Cambodia’s new tax on online services could hurt consumers and businesses

With Cambodia introducing a new e-commerce tax on sales of digital products and services made by international tech companies, experts warn consumers and small businesses online could be hit the hardest.

Cambodia will require tech companies without a physical presence in the country to pay a 10% value added tax (VAT) on their sales of digital goods and services, making it the last country in Southeast Asia. Is to levy fees on recognizable companies like Google, Facebook, Netflix and AliExpress.

The new regulation, which was approved by Prime Minister Hun Sen, specifies that foreign companies that facilitate their services on the Internet and have an annual turnover of more than $ 61,500 (250 million KHR), or that generate a turnover business over $ 14,700 (KHR 60 million euros) for three consecutive months per calendar year, are subject to 10% VAT and must declare this status to the Cambodian tax authorities.

“Cambodia’s new law looks pretty radical, which means all kinds of businesses are likely to be at risk. While authorities may prefer to tackle tax collection from large, mostly foreign, companies, it may be much easier for regulators to find and resolve issues at the national level, ”said Deborah Elms, executive director. of the Asian Trade Center, based in Singapore. “This means that the implications will probably be felt most keenly by small businesses in Cambodia and by Cambodian consumers.”

Under the new tax code, B2C service providers based outside Cambodia must declare and pay tax on behalf of their consumers, according to a report released by accounting firm KPMG on April 20.

However, in the case of B2B services, the companies in Cambodia that are served will be responsible for paying taxes on behalf of the foreign suppliers. But since it is up to foreign companies to register the payment of the tax, it is not yet clear how the process will be coordinated. “There would not be much difference if the transaction were counted as a local supply of goods or services, instead of applying the ‘reverse charge’ mechanism,” said the authors of the report.

Elms added that compliance would be a difficult task for many. “Even local businesses struggle to register properly in Cambodia. Foreign companies, and especially small foreign companies, may not even realize that such a rule is necessary, ”she said.

Even though large companies may have “more options,” they could suspend the provision of web services to Cambodian consumers if the cost of compliance becomes too high, Elms warned.

Companies that continue to do business in the country will likely adjust their fees to reflect the high tax rates. “To cover tax payments, compliance costs and the potential risks associated with not complying with difficult regulations, companies are likely to raise their prices. These price increases will be felt by consumers, ”Elms said.

The new regulation comes nearly a year after Indonesia, Southeast Asia’s largest economy, imposed a 10% VAT on global tech companies, as the government sought to boost tax revenues to in light of the weakening economy during the pandemic. Indonesian regulations target tech giants that sell products and services worth over IDR 600 million ($ 41.6 million) per year, or generate annual traffic of over 12,000 users .

Similar tax rules are already in place in Singapore and Malaysia. Other countries in the region like Vietnam, the Philippines and Thailand have also moved forward with plans to do the same and reap economic benefits from a booming digital economy, which is expected to exceed $ 300 billion by now. 2025, according to e-Conomy. SEA report released by Google, Temasek and Bain & Company last year.

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