Logo of Phnom Penh Post newspaper Phnom Penh Post - Income-tax threshold to rise

Income-tax threshold to rise

Garment workers produce shirts at a factory in Takhmao, Kandal province, in 2014.
Garment workers produce shirts at a factory in Takhmao, Kandal province, in 2014. Scott Howes

Income-tax threshold to rise

Cambodian workers, especially those in the garment industry or employed by the government, can expect a little extra cash on hand next year as the National Assembly reviews draft legislation that would raise the lowest taxable income threshold from $200 to $250.

Mey Vann, director of the financial industry department at the Ministry of Economy and Finance, said the proposed tax amendment – expected to pass and come into effect in January – is necessary to close the gap between low-income and high-income earners.

“The tax amendment is aimed to incorporate a policy that balances different income levels,” he said. “The increase from $200 to $250 will mostly affect the lowest salary earners like government employees and garment workers, so we decided to amend the tax so that they can avoid being taxed.”

Clint O’Connell, head of Cambodia Tax Practice for foreign investment advisory and tax firm DFDL, explained that under current law, taxable income kicks in for anyone earning over $200 a month at 5 percent. The amendment would raise this threshold to $250, while pushing the top of the income tier to around $375, from $312.

While raising the higher threshold will likely put a small dent in the government’s coffers and operating flow, he said that the reform should “provide some additional breathing space” for Cambodians on the lower side of the income spectrum.

“The increase in the tax band effectively results in workers who earn $250 per month receiving an additional $2.50 in the hand that would have otherwise been paid by their employers to the tax authorities as tax on salary,” he said.

Coupled with the General Department of Taxation’s announcement in October that the fringe benefit tax – part of an employer’s monthly salary tax obligation – would be reduced from 20 percent to zero across all industries, O’Connell believes this “should encourage increased compliance for those employers who are transitioning into the formal regime of taxation”.

While an extra $2.50 per month may not seem like much, Michael Gordon, a partner at tax firm KPMG Cambodia, said that any benefit given to low-income earners was a progressive step. “Any move to decrease the tax burden at the lower levels is welcomed,” he said.

“Increasing the levels of salary before tax is applicable is a welcome move.”

This will be the second time in the last two years that the government has raised the tax threshold for low-income workers. The move is seen as complementary to hikes in the minimum wage, which was raised to $153 a month in September, and increased basic living costs.

Rath Minea, acting president of the National Independent Federation Textile Union of Cambodia (NIFTUC), said the proposed increase in the salary tax threshold was a welcomed reform, especially as many garment workers effectively earn more than the minimum wage when overtime pay is factored in.

He said even small increases in worker hours could easily have tipped them into the $200 a month tax band.

“Even though the tax break is small, maybe only $1 or $2, it is necessary for workers to receive this extra income,” he said.

Additional reporting by Hor Kimsay

MOST VIEWED

  • Cambodia to waive quarantine requirements Nov 15, no PCR test required

    Prime Minister Hun Sen has decided to lift all quarantine requirements for fully vaccinated travellers and visitors – both Cambodians and foreign nationals – effective from November 15 onward. In a special message addressed to officials and relevant authorities on November 14, Hun Sen said this policy will enable

  • PM: No more quarantine for vaccinated travellers

    Cambodia is lifting all quarantine requirements for vaccinated inbound travellers entering Cambodia by air, waterway or land border checkpoints effective from November 15. Travellers will be required to take a rapid antigen test on arrival rather than waiting for the results of the lengthier polymerase chain

  • No payment required for travellers taking rapid Covid tests on arrival

    Ministry of Health officials said there would be no payment required for the rapid Covid-19 tests given to travellers who arrive in Cambodia from November 15 onwards after the quarantine requirement is lifted for fully vaccinated people. Health ministry spokeswoman Or Vandine told The Post on

  • General’s gun smuggling ring busted

    The Military Police sent six military officers to court on November 22 to face prosecution for possession of 105 illegal rifles and arms smuggling, while investigators say they are still hunting down additional accomplices. Sao Sokha, deputy commander of the Royal Cambodian Armed Forces and commander of

  • More Cambodians studying in US

    The number of Cambodian students studying at US colleges and universities in 2020-21 increased by 14.3 per cent over the previous year despite the Covid-19 pandemic, according to a recent US government report. The 2021 Open Doors report on International Educational Exchange showed that 848 Cambodian students studied

  • Cambodia, Thailand to discuss border reopening

    Cambodian authorities from provinces along the Cambodia-Thailand border will meet with Thai counterparts to discuss reopening border checkpoints to facilitate travel, transfer of products and cross-border trade between the two countries. Banteay Meanchey provincial deputy governor Ly Sary said on November 22 that the provincial administration