The government announced yesterday that it will delay the implementation of the 10% value added tax from all microfinance institutions and banks from now until further notice, according to an announcement from the General Department of Taxation (GDT).
The announcement signed by the GDT’s General Director, Kong Vibol, came one day after the Cambodia Microfinance Association (CMA) requested the GDT to delay implementation of the 10% on VAT and asked for a meeting with the GDT to find a solution. The GDT’s announcement added that it will continue to cooperate with the private sector to study in detail the term of “Basic Financial Service” and the implementation of the 10% VAT rate on non-basic financial services in order to ensure efficiency and implement the law and regulations on tax.
On Wednesday, CMA president Hout Ieng Tong said after a CEO Club Meeting that the implementation of the VAT rate will affect customers who use financial services. “We think customers will feel unhappy about using financial services because they are not aware of the VAT [charge]. They will be surprised,” Ieng Tong said. He added that the CMA will meet with the GDT on July 20. He stated that the government should take time to educate the people about VAT.
Bun Mony, the chairman of Vithey Microfinance, said that MFIs would charge 10% to customers, so loan costs would be higher. “We are not sure whether some institutions will apply 100% of the tax to customers if some institutions will pay it for consumers,” Mony said.
The government set April 1 for implementing the 18% cap on interest rates, while on May 25 the Ministry of Economy and Finance issued an order 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 identified 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.