Cambodia

ASEAN Market Watch: Renaming of MSCI Indexes, Growth in the Philippines, and Construction Boom in Cambodia

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MSCI South East Asia Index Offerings renamed MSCI ASEAN Indexes

MSCI, a US-based provider of equity, fixed income, and hedge fund stock market indexes has renamed its MSCI South East Asia Indexes to MSCI ASEAN Indexes. In addition, MSCI also added new indexes to represent the developed, emerging, and frontier markets in the ASEAN region. While MSCI ASEAN represents all the markets, MSCI EM ASEAN focuses on emerging markets, and MSCI EFM ASEAN represents emerging and frontier markets. The MSCI AC ASEAN index covers large and mid-cap equities across Singapore and four emerging markets, namely, Indonesia, Malaysia, Philippines, and Thailand.

MSCI was granted the right to use the ASEAN designation for their index offering from the ASEAN Secretariat. The members of the ASEAN exchanges include seven exchanges across Singapore, Indonesia, Malaysia, Philippines, Thailand, and Vietnam. The rebranding of the indexes reflects the development of ASEAN members as a region of sustained growth and economic development. The change will offer global investors a deeper understanding of the various investment opportunities in the region and allows the member countries to promote their capital markets.

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Evaluating Cambodia’s Tax Reform

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By Dezan Shira & Associates
Editor: Alexander Chipman Koty

Cambodia’s updated Law on Financial Management for 2017 reflects the government’s ongoing efforts to revamp the country’s tax system and bring more businesses operating in the informal sector into the formal tax regime by offering incentives for small taxpayers. The amended laws, which came into effect on January 1, offer lower tax rates for small and medium sized enterprises and tax exemptions for firms that uphold quality accounting. The new rules continue a tax reform initiative that began in 2013 to increase the government’s tax revenue collection capabilities and better regulate Cambodia’s significant informal economy. Successful implementation will better equip foreign investors to compete with domestic firms in the informal sector that are able to offer lower rates for their services by avoiding tax obligations.

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ASEAN Regulatory Brief: Philippines Contractualization Law, Cambodia Customs Seal, and Malaysia Foreign Worker Levy

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Philippines: Policy on labor contractualization approved

The Philippines government approved a new Department of Labor and Employment (DOLE) regulation, Order No. 168 on contractualization, after it was submitted on December 29, 2016. The new law amends the provisions of the labor code and legalizes subcontracting or outsourcing labor through third party agencies. This will allow principal employers to hire contractual labor, but only through service providers. These providers will be responsible for regularizing workers rather than the employer. Higher financial requirements will be imposed on service providers to eliminate unreliable subcontractors and ensure payments for laborers. The government believes that the change will address issues of labor abuse.

Several labor groups have opposed the directives, believing the change will only further legitimize contractualization in a different form and not eliminate it. The groups are lobbying for direct hiring and to prohibit third party hiring by banning fixed-term employment. They have asked President Rodrigo Duterte not to implement the directive and to issue an order banning all forms of fixed employment contracts, thereby fulfilling his campaign promise of eliminating contractualization. In the first five months of Duterte’s term, the government regularized 25,000 contractual workers, which is less than 10 percent of the total workforce.

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ASEAN Regulatory Brief: Cambodia Tax Regulations, Laos Foreign Currency Loans, and Philippines-Cambodia Bilateral Relations

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 Cambodia: New Tax Regulations for Multi-activity Businesses

The Ministry of Economy and Finance (MEF) in October introduced notification Prakas 1127 detailing updated requirements for companies carrying multiple business activities including one or more Qualified Investment Projects (QIP). A QIPs is an investment project that has been issued a Final Registration Certificate (FRC). In order to qualify as a QIP, the investor has to register the project with the Council for the Development of Cambodia (CDC) or Provincial Municipals Investment Sub-Committee (PMIS) to receive the FRC. Businesses that will be affected include those that have more than one QIP, those that carry out more than one business activity subject to different rates of tax on profit and companies that are involved in QIP and non-QIP business activities.

This notification also applies to businesses carrying out the aforementioned activities that were incorporated before October 11. Such businesses will have to register their business activities separately with the General Department of Taxation (GDT) within 15 days of starting the activity and get a separate Value Added Tax (VAT) and Tax Identification Number (TIN). These business will also have to submit monthly and annual tax returns for the registered business activity.

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Threading the Needle: the Rise of Myanmar as a Garment Manufacturing Alternative

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By Mike Vinkenborg

myanmar garmentWith the government of Myanmar recently passing its new Investment Law, taking effect in April 2017, the country is showing its continued commitment to attracting foreign investment. After reopening its economy in 2012 following several political reforms beginning the year before, Myanmar has been receiving significant increases in foreign direct investment, reaching a high of US$9.5 billion in the 2015/2016 fiscal year ending in March. To put this in perspective, the total amount of FDI added up to only US$329.6 million in 2009/2010, the year before the military ceded power. While oil, gas, and energy remain the sectors with the highest FDI inflows, investments into Myanmar’s manufacturing industry are rapidly gaining traction, having risen from just US$33.2 million to over US$1 billion in the same period, and hitting a high of US$1.8 billion in 2014.

As China strives to move up the value chain and focus more on high-end manufacturing, the country’s wages have risen to the point where many garment manufacturers are looking to invest elsewhere. Cambodia and Vietnam have already established themselves as alternatives, and now Myanmar is bringing a new labor force to the competition. Clothing exports have already gone up from US$337 million in 2010 to US$1.46 billion in 2015. And now that the economic sanctions by the EU and US have been lifted, the Myanmar Garment Manufacturers Association (MGMA) has set a target for exports to increase to US$12 billion by 2020. Doing so would create an estimated 1.25 million new jobs, a sharp increase from the approximately 250,000 people currently working in the garment industry.

