Tax tweak makes it hard to hide

Editorial by Khmer Circle: 

As things stand today, overall it's not meaningful talking about merits or relevance of a new law such as this, particularly, if the law in question pertains to, or is ostensibly aimed at promoting social national good. In general and in practice the application of law tends to bend in favour of those with money and power. And we are only talking about people with money and 'power', and not even about the most powerful elements who actually sit on and operate above the law. 

Let just say an influential tycoon with a social conscience who tries as best he can to keep his business activities clean within an otherwise unclean environment while hoping his expanding enterprise will have had its positive impact or effects on his less well to do compatriots via generated jobs and such opportunities. But let surmise a situation where this same tycoon suddenly finds himself at odds with those powerful elements, not because of his ethical conduct or propriety in running business, nor because he has upset them owing to lack of "gifts" and tribute gestures they expect of him, but rather because his growing social prestige and the manner in which he chooses to redistribute his wealth socially present them with a cause for envy and, perhaps, a populist threat too, in time? 

It's hardly surprising that few have so far disclosed information about their acquired assets in a sealed envelope given the fact that the ACU (Anti-Corruption Unit) - a witchhunt body created by and for those very elements - could open the envelope of any individual it wants to probe any time. It's not as if one declares one's assets unwittingly by revealing all the increminating circumstances and facts relating to drug-smuggling, illegal timber trade or sand exports to India! It's more about how any piece of information will be interpreted and twisted out of context to incriminate a person. 

Just ask those NGO five (and scores of political prisoners) languishing in jail who have fallen foul with the law - more precisely, its random, politically driven interpretation.

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A motorbike passes in front of the Chamkar Morn Tax branch office in Phnom Penh yesterday. Hong Menea

1 Feb, 2017 Kali Kotoski

PPP

An amendment to the tax code gives government auditors clearer authority to access individual and corporate financial data, providing a tool to identify tax evasion and a deterrent to prevent it, tax professionals said yesterday.

Article 99 of the 2017 Law on Financial Management, which went into effect on January 1, updated the language of a provision that allows the General Department of Taxation (GDT) to request financial data from various financial institutions during the audit process instead of relying on documentation submitted by the taxpayer.

Anthony Galliano, CEO of Cambodian Investment Management, said the updated legislation gives GDT auditors clearer authority to scrutinise discrepancies between bank statements and tax returns, a measure that places the onus on the taxpayer to fully record and properly account for taxable business activity.

To prevent taxpayers from misreporting or underpaying, the tax authority now has a legal mandate to compare bank debits and credits in an account, as well as reported expenses and potentially understated profit, he said.

“In essence, all revenue invoices and expense entries should not only be listed on tax filings, but also traceable on a bank statement, in order to avoid unilateral assumptions by an auditor,” he said.

Galliano said the refined language of the amendment closed a longstanding loophole in the tax system that had allowed some registered taxpayers to hide business activity from the government by using undisclosed bank accounts.

“While multiple bank accounts were a classic mechanism of segregating reportable and non-reportable tax activity by deceptive taxpayers, that loophole has effectively been aborted,” he said.

“This is not only due to Article 99, but through the enforcement of tax licensing and the obligations placed upon the taxpayers for honest and accurate filing.”

Clint O’Connell, head of Cambodia Tax Practice for foreign investment advisory and tax firm DFDL Cambodia, said that the amendment was likely a more nuanced initiative, and that the GDT already had a similar framework in place, albeit broadly defined.

“It is important to note that even before the amendment brought about by the 2017 Law on Financial Management the GDT could, in theory, issue a notification letter to any ‘third party’ requesting information relating to a taxpayer,” he explained.

However, he added that this was often a tedious and time-consuming process, and instead the GDT would usually just issue a unilateral tax assessment when it found irregularities.

“In my experience a tax auditor would typically always request copies of the bank statements of the taxpayer for the period that they are auditing,” he said.

“I am not aware of any case where the GDT has requested taxpayer information directly from the bank itself.”

Nevertheless, he believed that the codifying language in the legal framework was more likely due to Cambodia’s push for compliance with double taxation agreements, such as the one signed with Singapore last May, which specifically highlighted that the Kingdom’s information-sharing laws needed to be cohesive.

“This could be seen as a foreshadowing of imminent developments pertaining to the active enforcement of information gathering power,” he said.

It could also stem from updated compliance with the US’ Foreign Account Tax Compliance Act (FATCA), which Cambodia adopted in 2014, he added.

In Channy, CEO of Acleda Bank, said an information-sharing provision was already in effect for local financial institutions but had yet to be used.

“By being in compliance with the GDT, we are obligated to provide any information they request,” he said. “It can be used to make sure that registered taxpayers are faithfully reporting their business activity.”

However, Channy added that the provision did little to stop unregistered taxpayers from slipping past the governments net. “Of course, bank activity gives better transparency than operating with cash,” he said.

“But the problem is that there is no law to investigate the finances of those that are not already registered as taxpayers.”