Your Excellencies, Neak Oknha, Ladies and Gentlemen,
Today, I am very delighted to join all of you once again in this auspicious 17th Government-Private Sector Forum (G-PSF). This is the first G-PSF being held after the Royal Government of the Fifth Legislature was formed after free, fair, transparent and just general elections on 28 July 2013.
Taking this opportunity, I wish to express my sincere appreciation to H.E. Keat Chhon, Permanent Deputy Prime Minister and Coordinator of the G-PSF and the Co-chairs of the 10 Working Group for the elaborative report presented to the Forum. I am very pleased with the dynamism of the exchanges between the two sides – government and private sector. I also wish to commend H.E. Sok Chenda Sophea, Minister Delegate attached to Prime Minister and Secretary General of the CDC for the effective coordinating role in his capacity as the secretary general of this G-SPF. I wish also to express my high appreciation to Cambodia Chamber of Commerce, chaired by Neak Oknha Kith Meng, for its active coordinating role in the Forum.
As in previous forums, the purpose of our gathering, which we consider as an enlarged Cabinet meeting, is to jointly review the progress since the 16th G-PSF – what have been improved, what have been resolved, what is the status of outstanding issues, and what are the newly emerging issues and challenges for investors – that we need to address in order to strengthen our competitiveness at regional and global levels and to improve Cambodia’s investment climate and business environment. I wish to welcome our private sector partners in raising their concerns including constructive requests and recommendations. I thank you for being sincere and constructive to promote our good, indispensable and complementing partnership in marching toward the ASEAN Economic Community 2015 (AEC) and broader regional integration.
Regional and global integration such as AEC would require coordination and increased human resource and institutional capacity, as well as internal structural reforms to be implemented in a timely and effective manner, so that Cambodia can fully benefit from this integration process. Given the global and national contexts and while listening to the deliberations by the Chairs of the 10 Working Groups, I am of the view that there are three important issues needed to be further clarified: taxation issues, electricity prices and issues related to industrial relation.
First, taxation issues: In general, the Royal Government’s tax policy does not have the provisions of new and/or additional taxes and duties charged to people and businesses. To meet its increased revenue targets, the Royal Government will focus only on strengthening the implementation of existing tax policies, regulations and laws by taking firm and targeted measures, including short, medium to long-term administrative and policy actions. They are particularly aimed to strengthen the culture of “paying tax”, crack down on the smuggling activities, and root out all forms of tax avoidance practices as well as improve the governance of tax and customs administrations. However, this will not be applied to some specific cases which require intervention from the Royal Government such as decline in trade tax revenue on specific goods and/or a need to impose tax for public heath reason – which are necessary for the Royal Government to respond. Nevertheless, it will not have any substantial burden on our people. Moreover, the Royal Government will give priority to improving taxpayer services in order to facilitate them to pay tax without any difficulty.
Along with this effort, the Royal Government will take further measures to promote trade facilitation through improved policy framework and more simplified and better-aligned regulations and procedures to enhance investment climate and business environment to be more favorable and attractive, as well as to facilitate all business transactions and import-export activities to be smother and more competitive.
In perspective, the Royal Government needs to be prudential in dealing with tax issues, as required by its tax policy, so that it will have full control over budget process and does not expose itself to any loophole that would cause losses to the national revenue.
Nevertheless, the Royal Government has a strong willingness to consider additional requests and solutions in case it find out that there are remaining tax charges and procedures which are not relevant and needed anymore. Then, we will reconsider and address the issue right away.
At the same time, I encourage the private sector to continue their efforts to develop its own capacity and get rid of the old practice of asking for tax incentives from the government time and again, but come to the government with ideas and proposals on how to make changes and to address the challenges facing us particularly to harness the good opportunities and potentials being offered by ASEAN’s Economic Integration 2015 and Cambodia’s strengthened competitiveness at regional and global levels.
Taking this opportunity, I would like to address our beloved people, who are following this forum, and I want them to understand the difficulty in managing the national budget. We are now facing a dilemma: On one hand, there is a request from private sector to lower or exempt their tax obligation in order to strengthen their competitiveness; On the other hand, it is required to raise the salaries of civil servants and armed forces in order to increase their living standard to an appropriate level. Moreover, without adequate revenue generated, how can we finance these demands in addition to other needs including investment in needed infrastructure such as roads, schools and hospitals.
