The government has issued income tax exemptions for the textile and garment, footwear and luggage sectors that produced export goods hit by the European Union’s 20 percent Everything but Arms (EBA) tariff-free status withdrawal in February
The move was announced in a directive from the Ministry of Economy and Finance.
The cut will last six months for those factories and enterprises suffering a 20 to 39 percent loss in income. They will receive an annual 50 percent tax cut.
Companies that will be hit by between 40 to 100 percent by the EBA trade deal withdrawal will get a year’s tax exemption of 100 percent.
The EBA tariff-free withdrawal for certain Cambodian companies will come into effect in August and cost the country about $1.1 billion.
“To receive the income tax exemption, all the factories and manufacturers operating in the textile, garments, shoe and travelling bag and hat sectors must submit supporting documents on the actual impact from the EBA trade-free withdrawal to the tax administration offices during their annual tax declaration,” said the directive.
The European Union in February announced the partial removal of the Kingdom’s Everything but Arms trade status after it deemed Cambodia has not done enough to mitigate serious and systematic violations of human rights.
“The withdrawal of tariff preferences – and their replacement with the EU’s standard tariffs – will affect selected garment and footwear products and all travel goods and sugar,” according to the statement by the European Commission, the EU’s civil service.
According to the EU, the Kingdom imports under the EBA deal accounted for 45 percent of exports in 2018, when they amounted to $5.8 billion.
The EC statement said the withdrawal amounts to about one-fifth of Cambodia’s yearly exports to the EU.
“Unless the European Parliament and the Council object, this will take effect on August 12, 2020,” it said.
Kaing Monika, Deputy Secretary-General of Garment Manufacturing Association of Cambodia (GMAC), told Khmer Times that the exemption of tax on profits is not to release the burden on the industries, especially because some main buyers have suspended orders from Cambodia because of the Novel Coronavirus (COVID-19) pandemic.
Supplies and supply routes have been affected negatively.
“We are not expecting that this year the garment factories or associated enterprises in Cambodia will make a profit. Cash flow is a big challenge for them currently because they cannot deliver their products to buyers.
Therefore, buyers are not paying the factory so the factory owners do not have cash to pay salaries for staff,” Kaing said.
“Because of cancelled orders, many factories would soon be temporarily suspended. The government may look at the possibility of helping with a wage subsidy for a set period of time,” he added.
Cambodia exported garment products, footwear and travel goods valued at $9.32 billion in 2019, a year-on-year increase of 11 percent, according to a report from the Ministry of Industry and Handicraft.
The report was released at the ministry’s annual meeting for review works in 2019 and set objectives for 2020.
It stated there were 1,069 factories last year, of which garment and textile factories accounted for 823, travel goods factories for 114 and footwear factories for 132.
Together they employed 923,313 workers.