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Cambodia Continuing To Make Headway On Tax Reform: IMF

by Mary Swire, Tax-News.com, Hong Kong

02 November 2017


Cambodia continues to make progress towards expanding its tax revenue base, the International Monetary Fund (IMF) said, recommending in a new report that the country take stock of progress so far and focus now on reviewing tax incentives and value-added tax policy.

In past years the IMF has worked with authorities in Cambodia to improve the capacity of local revenue authorities to expand the tax base, improve compliance rates, and improve taxpayer services.

During the five-year period to 2008, Cambodia increased the tax-to-GDP ratio from 6.5 percent of gross domestic product to 10 percent. However, after 2008, revenue collection growth then plateaued.

The country then implemented a "Revenue Mobilization Strategy" (RMS), a three-pronged reform agenda, implemented with technical assistance from the IMF, intended to reduce the total tax debt, improve taxpayer services, and modernize administration. The IMF reviewed the progress of this initiative and recommended next steps in its annual Article IV report for the country's authorities.

The IMF reported that revenue collections, supported by the implementation of the RMS, increased from 14.6 percent of GDP in 2015 to 15.3 percent of GDP last year. However it noted that the fiscal deficit is expected to have expanded in 2016, from 1.6 percent of GDP in 2015 to 2.8 percent in 2016, as higher-than-expected revenues weren't enough to cover significantly higher spending outlays. The IMF said that Cambodia should look to tax administration reform improvements to close the emerging budget deficit.

It recommended that "authorities should re-invigorate the Revenue Mobilization Strategy (RMS) to ensure sustained revenue improvement." It continued: "Strengthening the institutional development of the tax administration agency, especially the Large Taxpayer Department, is needed to facilitate future tax policy reforms, [and] the authorities should consider undertaking a tax administration diagnostic assessment."

"A new diagnostic would provide an up-to-date assessment of tax administration benchmarked against good practices, and thereby provide targeted policy advice on priority areas. Tax policy reforms are needed to sustain improvements in tax revenue over time and should initially focus on tax incentives (to improve their effectiveness and efficiency) and excise taxes, and over the medium term aim at reforming VAT and personal income taxes, and increasing property taxes."

TAGS: tax | value added tax (VAT) | property tax | tax incentives | public sector | budget | International Monetary Fund (IMF) | audit | Cambodia | services | Tax

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