Second, electricity supply for enterprises and industries. Electricity is one of the key areas that require greater attention in order to promote faster economic development. Electricity is needed not only for daily household consumption, but also for economic activities including industries, handicrafts, trade and agriculture. The key objective of electricity development in Cambodia is to generate adequate supplies for the whole country and at affordable prices. To this end, the efficient, sustainable, and transparent and quality production, supply and consumption of electricity should be promoted in order to enhance investment climate and national economic development. To achieve this objective, it is necessary to promote and encourage the development of this sector according to a well-studied, well-analyzed and comprehensive plan and specified timeline.
a) Electricity prices in Cambodia compared to those of our neighboring countries.
Indeed, the electricity prices in Cambodia are high compared to those of neighboring countries, but the tariffs in those three countries, Thailand, Lao PDR and Vietnam differ. Precisely, their electricity being sold to Cambodia at border areas also differ. In January 2014, Thailand, Vietnam and Laos sold their electricity to Cambodia at USD11.48 cents, USD9.21 cents and USD8.75 cents per kWh respectively. There are two determinants of prices: (i) production costs; (ii) distribution costs. The supply of electricity in Cambodia is generated from hydro-power, coal-fired and diesel plants. Thus, the prices, as defined by the above mixed sources, remain high compared to Laos that sources its electricity supply from hydropower. Moreover, the unit prices of electricity produced from high capacity electricity plants are cheaper than those of low capacity or small-scale ones. In Cambodia nowadays, our electricity plants are smaller than those in neighboring countries, thus our unit prices should be higher than the prices in those countries. Since Cambodia’s population density is lower than in Thailand and Vietnam, it makes thing even worse as distribution costs are high compared to those two countries. All these explain why electricity prices in a country could not be set at the same level as in another country. The prices should reflect the actual cost structure of electricity in each country.
b) A request for lowering electricity prices to R500 per kWh for industrial enterprises.
Now and in the near future, electricity prices at R500 per kWh for industries are not realistic or an unattainable target, since we have to think about efficiency and sustainability of the whole economic system. Moreover, the Royal Government does not have any provision to subsidize this and other sectors.
Lowering electricity prices is key to promoting industries in Cambodia so that they can compete with the products imported from other countries. However, to produce enough supply of electricity and to have distribution networks reaching everywhere in the country are even more important than the level of its prices, as to equity in the society. Investments in electricity are no different to doing other businesses such in trade, industry and handicraft. Companies could only invest and operate only if the revenue generated from selling electricity could cover their costs and left with appropriate return on their investments. Given Cambodia’s context where development demands are on the rise, in order to secure adequate electricity supply and coverage, the current prices should reflect the real costs and should not subject to any government subsidies.
Electricity prices in Cambodia are determined by key factors: a purchased import price plus import tax of 7% and plus VAT of 10%, then it is added with domestic cost of electricity and 2 cents of distribution cost to form a general average price of electricity. Based on this calculation, the wholesale prices at sub-stations are 12.9 cents per kWh.
The supply of electricity to Phnom Penh, Kandal and Kampong Speu provinces, which is managed by Electricity du Cambodge, has relied on national sources and has faced serious shortages. In 2012, after a diesel plant was added to the network, the wholesale prices of electricity on medium voltage line 22KV for businesses and industries were USD21 cents per kWh. In 2013, the prices dropped to USD20 cents per kWh in the first semester and further declined to USD19 cents per kWh. In 2014, the prices are now at USD18.18 cents for businesses and industries that are equivalent to R720 per kWh. In the following years, if we could make further progress with the same pace, the prices would drop further in line with the decline in production costs while investors in the electricity sector will continue to actively engage in this process.
