FTAs incur $187M loss in customs tax, but lift up exports
FTAs incur $187M loss in customs tax, but lift up exports
Free trade agreements (FTA) have caused Cambodia to lose around $187 million in customs revenue in the first half of 2022 but they have opened up a larger export market, increased productivity and created more jobs.
The custom revenue loss is up 7.34 per cent year-on-year, according to the Ministry of Economy and Finance’s work report for the first half of 2022.
Ministry spokesman Meas Soksensan told The Post on August 30 that although the FTAs reduced tax revenue, it provided Cambodia with the opportunity to expand to new markets, create jobs and attract more investment in the manufacturing sector.
“Usually when we engage in free trade, it means both parties reduce taxes. What we gain is market share – we can increase our competitiveness because both countries remove import barriers. We also increase exports, which helps to enhance our domestic production chain accordingly,” he said.
Soksensan explained that with the growth of the economy, customs revenue will gradually “disappear”, so the government would have to increase revenue by strengthening local tax administrations to collect revenue.
“The loss of customs revenue might seem large, but we need to ensure that by enhancing the local production chain, there will be more job opportunities for our people and local taxes will increase accordingly,” he said.
Royal Academy of Cambodia economics researcher Ky Sereyvath told The Post on August 30 that the loss of customs revenue is due to the large number of products imported from China, implemented by Cambodia in accordance with the Cambodia-China FTA.
“The loss of customs revenue will be replaced by tax revenue, so Cambodia-China trade will also boost domestic production for export to China,” he shared.
Sereyvath said despite the imbalance in imports and exports, Cambodia’s exports to China have increased significantly, which has enabled higher income generation from domestic production as well as job creation.
He believed that while the loss of more than $186 million impacts government revenue, the replacement of tax revenue and the creation of jobs are more important and better than imports.
According to a finance ministry report, the collection of customs revenue in some areas was not positive as the growth of the domestic supply chain has substituted imports in the past.
For instance, the growth of domestic production such as beer, cement, beverages, cigarettes and vehicles resulted in Cambodia losing about $526.73 million in import tax revenue in the first half of 2022 compared to the same period in 2021.
According to the report, beer accounted for the most at $237.56 million, with the rest represented by cement ($101.85 million), non-alcoholic beverages ($84.62 million) and cigarettes ($17.42 million), along with spare parts for two-wheeled vehicles ($74.47 million), three-wheeled vehicles ($3.36 million) and other vehicles ($7.45 million).
