The Ministry of Economy and Finance last week did away with a special tax on imported products that were being used for re-export, after Japanese businesses said that it undermined their status as Qualified Investment Projects.

Following a January letter from the Japanese Business Association of Cambodia, the ministry’s General Department of Customs and Excise (GDCE) said on June 4 that it would “give exemption from special tax for import of some goods which are the input[s] of production and export-supporting industry”.

Under the Qualified Investment Projects (QIP) scheme, firms can import raw materials and other goods tax-free as long as they are processed in Cambodia and then re-exported to other markets.

The scheme was put to question last August when the government announced sub-decree 239, which increased the special tax rate from zero to 10 per cent on certain kinds of finished and semi-finished electronic and plastic goods. It was supposed to be implement on January 1 of this year, according to a report from accounting firm PricewaterhouseCoopers.

Hiroshi Uematsu, CEO of the Phnom Penh Special Economic Zone, said that although the tax was never implemented, but it had created uncertainty for businesses who had been promised the QIP scheme would shield them from duties.

“Until now, we were very anxious if we have to pay or not,” he said.

Uemastu added that Japanese firms had been caught off guard by the special tax, since the Cambodian government wooed Japanese firms to invest in the Kingdom and to take advantage of the QIP scheme.

“I want to say that the tax policy should be consistent,” Uematsu said. “This kind of thing should never happen.”

While most of the firms in PPSEZ are Japanese businesses involved in light manufacturing and assembly, other businesses have been worried that the special tax would affect their imports as well.

Cambodia’s garment industry, which relies heavily on duty-free raw material imports and accounts for over 80 per cent of the country’s exports, has also been apprehensive.

Ken Loo, secretary general of the Garment Manufacturers Association of Cambodia, said businesses in the industry “had enquired if the new special tax would affect garment factories”.

Loo said that GMAC had shared the GDCE notice on their Facebook page “to confirm that QIPs were exempted from the new regulation regarding special tax”.

The notice added that the tax exemption did not cover certain types of goods, such as vehicles, petroleum products and goods which are not raw materials in production processes.