Though the electricity prices are not as low as the private sector wants it to be, they remain stable in Cambodia unlike what happening in our neighboring countries. In Vietnam, the prices of electricity of 22 KV line were USD6.9 cents per kWh in 2010 and have been steadily increased to USD9.21 cents per kWh in January 2014. By saying this, it does not imply the end here for the possibility of cheaper electricity in the country. With more and more hydropower stations are being developed in the future, thus the prices could be further reduced.
Third, Industrial Relations: Industrial relations are an important part of socio-economic development process and a mechanism for addressing challenges to improve investment climate and ensure good workplace condition, welfare of workers and employees and respect for rights of unions and professional organizations.
The Royal Government has striven to implement policy measures and provide generous incentive to attract investment and create jobs for the people. In addition, the Royal Government is committed to implementing the policy on the rights of workers and employees by regarding it as important as the respect for rights of general public in the Kingdom of Cambodia. This is an appropriate policy, supported by establishment of enterprises and creation of millions of jobs for better livelihoods of the people. For instance, the textile, garment and footwear industry contributed USD 5 billion to total export and employed more than 620,000 workers who received more than USD 1 billion in wage and salaries. Additional 2 million people benefited from the sector through transport service, house rental, food supply and money sent the families of workers and employees and so on. This is indeed a marvelous achievement. However, the opposition party and their unions use political propaganda to mislead workers and employees to take part in illegal strikes and demonstration to demand excessive minimum wage with the aim of destroying investment climate, interest of workers and employees and job opportunities for our youth. To present, those extremists still maintain their evil intention with motivation and support from some outsiders.
The Royal Government wish to remind that the use of rights to demand anything must comply with laws and regulations and further violation will not be tolerated. I wish to highlight that we will work harder in a more cohesive and complementary manner to ensure the competitive advantage of the economy, improved productivity, low costs of doing business and investment attraction. People need investment and factories for their jobs and livelihoods. In this sense, the will prepare and implement the national policy on minimum wage to ensure improved living standard and acceptable wage level for workers and employees aimed to enhance their productivity and welfare. However, we need to balance and analyze all factors based evidence-based and scientific formula that suit regional and global economic development. Constructive and responsible participation from employees, employers and unions engaging in frank dialogue is necessary for good industrial relations, improved productivity and acceptable minimum wage for the cause of national interests in the long term. On this point, I wish to reiterate that I utterly protect the benefits of youth and I do not support gambling or experimenting on their future or use them to serve political purposes. The Royal Government will not allow any group to use workers and employees as their political assets and take factories or enterprises hostage, simply speaking, the will protect its achievement to date, especially substantial loss of revenue in the form of subsidies provided to factories and enterprises. Specifically, through tax and duty incentive provided to the private sector under the framework of the Law on Investment, loss of revenue amounted to USD 1,304 million in 2013.
I think that rise in wage must be attached to production capacity of each worker and employees. When factories/enterprises production capacity rises, so does their competitiveness. When their products are more competitive, their revenue will increase. As a result, factories/enterprises will be able to increase wage for their workers. Hence, productivity improvement not only enhances Cambodia’s competitiveness in the ASEAN Economic Community 2015, but also benefits workers and employees.
It is now more important than ever before that we need to come together for peace, stability, development and prosperity in Cambodia for the present and the future.
To address the above three and other challenges, the Royal Government will accelerate the implementation of its in-depth reforms by focusing on a number of priorities, viz. (1) enhancement of trade facilitation, (2) public financial management, (3) coordination and matching of the education, technical vocational training and continued human resource development with job demand in the market, and (4) further diversification of the source of growth through the endorsement and implementation of “Industrial Development Policy“.
The Royal Government has always given great importance to reform sites aimed to improve investment and business climate in Cambodia. For instance, the Ministry of Commerce, General Department of Customs and Excise of Cambodia and General Department of Taxation have implemented in-depth reform program within their responsible areas. Going forward, they will mainstream the use of IT for processing applications regarding the issuance of customs certificate, issuance of export certificate, issuance of certificate of origin and business registration etc. aimed to reduce not only costs but also informal payment. I believe that the above Ministry and General Departments as well as other concerned ministries/institutions will step up their contribution to trade facilitation.
