The government, property industry insiders and experts have all recognised that property owners now understand their obligations in complying with the property tax, which was launched in early 2011.
The property tax is an annual payment calculated as 0.1 percent of the value of a property as estimated by the evaluation committee, based on market prices. Only properties worth 100 million riels (about $25,000) or more can be taxed.
Kong Vibol, the Director General of General Department of Taxation, agreed that when the new law was introduced in 2011, not many property owners understood their obligations or simply did not know whether their property came under the law.
But he said that due to the collaboration between tax officers at all levels, local authorities, stakeholders as well as public announcements, more and more people now understand the law.
“Actually, the property tax is set to build a culture of paying tax for our people because it is not much. And the revenue we got from it, we offer it to local authorities to help them with development,” he said.
“We do appreciate our tax paying people now because they understand their obligations.”
However, Mr Vibol did not reveal the amount of revenue gained from the property tax as it is not included in the government’s budget because it is used at the local level for development and is not part of the central level of the government.
Anthony Galliano, the President and Group CEO of Cambodian Investment Management, said the property tax in Cambodia is a relatively benign one, especially compared with other countries.
He added that considering the tax is triggered for properties valued at more than $25,000, it was very negligible.
“The 1 percent tax has significant room to be increased in favour of higher government collections,” he said.
“The challenge for the General Department of Taxation, not unlike the taxation of business enterprises, is to ensure that property owners register and pay their tax obligation on the property owned.
“Maintaining property taxes at such low levels should not discourage property owners from complying with this tax liability, which is a universally accepted tax across the globe,” he added.
“Property tax is a fundamental tax globally and viewed as a civic duty for property owners. It is a foundation tax base that governments count on to support their budgets.
“The Cambodian government only started levying this tax in 2011, a missed opportunity up until then, but understandable to a small degree given issues with property titling and the cultural reluctance to pay tax.
“With construction and real estate booming as the second-largest sector in the economy, the government is benefiting from the significant increase in taxable property supply and increased real estate values.”
Meanwhile In Channy, the President and Group CEO of Acleda Bank, the locally-owned and largest bank in terms of total assets, observed that there are a large number of property owners starting to understand about paying their property tax, while at first they did not understand the fee when it was introduced.
“It is a good achievement of the government because it is a new tax that was just launched and we see a more and more people are paying for that – and that’s a positive sign,” he said.
According to Mr Galliano, the tax rate of only 1 percent, with a base of 80 percent of the value of a property worth less than $25,000, is perplexingly low. On average property taxes should represent about 2 percent of a country’s GDP, with a tax rate range of about 0.5 to 1 percent being reasonable, he said.
“Cambodia, therefore, has substantial upside potential to increase the rate without being too oppressive to property owners,” he said. “As the tax was only implemented in 2011, it is relatively new.
“Conceptually, property owners may not understand why a tax is applied to an asset, in effect their living residence, which may not be income generating, as most taxes are revenue based.
“The requirement to register and provide documents may also be discouraging,” he added.
The latest data from the Ministry of Economy and Finance shows that the construction sector is expected to grow by only about 14 percent this year, compared with more than 21 percent in 2014 and more than 18 percent in 2012.
According to a report from the Ministry of Land Management, Urban Planning and Construction, construction investment from January to March this year stood at $1.28 billion, 22.16 percent less than last year.
There were 786 projects, equivalent to 2.07 million square metres, in the first quarter of 2017 compared with 473 projects in the first quarter of 2016, translating to 3.39 million square metres.