The General Department of Taxation (GDT) collected a whopping $1.19 billion in tax revenue during the first half of this year, an increase of 32 percent compared to the same period last year, led by a surge of value-added tax (VAT) and profit-tax revenue.

The huge gains appear to be an indication that efforts by the Cambodian government to increase tax collection are starting to pay off, with analysts saying now is the time for the Kingdom to begin weaning itself off of foreign aid – while cautioning that such a move would require greater transparency and wiser allocation of funds.

The figures provided by the GDT yesterday showed its collections over the first six months already accounted for 69 percent of its goal for the whole year as outlined by the national budget. While the report failed to break down tax revenue by category, it noted that VAT collections soared by 45 percent and profit-tax revenue increased by 33 percent. It also showed that special tax, which includes additional fees on automobile parts, cigarettes, beer and alcohol, increased by 11 percent, with salary tax growing by 5 percent.

Hiroshi Suzuki, chief economist of the Business Research Institute for Cambodia, said that GDT’s efforts could improve civil servant salaries and contribute to much-needed infrastructure development that has for decades been funded by bilateral and international donors.

“If tax collection continues to increase, the Cambodian government could have much more room to increase the level of salary for civil servants and start to finance [infrastructure] projects through its own budget,” he wrote in an email. “This could help to decrease the dependency on loans from foreign countries.”

He added that while tax collection was still dominated by large-scale companies paying an effective corporate tax rate of 20 percent, the surge in VAT collection showed that more companies were applying the government mandate of 10 percent on the sales of goods and services, as well as on imports.

The GDT overhauled its tax regime in late 2015 and abolished its poorly regulated and grossly inefficient estimated-tax regime, putting all taxpayers into the more stringent real regime.

The International Monetary Fund warned on Tuesday that the government needs to enhance its tax collection as the country’s income level rises and developmental aid and grants from foreign countries taper off.

Clint O’Connell, head of tax practice for DFDL Cambodia, explained that the GDT has definitively evolved into a more functional department, making staggering gains in tax collection over the last couple years. However, he added the real goal of tax collection for the country will only be realised when the government starts to sink its own money into public services like health care and education.

“A number of commentators have already made the point that as Cambodia develops, it by default should be less reliant on foreign aid,” he said. “It makes economic sense that in the future Cambodia should look to be free from foreign aid but it is difficult to say when that may be with certainty.”

He argued that while the GDT was just starting to “scratch the surface” of how much tax revenue it could collect, it was important that the government widen its base by registering more taxpayers, especially small- to medium-enterprises.

“The underlying philosophy of the government should be that of carrot and stick with respect to increased tax collection,” he said. “Those large number of businesses who have still failed to register for tax need to be motivated to do so and the GDT needs to be more pro-active in this area.”

Anthony Galliano, CEO of Cambodian Investment Management, said despite the reforms the government has made, it was a far off scenario that the Kingdom could balance its budget and decrease its amount of foreign dependence.

“Tax revenues for the Kingdom are still far short of the $5 billion national budget, but are increasingly contributing a higher nominal amount,” he said. “While the percent growth in tax revenues exceeds the percent growth in the national budget, it is not yet keeping up with the absolute number growth.”

He added that while the easy gains in tax collection have already occurred after abolishing the estimated regime, “there is no clear visibility on a balanced budget” unless the government raises taxes and finally targets tax dodgers by “checking every business street by street to ensure they are registered and filing”.

Cambodia National Rescue Party lawmaker Son Chhay said that the ruling party appeared to be finally taking some responsibility to fill its coffers, mainly to keep civil servants loyal to the party.

“For too many years did the government ignore its responsibility, and would rather pocket a lot of money than have companies and tycoons pay taxes,” he said. “But from our calculations, the government could have collected $1.6 billion for the first half of the year if it actually taxed casinos properly and stopped giving party-loyal tycoons breaks.”

He added that if Cambodia continues to depend on foreign loans, especially from China, little would be accomplished in eradicating poverty.

“If Cambodia continues to rely on foreign loans, the country will not be able to move up the income ladder because the majority of loans are misused and only benefit the rich,” he said.

“The reality is that Cambodia is a corrupt country and until you have an institution that can give a fair distribution of wealth, progress will not happen in stopping foreign dependence.”