For the public financial management, fiscal management has been strengthened through improvement to revenue mobilization with the main focus on revenue administration and improved governance as well as rationalization of spending to reduce budget deficit to within acceptable limit and increase fiscal space for financing development needs and other contingencies, especially for possible crisis in the future. The gradual increase in tax revenue as well as customs revenue clearly highlights this effort.
In the context of ASEAN Economic Community 2015, another indispensible preparation is the development of human capital. Cambodia needs quality and competent human capital to prepare itself for the anticipated competition. The Royal Government will focus its attention on strengthening education quality and technical vocational training that have yet to respond to and match market demand to ensure youth are worthy successors of the present generation and sustainable development of the country. Skill training for the youth, workers and employees to enhance work productivity and increase their incomes is an objective planned by the Royal Government along with firm implementation commitment even though it can take some time.
In the near future, the Royal Government will launch “Industrial Development Policy” aimed to enhance Cambodia’s manufacturing sector and competitiveness, increase value added in key existing sectors such as agriculture, garment, and tourism, promote new and promising industries, and enhance comparative advantage of Cambodia’s industry sector. This policy will help Cambodia prepare itself to attract FDI which is gradually moving out of China and some regional countries due to high wage level. The successful implementation of the “Industrial Development Policy” will create more jobs for youth entering the labor market each year.
What I have raised above is by no means a fancy but commitment to the prosperity of the nation, job opportunities and better living standard where everyone will benefit from the equitable distribution of economic growth. Hence, all stakeholders must take part in implementing this policy for the cause of our future.
Participation from the private sector is crucial for Cambodia’s preparedness for its membership in the ASEAN Economic Community 2015. Our pursuit of ASEAN Economic Community 2015 is comparable to boat racing that require paddlers at both the front end and rear end of the boat. Although the government, the rear-end paddler, might have the responsibility of steering the boat, but inputs from the private sector at the front end of the boat are equally important for direction setting. Likewise, policy recommendations provided by the private sector are very important for political decision in the government’s leadership. The Royal Government desires to see greater participation from the private sector in dealing with challenges faced by Cambodia in general, and by the private sector in particular, to move toward success for all, therefore, the organization of this Forum.
I am pleased to declare my approval of the request of Excellency Minister of Commerce for the establishment of Cambodia Rice Federation which consists of the rice producer, rice exporter associations and federations and all rice exporters to represent Cambodia’s rice sector in dealing with the Royal Government or rice federations of other ASEAN member countries. This demonstrates that Cambodia’s rice sector is ready to compete in the context of ASEAN Economic Community 2015. Hence, I call on other sectors to follow suit to prepare for the anticipated regional and global competition. In addition, I wish to take this opportunity to inform that I have endorsed the participation of Cambodia Rice Federation in the Royal Government’s negotiation on prices, terms and condition of rice export with other countries. Given partnership between and pro-activeness of the Royal Government and the private sector, I believe that we will achieve the target of exporting one million ton of milled rice in 2015.
After raising overall views, I wish to continue by responding to requests from the private sector as follows:
- Regarding the Foreign Account Tax Compliance Act (FATCA) of the United States: the representative from the private sector in the Working Group on Banking and Financial Services has requested the Royal Government to consider options for implementing this newly enacted FATCA of the United States.
Since this is an urgent and complicated issue, I think it is necessary to create a working group led by the National Bank of Cambodia with participation from all stakeholders to review options and address this issue
- Request for the reduction of VAT to 0% for the domestic supply of rice:
The request for the reduction of VAT to 0% is approved for supporting enterprise that engage in rice purchasing and milling activities for reselling to rice exporters as in the garment sector. Application, along with supporting documents such as supply contract and customs declaration needs to be lodged with the General Department of Taxation. The Ministry of Economy and Finance will issue Prakas for implementing this.
- Request for the VAT on domestic supply of rice husks to be further borne by the state
The request is approved. The Ministry of Economy and Finance will issue Prakas for implementing this.
- Request for the VAT on import of silk thread to be further borne by the State
VAT for the import of silk thread will be borne by the state for two more years, until the end of 2015 and the Ministry of Economy and Finance will issue Prakas for implementing this. As a note, 0% VAT on import of silk thread has been implemented for three years.
