New tax incentives to increase SME sector competitiveness

Sok Chan / Khmer Times No Comments Share:
Local products on display. KT/Chor Sokunthea

A new sub-decree issued this week creates a slew of tax incentives for small and medium-sized enterprises in the Kingdom, and confirms that the sector is now one of the government’s main priorities.

Sub-decree No 124 – signed by Prime Minister Hun Sen, and issued Tuesday – sets us tax incentives for SMEs in selected industries, a move the government hopes will enhance competitiveness and create more jobs for Cambodians.

The incentives target firms in agro-industry, food production and processing, manufacturing of local products, manufacturing of souvenirs and handicrafts for tourists, waste processing, assembling and IT research and development (including IT management services).

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Finally, firms located inside industrial parks for SMEs – known as SME clusters – will also have access to these benefits.

SMEs operating in these sectors will enjoy a 3-year exemption on income tax, which starts on the date the company registered, or on the date the sub-decree became effective.

The period of exemption will extend to five years if the company meets at least one of the following conditions: at least 60 percent of the raw materials it uses comes from local sources, and it has recently increased the number of employees on its payroll by at least 20 percent.

Companies that gain access to this benefits, will also be exempted from paying the minimum tax during the 3 or 5-year period, the sub-decree said.

The sub-decree also makes certain expenses deductible, including computerised accounting or information systems (200 percent), technical and bookkeeping training for staff (200 percent), and machineries and tools that are “innovative and increase productivity” (150 percent).

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The same sub-decree defines small enterprises as those firms having an annual turnover of between 250 million riel to 700 million riel ($62,500-$175,000), and that have 10 to 50 employees.

Medium enterprises are defined as those with an annual turnover ranging from 700 million riel to 4 billion riel ($175,000 to $1 million), and from 51 to 100 employees.

To access the benefits, the companies must be registered as taxpayers, it said.

Te Taing Por, president of the Federation of Associations for Small and Medium Enterprises of Cambodia (Fasmec), said the new regulation will boost competitiveness in the local SME sector.

“These tax incentives will help local manufacturers compete with SMEs in the region. It will also help reduce the amount of finished products imported into Cambodia,” Mr Taing Por said.

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“Additionally, we are now asking the government to also seek ways of lowering the cost of electricity and increase access to low-interest loans, which should enhance competitiveness and reduce production costs for local manufacturers,” he said.

Song Saran, CEO of Amru Rice, told Khmer Times that as Cambodia transitions from a supplier of raw materials to a manufacturer of semi-processed and finished products, incentives like the ones created under the new sub-decree will help attract investment to the country.

“This is the first step in attracting more experienced foreign investors,” Mr Saran added.

He said the next step is for the government and the private sector to initiate a dialogue on how to attract more experienced investors into the Kingdom.

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