Long read.
‘The devil is in the details’ – Tax versus incentives in new investment law
Sangeetha Amarthalingam | Publication date 26 August 2021 | 20:37 ICT

Government incentives have been promising, even more so with the upcoming investment law. But as customs revenue slide with advancing trade agreements, the line between tax and incentives might start to blur

The new Law on Investment is expected to come into force next year, 10 years after the government embarked on a plan to repeal the existing statute, which was enacted in 1994, and amended in 2003.

The timing of the new law is crucial, as it falls in line with a clutch of trade agreements, which Cambodia is party to, taking effect.

In addition to Covid-19 eroding economic growth, government advisor Dr Sok Siphana said Cambodia’s World Trade Organisation (WTO) integration is also wearing off as ASEAN ascension deepens.

“We have a free trade agreement with China and soon with South Korea. Next year, there is the Regional Comprehensive Economic Partnership [RCEP]. The Chinese are coming in with their Belt and Road Initiative whereas Japan [has] its strategy for a free and open Indo-Pacific region.

“These are major trigger points for Cambodia to [get] started with the [new] investment law … hopefully it would be a catalyst to attract investments,” said Siphana, who was the lead negotiator in Cambodia’s ascension to WTO in 2003.

Official data has shown steady growth in investments in the last five years. While foreign direct investment (FDI) has been buoyant, with mainland China and Hong Kong representing a large portion in 2019, domestic investments have become seemingly formidable.

Last year, out of $7.5 billion worth of projects approved by the Council for the Development of Cambodia (CDC), nearly $3.9 billion was domestic investment, National Bank of Cambodia data showed.

It should also be noted that FDI rose 76.7 per cent to $3.6 billion from 2019, the second highest in five years after $3.8 billion recorded in 2018.

In the first quarter of 2021, NBC stated that $470.6 million out of $679.6 million approved was backed by domestic projects, owned by a mixture of Cambodian-owned firms as well as foreign investors who have set up locally-registered companies.

Investments were mostly channelled into agriculture, industrial, energy, services and tourism projects, a slight shift from real estate and construction projects prior to Covid-19.

While experts are enthused over the relaxation of tax guidelines in the draft investment law, which will benefit qualified investment projects (QIPs) as these, greenlighting some incentives might be a tad unwieldy.
Full article: https://www.phnompenhpost.com/special-r ... stment-law