- Request for incentive on the import of raw materials for producing luggage, handbag and hat for export.
This request is approved. Incentives on the import of raw material for producing luggage, handbag and hat and similar products for export as provided to the garment and footwear industries. The Ministry of Economy and Finance will issue Prakas for the implementation.
- Request for the reduction of container scanning service fee:
Further reduction of 20% of the scanning fee is approved. Scanning fee for 40ft container will decline from USD 40 to USD 32 and for 20ft container will decline from USD USD 25 to USD 20. The Ministry of Economy and Finance will prepare Prakas for implementing this by 1st April 2014.
- Request for the approval of authorized economic operator:
I wish to instruct the General Department of Customs and Excise of Cambodia of the Ministry of Economy and Finance to invite businesspeople with high compliance and good reputation to provide authorized economic operator status by 1st April 2014.
- Request of the Working Group on Tourism (Group B) for the creation of more counters at busy border checkpoints:
The Ministry of Tourism must work with the National Police Commissariat to create more immigration counters at the international border checkpoint Poi Pet.
- Request of the Working Group on Tourism (Group B) for (1) strengthening safety and security in urban and tourist areas, (2) ensuring vehicle drivers/riders to follow the Law on Land Traffic
The Ministry of Tourism must work with the National Police Commissariat to explore all means to strengthen safety and security in urban and tourist areas.
Referring to traffic safety, the Royal Government endorsed the National Policy on Land Traffic Safety on 21 February 2014. Moreover, the Ministry of Public Work and Transport has prepared a new Law on Land Traffic, which is being reviewed by the Council of Legislator
- Request of the Working Group on Tourism (Group B) for the diversification of domestic tourist attraction
The Council for the Development of Cambodia must monitor actual progress of the approved island/beach investment project to ensure their compliance with agreed terms and condition. Any company found breaching the contract, the Council for Development of Cambodia/Cambodia Investment Board must propose the nullification of the contract.
- Request of the Working Group on Tourism (Group B) for the establishment of solidary sanitation movement joined by local authorities and the private sector as permanent event held once or twice a month in each tourist attraction in accordance with “Clean City, Clean Resort” campaign.
Presently, the Committee for Clean City Assessment is actively promoting this movement and the winning city will be declared in 2015. The Committee has recently reported the preliminary result of contest. With regard to sanitation in public zones, urban areas and cities, the Ministry of Tourism and the Ministry of Environment in cooperation with local authorities has created a permanent mechanism to achieve Cambodia Clean-Cambodia Green. Through this mechanism, we hope that cities will become cleaner and more sanitary, including better management of solid and liquid waste. Moreover, local authorities must arrange a permanent mechanism for ensuring sanitation in public zones under their territorial jurisdiction financed by revenues collected in their administrative zone.
- Request of the Working Group on Manufacturing, SMEs and Service (Group C) for State’s provision of incentive to SMEs including 1) Tax exemption on the import of machineries, equipment and raw materials of SMEs; 2) Provision of 3-year tax holiday for new enterprises
Tax incentive: Within the framework of the soon-to-be-launched “Industrial Development Policy”, the CDC will explore possibility for providing tax incentive to some targeted SMSs.
- Request of the Working Group on Transport and Infrastructure (Group G): the private sector request permission to open traffic on Road No. 371 crossing Monivong Bridge to Ksam Port for trucks from 12:00 to 16:00 when there is very little traffic to save time for exporters.
The request is approved, but is applicable only to transport of milled rice. Companies must apply to the Phnom Penh Municipality Hall to get the special pass for access to the above route from 12:00 to 16:00. Companies must use this concession with great sense of responsibility.
Before ending, I wish to extend high appreciation to my colleagues in the Royal Government who are present here and representatives from the private sector for maintaining this traditional relationship and joint problem solving mechanism to ensure good investment climate and attraction of investment from both domestic and foreign sources. I call on all of us to maintain positive stance toward deliberation in pursuit of solutions.
Finally, I wish Excellencies, Oknha, ladies and gentlemen the four gems of Buddhist Blessing: Nobility, Longevity, Healthiness and Strength.