Taxpayers to be scored on compliance level

THE government’s newest tax initiative scores taxpayers on their compliance with Cambodia’s tax code and offers benefits to those who rank highest, tax experts said yesterday.

The new scoring and classification system was outlined in a prakas issued by the General Department of Taxation (GDT) late last month, which lists 12 different criteria, each worth one or two points, on which a taxpayer is assessed to a maximum of 20 points. The criteria include whether a company has completed its tax registration and tax updates, whether it has lodged its tax returns and paid within the deadline, and whether it has maintained all required accounting records and legal documents.

The tabulated score is used to place the taxpayer in one of three compliance categories: bronze for one to 10 points, silver for 11 to 15 points, and gold for 16 points or higher.

A certificate of compliance is awarded to those in the gold category, and can be requested by silver and bronze taxpayers. The certificates are valid for two years, though the GDT reserves the right to re-evaluate its certification in case of suspected non-compliance.

Clint O’Connell, head of Cambodia Tax Practice at foreign investment advisory and tax firm DFDL Cambodia, said the specific benefits of each compliance category were not indicated in the prakas. However, he noted that parallels could potentially be drawn with the BestTraders Scheme, piloted by the General Department of Customs and Excise (GDCE).

“Possible benefits that come to mind could include being subject to only one tax audit for a tax year, exemption from the 1 percent minimum tax and its monthly pre-payments and perhaps an accelerated VAT refund process,” he said.

“For an SME [small and medium-sized business] in Cambodia the thought of being subjected to potentially three dif- ferent tax audits for one tax year would not be a particularly pleasant one, consequently any measure taken to reduce the full impact of entering into the formal tax regime we suspect would be welcomed.”

O’Connell added that the measure was geared toward maintaining the commitments of existing taxpayers rather than encouraging non-compliant firms to adhere to the tax code.

“Whilst the last 12 months have been all about the abolishment of the estimated tax regime and the requirement for all business to now enter the formal tax regime – this prakas looks very much at how existing registered taxpayers may be incentivised to meet their ongoing tax obligations,” he said.

Most of the weighted criteria listed by the prakas should be achievable for a number of businesses, he added.

Chhiv Kimsroy, tax and advisory services director at Deloitte Cambodia, noted that the new measure served to benefit both tax authorities and taxpayers. She explained, however, that penalties for non-compliance were still needed for the GDT’s overall strategy to be effective.

“For the GDT, taxes can be collected on time, and it will save time for tax auditors conducting tax audits, while for taxpayers, there will be no penalty for non-compliance, but it will be time-saving for them as well,” she said.

“However, penalties for non-compliance are still needed in case some taxpayers do not comply with the tax provisions or are no longer compliant with the provisions in the future.”

Kimsroy said smaller business operations could find compliance with some of the criteria listed in the prakas difficult, but that the measure was a positive sign for tax compliance in the future.

“SMEs might find it a little hard to prepare proper records as stated by the required criteria in the prakas,” she said, adding however that “this step is a start to promote greater tax compliance for taxpayers.”