Rewriting the Code – Creating a New Taxation ‘Mindset’
Cambodia’s tax code is being simplified to be more efficient, equitable and transparent. One result has been a surge in revenue collection. The reforms have been specific (elimination of annual vehicle taxes on motorbikes and other vehicles used by those with low incomes) as well as systemic (switching to a single tax regime with a centralized database and online registration). The tax system has also been strengthenedfrom a dual system that combined estimated tax collection with “real” or government tax collection.
The changes can be traced back to Kong Vibol, who became director general of the Taxation Department in 2012. Khmer Times spoke to him about reforms to date and his plans for the future.
KT: What have you accomplished since you took over the tax department?
Mr. Vibol: The focus is on reforms to ensure we have a tax system that meets international standards. Our previous system had some shortfalls, so we need to improve it to meet international standards, or at least those in ASEAN.
First, we focused on our human resources to ensure they work effectively and properly. Second, our tax officers are becoming tax-service providers.
This switch is important to change the perception from one in which they are seen as controlling taxes to one in which they are seen as providing a service to taxpayers.
We reformed the fiscal tax administration by setting up a new registration system that allows us to collect more revenue as well as accurate information.
We also transformed it into an electronic system.
We have online registration and a centralized database in order to make it much easier [to register] and at the same time it provides better, transparent and more efficient management.
Not only can we manage tax payment but also tax debts.
In terms of fiscal tax administration, we are trying to provide taxpayers with better service so that filing tax returns can be more efficient. To do this we need to reform fiscal tax administration, including modernizing the information technology system and shift to an electronic system. Soon, we will allow taxpayers to pay online so that they do not waste time and do not need to pay tax at our offices.
Auditing is important to enhance our fiscal tax administration. When we audit, we need to make clear what the risks are and we need to enforce our auditing consistently so we have enough information. Good results from auditing reflect accurate registration.
We have also set up a debt-management desk, which requires an effective tax-filing system.
When we had registration at each taxation branch it was difficult to manage [tax] debt. Now, with online registration and a centralized database, we can better manage [tax] debt.
We are posting plenty of taxation laws, regulations and other taxation issue on our website. Later, we will set up a portal called Mytax to make it easier for taxpayers.
We have also improved the tax law... Starting from next year, we will have only a single tax regime. This means that we will no longer have a estimated tax regime. So, from two tax regimes – estimated and real – we will have only one and it will have three parts: small, medium and large [taxpayers].
KT: What has happened to tax revenue since reforms were implemented?
Mr. Vibol: Since 2012, our taxation department has collected more than the target set in the government’s annual national budget. This increase is the result of reforms.
Our tax revenue has increased between 15 and 20 percent per annum over the last few years. Revenue always exceeds the government’s target.
KT: The government has eliminated a few taxes recently and now we have a single tax regime. How will this affect revenue?
Mr. Vibol: The government is focused on equitable tax payment, which means the reform from an estimated regime into a real-regime emphasizes that the government is looking at the equitability of tax payment.
For example, the government has established a framework for who has to pay tax and who does not.
By the law, small vendors – say fish or vegetable sellers at a market – have to pay tax, but now the government is considering whether or not they really have to. I think that they will not need to pay tax anymore, but what we are doing is improving our tax collection in an efficient, transparent way for those who have to pay tax.
So, the government reforms are towards equitable payment. The government stopped collecting tax on [some] vehicles because we know that those who own motorbikes, for example, are poor and we see the method of collecting [annual] tax from motorbikes is not efficient.
KT: The government recently increased its target for tax-revenue collection. Will you be able to meet it?
Mr. Vibol: Well, we are a bit concerned with increases for next year. However, based on our 2014-2018 revenue collection strategy, we will continue reform and enforcement of collection in an efficient way because we are not permitted to increase the tax rate. We can only better enforce collection.
Enforcement of tax collection is key. There are some areas where we are not collecting so we have to improve there, and there are other areas where we need to enforce auditing.
And, we need to keep offering better service to taxpayers in order to meet the target set by the government, even though some taxes have been eliminated. Where can we find the revenue to fill the higher target from the government?
To repeat, we are not increasing tax rates or introducing new taxes, but we are enhancing collection.
Improving the mindset of tax collecting officials leads to higher revenues, as does improving their discipline and knowledge. This is what we will continue to focus on because it is part of our strategy.
We will be a bit strict on collection for the next years. This is part the road map of our collection strategy.
Now, I would like to make a suggestion to the people, especially businessmen and traders – we are your partners.
The taxation department and the private sector are partners because we have to work closely together. This means that they have to submit their tax declaration every month. If their business loses, they don’t need to pay tax... but if they make a profit they have to ensure they report this to us accurately.
We need to have faith in each other... According to the law, if they don’t declare the real profit they will be fined and also have to pay interest [on outstanding unpaid tax] if an audit uncovers this.
So, we are enhancing good governance in my department and businessmen and traders also have to enforce good governance. We just want to be fair.
And, for citizens who own a car and property, they have to pay tax accordingly. For property tax, if people do not pay tax appropriately, they will be unable to sell a property if we find there are unpaid taxes. We are filing property-tax information into the system; they cannot avoid paying it.
KT: One common complaint is that hundreds of millions of dollars are lost to corruption. Specifically, it is frequently alleged that tax officials “favor” some large companies that do not pay what they owe in taxes. How do you react to this?
Mr. Vibol: These claims are not accurate and have no basis in fact. This is just speculation.
We are doing our best to collect revenue and you can see this in the fact that revenue from taxes is increasing annually. The growth rate is about 20 percent per annum. This is not small...
How can they say we lose hundreds of millions of dollars? Again, what is the basis of this claim? We collect about $1.2 billion a year in taxes, excluding customs – which brings in about $1.5 billion.
Enforcement of tax collection and the culture of tax payment are improving, so I think these claims about lost revenues are not clear or proper.
Again, it is not helpful to blame us when we are the ones implementing reforms. And, the proof of the effectiveness of our reforms is the rise in tax revenue. Now, if you see tax revenue decline then blame us.
KT: We see that some big companies still owe tax. How will your newly established debt management department change this?
Mr. Vibol: Our reforms have brought clarity and more information, which makes tax collection easier.
In terms of uncollected taxes, we are taking steps to change this. The Ministry of Finance and Economy, for example, just released a new prakas to facilitate payment of large, outstanding tax debts.
The prakas allows us to set a schedule for the tax debt to be paid in monthly installments with no interest charges for the first year.
In the second year interest charges accrue. This gives them an incentive to pay in the first year.
What we have observed is that many of these companies with outstanding debt are now paying. This is a win for the government as well as taxpayers.
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