Cambodia Needs to Reform Public Finances

16 April 2014

Cambodia urgently needs public finance reform to address its persistent budget deficit, which is caused by one of the lowest tax revenues in the developing world, according to a report from the Deloitte University Press.

The March edition of the press’ quarterly Asia Pacific Economic Outlook says total tax revenues last year were USD881 million, just above 5% of gross domestic product (GDP). This figure is much below corresponding levels in developing and emerging-economy peers and is the main cause of persistent budget deficits. Given the need for the country to spend more on sectors such as health, education and infrastructure, the current tax system is untenable.

Although the Deloitte report did not provide comparative re­gional figures for tax revenue to GDP ratio, the Organization for Economic Cooperation and De­velop­ment (OECD) noted in a 2013 report that Cambodia was among Southeast Asia’s least efficient tax collectors.

The tax ratios vary considerably across Southeast Asia, with the ratios for Cambodia, Laos, Indonesia and the Philippines being roughly two-thirds that for Thailand and about half that of Vietnam, the country with the highest ratio.

The Deloitte report goes on to say that Cambodia’s public finances need to be more transparent. In the budget for 2014, more than USD1.5 billion of funds remain unallocated or are placed under ‘miscellaneous’ expenses. Critics allege that this nebulous allotment encourages corruption, something on which Cambodia rates high.

Vongsey Vissoth, a secretary of state at the Ministry of Finance, dismissed the findings in the report, saying the tax-to-GDP ratio is higher than 5%, but declining to give an alternate estimate. He added that the government is working to increase the ratio by 0.5% year on year, noting recent efforts to more strictly enforce customs tax collection. This evaluation is not correct. On the contrary, our tax revenue grows from year to year.

Regarding a lack of transparency in the allocation of the budget, He said the government has made an effort to spend more efficiently on prioritized sectors, including education and health. The government is strict on curbing lavish expenditures and tries to focus spending on the main targets.

Srey Chanthy, an independent economist, said the low tax revenue was causing the government to take on increasing foreign debt to make up for budget shortfalls. The result is Cambodia can’t finance public services and projects and we have to keep borrowing from multinational sources.

Source:

http://www.cambodiadaily.com/news/cambodia-needs-to-reform-public-finances-report-says-56607/