GMAC calls on government to help offset rising labour costs

Garment workers trace pattern templates at a factory in Phnom Penh in 2015. Kimberley McCosker

Thu, 5 October 2017

Hor Kimsay

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The industry body representing Cambodia’s garment sector issued a statement yesterday urging the government to help manufacturers reduce the cost of doing business in order to offset a higher minimum wage and workers benefit package due to come into effect on January 1.

The Garment Manufacturers Association in Cambodia (GMAC) urged the government to consider cutting the export management fee in half, reducing the Camcontrol inspection fee to the same level as that of the Customs Department and further postponing the implementation of the 1 percent advanced profit tax for an additional five years.

The government suspended the 1 percent profit tax in 2009 and has repeatedly renewed the order. However, the suspension is set to expire at the end of this year and authorities have given no indication of their intention.

“We understand that the government wishes to maintain certain revenue for the state, but it’s also important to help reduce the cost of doing business in Cambodia, especially for export industries,” the GMAC statement said.

It added that the government’s export management fee (EMF), which acts as a holdover from an outdated quota-based scheme, should be reduced to reflect Cambodia’s accession to the World Trade Organisation (WTO) in 2004.

“Cambodia is now a member of the WTO and it is not subjected to quota imposition anymore,” it said, adding that Camcontrol fees should be reduced to lower the logistics costs of the sector’s imports and exports.

Kaing Monika, deputy secretary-general of GMAC, said yesterday that the current Camcontrol inspection fee is $50 per container, while the inspection fee levelled by the Customs Department was only $15.

He added that an end of the suspension of the 1 percent advance profit tax would limit manufacturers’ ability to handle cash flows as it would then have to be paid monthly, instead of being part of companies’ annual profit tax payment, which calculates total losses and profits for a fiscal year.

“We don’t know how the government will respond to our counter-proposals, but any positive response would help reduce the burden in terms of cost of doing business in the country,” said Monika.

The official announcement of the new minimum wage for the garment industry to go into effect on January 1, 2018, is scheduled to be announced today after months of negotiations. Earlier this week, unions demanded that the minimum wage be set at $170 a month, with employers offering $162 with government widely expected to set the figure at $165.

GMAC’s statement yesterday acknowledged that Prime Minister Hun Sen typically gives the minimum wage a slight boost after negotiations conclude, with the premier previously stating in August that it should be set at $168.

Monika said the increase of the minimum wage, at its anticipated rate, would likely see the majority of GMAC members struggle to remain profitable. He added that the sector as a whole paid more than $1.4 billion in salaries in 2016, up from $1.3 billion in 2015.

“[The industry] could pay about $14 million more per month, or $168 million more per year, [with the minimum wage increase],” he said, stressing that the minimum wage does not account for overtime or other related salary benefits.

“There will be some big pressures [on the industry] in the coming year,” he said.

Chan Sophal, director at the Centre for Policy Studies, said GMAC’s proposals to reduce the cost of doing business appeared reasonable.

“It is also important to give some favours to the employers to keep the garment industry growing, not only for the benefit of the existing workforce in the industry, but also the new labour force that is seeking jobs every year,” he said.

However, Sophal added that the government should also consider looking beyond GMAC’s proposals and the minimum wage that it is willing to offer in order to make the deal fair for all sides, especially in regards to the 1 percent advanced profit tax.

“Forgoing budget revenue means reducing the [national] budget that can be used for the [development] of rest of the economy,” he said.

“Based on my analysis of the changes in the seven criteria for determining the minimum wage, I think government’s proposals for the increased minimum wage and benefits for workers are a bit generous.”