Mixed response to ongoing delay of Capital Gains Tax

Harrison White

Cambodia’s business community has given mixed responses to the news Cambodia’s 20% Capital Gains Tax (CGT) will be most likely further delayed to 2024 as the real-estate sector prepares for an oversupplied market in the coming years.

The proposed flat 20% rate from selling any capital asset is already applied for companies however the new law would extend that requirement to individuals, most commonly for those looking to sell a property for profit.

The CGT was introduced into law through Prakas 346 from the Ministry of Economy and Finance back in April 2020 and was originally intended to be implemented a few months later in July 2020.

Cambodia’s real-estate sector readies for an oversupply 

Cambodia’s real-estate and construction sector – considered one of Cambodia’s four economic pillars – has been feeling the impacts of both the COVID 19 slowdown as well as a large number of new projects now ready for completion.

Lawrence Lennon Country Director of CBRE Cambodia told Cambodia Investment Review that COVID-19 has acted as a catalyst within the Phnom Penh property market, speeding up the impact of fundamental trends such as the shifting supply-demand dynamic. He added, at the start of the pandemic in 2019 centrally owned office occupancy was approximately 88% moving to 68% by the end of 2021.

“CBRE Cambodia expects a further 97,000 sqm of Net Leasable Area entering the office market in 2022, implying these trends are set to continue, undoubtedly driving up competition among commercial landlords. As such, any possible stimulus to the economy from the CGT delay will no doubt be welcomed by the wider business community,” he said.

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EuoCham had actively petitioned the Ministry of Commerce to delay the tax citing COVID 19 impact on the economy with the delays under its 50 policy recommendations.

EuroCham petitions delay to the CGT  

Cambodia Investment Review previously reported the European Chamber of Commerce had actively petitioned the Ministry of Commerce to delay the tax citing COVID 19 impact on the economy with the delays under its 50 policy recommendations.

In response to the delay, Denis Sainte-Marie, Executive Director of EuroCham commented: “We’re pleased to see the Ministry of Economy and Finance request for a delayed implementation of the capital gains tax (CGT) until 2024. In fact, delaying the CGT was one of our policy recommendations to the Royal Government to support the economic recovery of the country after the pandemic.

It will in particular provide a boost to our members in the real estate and construction sector, but also it will enable more time to understand how the CGT will be applied in practice. A progressive implementation – whereby the CGT’s rate and scope are gradually increased over time after 2024, would allow for a smooth transition.”

Charles Amar, Vice-Chair of the EuroCham’s Real Estate and Construction Committee, noted that ”it will be good news if the government decides to delay the date of implementation of capital gains tax until 2024. This will give enough time for the taxpayer to understand this new regulation and it will help the recovery of the real estate and construction sectors which have been and are still currently impacted by the Covid-19 situation”.

Ly Tayseng, Co-Chair of the EuroCham’s Tax Committee, agreed that delaying the implementation of the capital gains regulation is pleasant news for private investors, especially those who are making capital gains from their immovable property or other investment assets. However, he noted that the capital gains tax could be one of the important sources of tax revenues for the Government.

A comprehensive impact assessment of new regulations being contemplated, such as the Capital Gain Tax regulation, whereby the pros and cons are weighed in advance, may help avoid the implementation of regulations that has to be postponed down the line, he added.

Advocate for the tax says it’s a much-needed diversification

Anthony Galliano, President of the American Chamber of Commerce however has strongly advocated the enactment of the capital gains tax and has discouraged any further postponement. He added, tax collection sources should be further diversified in the Kingdom and rely less on the current taxpayer base and tax categories.   

In a statement to Cambodia Investment Review, he said: “The capital gains tax would be a substantial boost to the national treasury and with further refinement would have minimal if any impact on lower-income taxpayers. Tax on profits made on the sale of real estate in particular is an important source of tax revenues and is typically justified given the concentration of wealth held in real estate.  

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Anthony Galliano, President of the American Chamber of Commerce.

There is currently an incredible “tax opportunity loss” as substantial profits have been made on real estate transactions by individuals who simply pay no tax, while businesses pay tax on their profits and asset sales, begging the question of fairness and balance.  

The structure of the tax is already generous, especially the proposed “Determination Based Expense Deduction” method where a taxpayer can deduct 80% from the revenue received from the sale or transfer of the immovable property without needing to provide supporting documentation for the expense, theoretically resulting in a ceiling of a 4% tax on the profit, which is not much to ask.  

Further refinement can be made by only taxing profits above a certain threshold, profits above $50,000, as to ensure lower-income taxpayers are less impacted and it is the more wealthy paying their share.”

In response to the concerns of a struggling real-estate market Galliano says, “While the real estate industry is currently under stress, the reality is there are holders of real estate sitting on substantial unrealized gains, which when sold, can contribute significantly to tax collection.  

With a potential 4% ceiling tax on the profit, I believe the enactment of the capital gains tax will not be consequential and create a new source of tax collection, targeted at the higher income and wealthy sector of society, and is for the good of the country.”

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