Banking and financial industry figures have called on the government to abolish the 10 percent value added tax on the sector, thinking it will increase the burden on financial service users, and have asked for further discussion.
The call came after the Ministry of Economy and Finance issued an order on May 25 to reinforce tax collection from financial institutions because some institutions were still not clear about it. The Ministry says the tax has been in force since 1999 so the recent announcement just makes clear the definition of basic financial services for consistent implementation of VAT.
The decree identifies five financial activities eligible for an exemption from the tax, including stock market transactions, loan interest repayments, money exchange services, and basic financial services.
Fees on financial services including money transfers, loan assessments and account maintenance services are subject to the tax, as well as any service that traditionally generates revenue under fees and commissions.
Speaking last Thursday at a meeting at the Cambodia Chamber of Commerce (CCC), Ly Hour, second co-chairman of the banks and financial services working group of the Cambodia Chamber of Commerce, said that the tax issue is complicated because most microfinance institutions and banks have yet to implement the government directive. He said that the tax could burden financial users with extra costs.
Hour said at the meeting that the private sector was not against the government’s directive, but banks and MFIs found many issues with its implementation. “Members of the Cambodia Microfinance Association, Association Banks of Cambodia, and Cambodia Chamber of Commerce call on the government to eliminate the 10 percent VAT to ease the burden on people who use financial services,” he said. “The implementation and the reform of the system need time.”
CCC vice president Lim Heng said the government should discuss alternatives with the private sector before implementing regulations and laws relating to banks and MFIs to find common goals and common national interests. He noted that the general department of taxation indicated that the directive had existed for a long time but had just been implemented. Fees had been added when the directive was implemented, stated the department.
Kea Boran, the CEO of AMK, one of the leading microfinance institutions, also agreed that the government should not impose VAT on the financial sector because it put more of a burden on the people.
