Cambodia will exempt low-level civil servants from income tax, Prime Minister Hun Sen announced Thursday, in a move that will put more money in their pockets but leave the government with a U.S. $10 million annual revenue shortfall.
Hun Sen told 6,700 university students at a graduation ceremony in Phnom Penh that government workers who earn net wages of less than 800,000 riel (U.S. $196) a month will not have to pay income tax starting in 2015.
Currently, those who make net wages of 500,000 riel (U.S. $123) or more must pay income tax.
The move is intended to help low-level civil servants, Hun Sen told students at the Cambodian University for Specialties, amid rising inflation and as the government moves to compensate them in the absence of a salary hike.
There are about 90,000 low-level civil servants, which include certain categories of teachers, soldiers and police officers. The average basic monthly salary for a low-level government employee in Cambodia is about U.S. $86, according to a report.
The prime minister expects the U.S. $10 million annual loss from the income tax relief to be made up by higher projected economic growth next year.
“We are losing about $10 million for national revenues, but this is only a small amount of money,” he said.
The Manila-based Asian Development Bank has forecast Cambodia’s economic growth to increase to 7.3 percent in 2015 from a projected 7 percent this year.
The tax exemption was suggested by Economics and Finance Minister Aun Porn Moniroth and is included in the national budget for 2015, the full details of which are to be released at the end of the month.
The government plans to submit the budget law to the National Assembly (parliament) during the fourth week of October, Hun Sen said.
“The Minister of Finance initiated the idea in order to reduce the number of people who are paying income taxes,” he said. “This will help civil servants and workers to be exempted from taxes.”
Hun Sen also urged lawmakers to remain in Cambodia during the time of the budget vote to approve the law.
One local nongovernmental organization applauded the news.
Saroeun Soeung, executive director of Cooperation Committee for Cambodia, which advocates for good governance in the country, told RFA’s Khmer Service that the move was “a good start” and requested that the government enforce tax collection from all sectors to avoid corruption.
“So far, we have observed that we’ve lost tens of millions of dollars due to corruption,” he said. “This is a good start if the government wants to reform income tax collection.”
No political tension
Hun Sen’s announcement comes amid easing political tension from last year’s disputed national elections.
The opposition Cambodia National Rescue Party (CNRP) has ended a nearly one year boycott of parliament following the July 2013 elections, which it said were rigged to favor Hun Sen’s Cambodian People’s Party.
The CNRP ended its boycott after Hun Sen agreed to implement election reforms and give the opposition more powers in parliament.
Hun Sen’s decision to help ease the tax burden of civil servants also comes as garment industry workers demand an increase in their monthly minimum wage to U.S. $177 from the current U.S. $100.
Employers had rejected a previous demand by unions and workers for a wage hike to U.S. $160 after raising salaries to U.S. $100 from U.S. $80 earlier this year.
Reported by Khe Sonorng for RFA’s Khmer Service. Translated by Samean Yun. Written in English by Roseanne Gerin.