Tech giants told to pay income tax

MINISTER of Posts and Te l e c o mmunications Chea Vandeth told international digital tech giants that the government will soon collect corporate income taxes from businesses based on their virtual economic presence in the Kingdom.

The aim is to collect taxes on services provided by firms that generate revenue from Cambodians but are not registered in Cambodia, according to the ministry.

The minister’s remark follows a series of virtual discussions with cloud-service providers and major tech companies that were held between November 19 and December 10, the ministry said in a press release.

Vandeth stressed to the companies that the government has the mechanisms for effective tax collection on the digital services provided by international tech firms with no physical presence in Cambodia.

“[The ministry] would serve as a technical partner for the General Department of Taxation [GDT] and the Ministry of Economy and Finance to contribute to the government’s tax revenue mobilisation, particularly from digital and telecoms service providers,” the ministry quoted Vandeth as saying.

But Vandet h did not specif y t he planned date for t he implementation of t he ta x.

At a meeting withVandeth on November 4, GDT director-general Kong Vibol noted that the telecoms ministry and the GDT plan to “implement bilateral information exchange, share telecoms operators’ revenue data from the Data Management Centre [DMC], and provide technical support in enforcing tax obligations using the upcoming National Internet Gateway [NIG].

“[They] will joint ly draf t reg ulations and build t he technica l capabilit y to ta x digita l advertisements and ser v ices,” he said.

Anthony Galliano, the group CEO of financial services firm Cambodian Investment Management Holding Co Ltd, said online businesses are rapidly growing on the backs of internet adoption and the digitalisation of

retail shopping.

And the advent of Covid-19 has accelerated this decade-long trend, he said.

Close to two billion people purchased goods or services online last year, with sales over $3.5 trillion worldwide, he said, citing figures from market data portal Statista.

Online sales will reach $4 trillion this year. In the last five years, global e-commerce share of total global retail sales have doubled, from 8.6 per cent in 2016 to 16.1 per cent this year, he said.

Cambodians are also increasing shopping online, and e-commerce entrepreneurs – local and foreign – are sprouting up daily, touting everything from healthcare products, cosmetics, jewellery, clothing and more, he said.

“Most of these businesses are not registered, and not only benefit from low fixed costs, but also avoid core taxes such as VAT [value-added tax], salary tax and profit tax.

“I have been reiterating that u n r e g i s t e r e d b u s i n e s s e s , whether online or bricks and mortar, are the low hanging fruit for the General Department of Taxation to increase tax collection revenue.

“It is welcomed to see this initiative to reel in these nonc ompliant busi nes s e s t o ensure a level playing field and to support the national treasury,” Galliano said.

Mobile internet usage saw a rapid increase with 16.12 million subscribers using their mobile phones to access online content last year, an increase of 18.47 per cent, Telecommunication Regulator of Cambodia ( TRC) figures show.

Fixed-broadband internet subscribers grew to 224,104, a 46 per cent increase, while registered Facebook accounts increased by 29 per cent to 8.8 million last year.

Anthony explained that this wave of digitalisation and e-commerce is an “unstoppable force” and tech start-ups will capitalise on the continued trend and flourish.

He said: “This is evident in Cambodia with the growing digitalisation of payments, increase in online shopping and online booking engines creating convenience across all sectors from travel to food.

“Tax avoidance should not be part of the business model, just because the business is online, and therefore initiatives taken to rightly collect tax, should not curb market growth.”

In mid-October, the Ministry of Commerce called on e-business owners to apply for permits and licences to operate legally in Cambodia after the e-commerce law came into force in November last year.