Anthony Galliano On Cambodia’s Tax System and Accounting Standards



This week we learned that Cambodia’s businesses are generally performing poorly when it comes to applying international accounting standards. A recent study by the National Accounting Council (NAC) found out that less than half of Cambodian companies actually follow the required international accounting standards.

During the drafting of the latest edition of our magazine, we sat down with Anthony Galliano, CEO of Cambodian Investment Management, a firm that assists companies in Cambodia and the region through a range of financial services that includes tax and accounting advice. Galliano comments on Cambodia’s accounting standards and shares his opinions on recent tax developments.

B2B: Industry players have brought the need for simpler accounting standards for SMEs in Cambodia. What steps do you think could/should be taken to achieve this?

Galliano: The Law on Corporate Accounts, Their Audit and The Accounting Profession (2002) requires that financial statements are compliant with Cambodian Accounting Standards which are in line with International Accounting Standards. Since SMEs are only required to provide basic financial statements on their annual tax on profit tax return, regulations regarding the burden of financial reporting are pretty light for SMEs. There isn’t a need for simpler accounting standards but potentially simpler reporting and tax filings. The General Department of Taxation (GDT) has already taken positive steps for simpler tax filing with the Law on Financial Management for 2016 which categorises taxpayers as small, medium and large according to revenue thresholds. Small taxpayers, those that earn under $62.5K per annum, can file simplified tax returns as opposed to medium and large taxpayers. The Tax Code in Cambodia is not very complex so, comparable to other countries, SMEs don’t really have it all that bad.  

B2B: What other auditing and accounting issues need to be looked at and improved, and how do you propose this be done?

Galliano: The Law on Corporate Accounts, Their Audit and The Accounting Profession requires all enterprises to keep books and accounts and to also prepare financial statements on a yearly basis. Whether through unawareness, ignorance, or apathy, most businesses in Cambodia do not comply with this law or keep proper accounting records. The issue therefore is not improvement but enforcement. Businesses should keep basic financials, not only for understanding how their businesses are performing, but for taxation reporting purposes. The Law on Taxation should embrace the requirement to maintain basic financials and the GDT should enforce it. In the absence of this, the country will never truly broaden its tax base and instill international financial recordkeeping standards which mitigate tax avoidance.

Anthony Galliano says that, compared to other countries, the tax code in Cambodia in not very complex, which makes life easier for SMEs

B2B: In what ways are tax regulations becoming more business-friendly in Cambodia? What does this mean to current and would-be investors? 2. How else can tax systems be improved?

Galliano: Tax regulations are becoming more prolific, more complex, and are being enforced more stringently, so, bottom-line, the tax environment is much less business-friendly. Arguably the stricter and widening tax regulatory regime is transforming from a benign, if not lax base, and of course the widening tax collection base should be contributing to the good of the country. However, this translates to a higher cost of doing business for current and would-be investors given a stricter focus on regulatory compliance and resultant administration. While the Law on Taxation is quite simple, dealing with the tax branches and the General Department of Taxation can be difficult. Standard and fair application of the laws, helpful and attentive staff, and weeding out remnants of corruption are certainly areas where improvements can be made.

B2B: What recent changes/developments should businesses be aware of? What new developments will be taking place in the next quarter or so?

Galliano: The most monumental change occurred when the Law on Financial Management abolished the simplified and estimated tax regime, leaving only the real regime, restructured into three categories—small, medium, and large corporate taxpayers.  Among the most controversial new tax regulations was the General Department of Taxation Instruction Letter (No. 1127) which dictated the requirements and formats for invoicing for real regime taxpayers. The gist of the instruction was that an invoice must be issued in the Khmer language or can be issued in two languages; invoices must contain all the information in the sample invoices provided by the GDT; customer and supplier should sign the invoice, and VAT paid cannot be claimed as an input credit and the expense itself cannot be deducted on the annual tax on profit return if the invoice is not compliant with the instruction. Prakas No. 300 required all existing companies registered before January 4, 2016 to be re-registered through the Ministry of Commerce’s online system.   



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