Government Clarifies Minimum Tax Exemption

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minimum tax exemption cambodia
Exemption requirements will increase transparency by encouraging medium and large businesses to undertake independent audits.

The Ministry of Economy and Finance has issued guidelines on how taxpayers who satisfy its accounting guidelines can obtain a minimum tax exemption.

One year after the announcement that it would consider scrapping the 1 percent minimum tax obligation paid on monthly revenue flows, the government has mandated that only “taxpayers [with] a proper accounting record will be exempted from the minimum tax,” in a new decree.

To qualify for the exemption, taxpayers with an annual turnover in excess of $500,000, assets of $750,000 or over 100 employees will be required to have an audit conducted of their financials by an independent third-party. Taxpayers ineligible for the exemption include those who do not issue proper invoices, commit serious negligence or who have been found to be engaging in tax evasion.

Those already stringent in their recording were eligible for the exemption last year say some industry experts. “By default, if a taxpayer was able to provide evidence that they maintained proper accounting records then they would be exempt [from the minimum tax],” according to Clint O’Connell, head of tax practice for foreign investment advisory and tax firm DFDL Cambodia.

However, as O’Connell went on to note, the prakas reiterates the legal distinction between the minimum tax and the monthly 1 percent prepayment of tax on profit, putting “the actual economic benefit of this update in perspective… A taxpayer who obtains an exemption from minimum tax would still be obliged to make the monthly payments of 1 percent on a profit basis.”

For others, the prakas amounted to a “zero sum game” as taxpayers already stumping up the 1 percent monthly prepayment tax could simply use those credits at the end of the year to reduce their tax on profit burden, Anthony Galliano, CEO of Cambodian Investment Management pointed out. “To date, it appears that mostly those already paying profit tax have been granted the exemption.”

This article was originally published in the Phnom Penh Post.

Do you think the government guidelines for tax exemption are fair?