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ASEAN Regulatory Brief: Philippines Disaster Coverage, Cambodia Tax Amendments, and Singapore-Laos DTAA

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Philippines: Government Considers Mandatory Disaster Coverage

The Philippines government is considering a mandatory household and business insurance cover against natural disasters. While some individuals take out policies against natural threats, the Philippine Insurers and Reinsurers Association (PIRA) state that a mandatory scheme allows for the significant amount of funds required to meet the large claims that are likely to be made.

The developments come in the context of the Philippines being prone to natural disasters like typhoons and flooding. The Super Typhoon Haiyan, three years ago, cost the economy around US$ 14 billion, out of which only US$ 2 billion was covered by insurance. A study by international insurer Lloyd’s City Risk Index 2015-25 showed that around half of Manila’s GDP of US$ 201 billion is at risk of being lost due to a natural calamity without any insurance coverage. The proposal is backed by private sector insurers as well as the World Bank. If passed, the bill would boost the insurance industry.

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ASEAN Market Watch: Philippines Manufacturing, Cambodia Agriculture, and Indonesia’s Textile Industry

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Philippines: Manufacturing Continues in Upward Trajectory

Philippines registered a Purchasing Managers’ Index (PMI) of 56.5 in October, suggesting a continued expansion in the manufacturing sector. PMI measures the health of the manufacturing sector, and a reading of 50 and above indicates improvement in business conditions, while a score below that indicates deterioration. Manufacturing activity showed strong growth due to strong domestic demand for new orders. In addition, export sales also contributed to strong operating conditions. Further improvement in purchasing and employment, with continued stock building is likely to continue to help the sector.

The Philippines lead the region by a wide margin, followed by Vietnam. Nevertheless, analysts have stated that the continued depreciation of the Philippine Peso is likely to increase the average cost for manufacturing companies and reduce profits. Expensive raw materials used in production and the rise in prices of imported crude oil will also contribute to increased costs. Still, strong demand has allowed manufacturers to raise prices to keep up with costs. Proposed increases in public spending is also expected to give an additional boost to the manufacturing sector in the near term.

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ASEAN Market Watch: Malaysia CIT Reduction, Indonesia Ease of Doing Business, and Cambodia Rice Exports

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Malaysia: Corporate Income Tax to be Reduced for Profit-making Companies

In the forthcoming Assessment Year (AY) 2017, beginning January 1, 2017, as well as AY 2018, companies registering an increase in revenue, compared to the previous AY, will be eligible to pay a reduced rate of corporate income tax (CIT) on the increased amount.

As per the new measure, companies increasing their annual revenue by at least five percent over the previous year will get a one percent reduction in the 24 percent CIT rate on the incremental portion of taxable income. The tax cut will rise on a sliding scale to four percent in line with revenue increases of 20 percent or more. For example, if a company increases its chargeable income from RM 10 million in AY 2016 to RM 12 million in AY 2017, the income tax rate for the first RM 10 million will be 24 percent, and the income tax rate for the additional RM 2 million will be 20 percent.

In addition, a tax incentive has been introduced for small and medium enterprises (SMEs) whereby the income tax rate on the first RM 500,000 (US$120,222) will be reduced from the current 19 percent to 18 percent with effect from AY 2017. The changes are part of the Budget 2017, which will also include incentives for other sectors like hotels and insurance. Despite these incentives, analysts have stated that the tax reduction is still not attractive as compared to other ASEAN countries.

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Indirect Taxation Across ASEAN

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By: Dezan Shira & Associates

Among a myriad of factors which determine competitiveness within ASEAN member states, rates of taxation are a particularly salient judge of character for the treatment of foreign investment. In recent years, corporate income tax (CIT) has become the standard bearer for tax benchmarking, however, foreign investors will be faced with a variety of different taxes in the event that capital is committed. For those importing and exporting, indirect taxation, including value added taxation (VAT) and goods and services tax (GST) are significant forms of tax that should not be disregarded. 

In essence, an indirect tax adds to the price of a purchasable product or a payable service, thereby increasing the cost of that product or service and causing consumers to indirectly pay its rate of taxation. Indirect taxes thus differ from other forms of taxation, such as corporate income and individual income tax; both of which require a business or an individual to pay the applicable amount directly to a government.

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ASEAN Market Watch: Indian SEZs in Myanmar, US Increasing Engagement in Cambodia, and Innovation in the Philippines

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Myanmar: India to Setup an SEZ in Sittwe

VK Singh, India’s Minister of State for External Affairs, announced India’s plans to build a Special Economic Zone (SEZ) in the Burmese city of Sittwe. The announcement was made at the India-ASEAN Foreign Ministers meet in Laos. The SEZ proposed by India will reportedly by located about 50 miles (80kms) south of Sittwe and will provide competition to the Chinese SEZ.

The Indian government aims to expand India’s footprint in the Southeast Asian region. India has already build a port in Sittwe. The plan to build the SEZ comes as a backdrop to China’s plan to build several roads and ports, as a part of their One Belt One Road Initiative. Myanmar is developing rapidly as its economy opens up with several countries investing in the country to gain influence in the region. The investments bode well for investors that plan to enter or are currently in Myanmar, as they will likely benefit from increased infrastructure. 

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