Cambodian Government Preparing Standardized Tax Reports

December 31, 2014 Posted by ASEAN Briefing Reading Time: 4 minutes

The Cambodian Ministry of Economy and Finance is drafting standardized accounting procedures for small and medium-sized businesses. The main goal of the draft is to streamline bookkeeping, improve tax collection efforts for the government, and make it easier for lending institutions to evaluate loans.

According to the 2011 Cambodian Economic Census, SMEs accounted for 1.67 million jobs, and the over 500,000 SMEs made up 99 percent of all businesses. Head of Cambodia’s National Accounting Council Ngy Tayi has said that few Cambodian SME owners fill out current forms according to accounting standards adopted around a decade ago. Many Cambodian businesses still record their income and expenses in handwritten notebooks.

New accounting standards could benefit Cambodian companies, as with stronger accounting controls, financial improprieties and losses from fraud may become harder to hide. With an accurate statement of financial position, the management of companies could have a better understanding of performance and cash flow, which should lead to better management decisions.

The basic requirements for accounting, financial reporting and auditing in Cambodia are set out in the Law on Commercial Enterprises and the Law on Corporate Accounts, their Audit and the Accounting Profession. The Accounting Law mandates the use of an accounting system based on standards promulgated by the International Accounting Standards Board.

There are currently two accounting frameworks used in Cambodia. The first is the International Financial Reporting Standards (IFRS) and the International Financial Reporting Standards for Small and Medium-sized Entities (IFRS for SMEs). Domestic and foreign companies whose securities trade in a public market are either required or permitted to use IFRS in their consolidated financial statements (CIFRS). Non-publicly accountable domestic companies have a choice between IFRS and IFRS for SMEs.

There are still hurdles that need to be overcome. Firstly, according to Tayi, small business owners will need up to six months informal training to be able to fill out the new reports. It is unknown how motivated the small business owners will be to learn the new procedures if they can’t see its direct benefit. The proposed streamlined forms also have no clear release date, though they are expected to be implemented next year. Crucially, as with current forms, the proposed forms would not be compulsory.

Clearer accounting records would give the government a stronger basis for tax computation and collection, as clearer accounting leads to clearer tax rates. Ineffective accounting procedures are an obstacle to the Cambodian government acquiring revenue, and this does not only apply to SMEs. Lawmaker Son Chhay has called for an investigation into the accounting procedures in the Angkor Wat temple complex, which allegedly deprived the Cambodian state of millions of dollars.

Until Cambodia has the capacity for root-and-branch reform with compulsory reporting procedures implemented across the board, accounting in Cambodia will remain opaque, and investors must be wary. For a customized report into doing business in Cambodia, don’t hesitate to contact Asia Briefing.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email asean@dezshira.com or visit www.dezshira.com.

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