The General Department of Taxation (GDT) will implement the Capital Gains Tax starting January 1, 2024 to after being deferred three times as industrial players warn that the implementation might have some negative impact on the property market growth, which is down due to the economic downturn.
In a special broadcast on Sept 15, GDT director-general Kong Vibol said capital gains tax is “not a newly-created tax”, as it has been in place for a “long time”, only that the government has “continuously delayed its implementation” because it needed to study its implementation.
In the last four to five years, he travelled to several countries where the capital gains tax is applied, in order to learn how the law was enforced.
“We are ready to implement this tax now. The question is if the tax would cause the real estate sector to become stuck. I don’t think the stagnation would be caused by the tax. I used to talk about income tax. If you sell any real estate at a loss or break even, it won’t be subjected to capital gains tax.
“The tax is only [if you make a] profit and we are not raising it to 40 or 50 per cent, like in France or Australia. We are only taking 20 per cent after the deduction [profit], where the state is allowed to deduct 80 per cent. So, it is equivalent to four per cent when you sell real estate.”
“Our practice is to facilitate [the activities] of the real estate sector as well as our people. But if people have a contract document that clearly states that when they bought the property for $1.2 million two years ago and paid the stamp duty for this price, but now you are selling for only $1 million, which is a loss of $200,000, you don’t need to pay any capital gains tax,” Vibol explained.
Assuming there are no changes between now and 2024, including any government order to delay it, the tax would be implemented effective January 1, 2024. “For now there are no issues, so we will implement it.”
But how would this affect the real estate sector? Vibol said the real estate sector is within the “package to pay tax on capital gains”.
“Because in the past, they have been paying tax on profit. If they are in the business of making a profit or a loss, they are required to pay tax. This is not just 2024 [when they start] to pay, because in the real estate sector, they [have to] think about income tax. It already adds up [along with] the capital gains tax, so it doesn’t matter,” he said.
“The common practice for people with real estate worth tens of millions of dollars is to pay their taxes when they make a profit, therefore, it does not affect real estate developers.
“If the general public sells lower than the price they purchased at previously, then make a clear document to show that the sale was not profitable and they do not have to pay this tax. Therefore, I believe that the implementation in the future would not affect anything. If you make a profit, it is taxed, if it’s a loss, tax need not be paid,” he reiterated.
While Kim Heang, president of KW Cambodia, a real-estate valuer and developer, supported the capital gains tax, he said the current economic situation is not suitable for its implementation next year.
He urged that the implementation be extended until 2026, although the government has postponed its adoption three times.
“We noticed that the sector is not recovering due to the global economic downturn. Many other countries are continuing to ease taxes to help companies stay afloat. I think our government should consider implementing the capital gains tax in 2026 to allow the economy to improve and the real estate sector to recover,” he said.
According to a Prakas issued by the Ministry of Economy and Finance on April 1, 2020, the capital gains tax is levied on the sale of certain properties, such as land, buildings, shares, licences, patents, bonds and currency, at a rate of 20 per cent.
However, the tax was waived for the sale and transfer of agricultural land owned or occupied by farmers, who are actively cultivating crops and reside on the farmland.
The calculation of tax on capital gain, stipulates that the profit from the sale or transfer of capital is multiplied by the tax rate of 20 per cent.
Real estate and property owners can choose from two deductible methods – the Determination-Based Expense Deduction and the Actual Expense Based Deduction – when calculating the capital gains tax.