in the past. Now it costs between 14,0000 and 15,0000 riels.
She said, “The price has increased almost twice the original price. This increase in price started in the past two months. The price of all items has increased, not only garlic but also vegetables. I’m not sure whether it’s because the price of transportation has increased and that affects the price of other items I sell in the market.”
In the past, it cost Sophany 12,000 to 13,000 riels to fill her motorbike tank. That has risen to between 16,000 and 17,000 riels.
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