Industry insiders welcome the government’s new initiative, saying the move will attract at least four or five new companies to list on the exchange this year. The sub-decree was signed by Prime Minister Hun Sen on January 4 and released late on Tuesday.
It states that the General Department of Taxation (GDT) will grant listed public equity and debt companies a 50 per cent reduction on all corporate income taxes for a period of three years from the date of their initial public offering (IPO).
The sub-decree also states that firms listed within the period will be granted tax relief, including indemnity from paying full income tax, withholding tax, value added tax (VAT), specific tax on certain merchandise and services, and public lighting tax.
“The sub-decree serves as an implement for companies and enterprises that make initial public offerings of equity or debt securities, which are approved by the Securities Exchange Commission of Cambodia [SECC] and are listed in the security exchange,” the sub-decree document stated.
It said companies making IPOs approved by the SECC and listed with the security exchange are required to submit the proper forms to the GDT within three years of the effective date of the sub-decree to obtain the tax incentive. The forms are to be completed through the SECC before the end of each tax year.
The standard corporate income tax rate - known as income tax - is 20 per cent for all general businesses, five per cent for insurance firms and 30 per cent for oil, gas and natural resources firms.
It is not just the listed companies that will directly benefit from the government’s tax incentive. Investors buying or selling stock on the CSX will also benefit from a 50 per cent discount on the taxes they incur from their dividends for the next three years.
Companies that already receive tax incentives from the government, such as large-scale investments that qualify for the Council for Development of Cambodia’s profit tax exemptions, will not be eligible for the new 50 per cent tax break. Indirect taxes such as the 10 per cent VAT are also exempt from the discount.
CSX Market Operations Department acting director Kim Sophanita said on Wednesday that the new sub-decree is one among many essential decisions to be made to continue supporting the Kingdom’s securities market.
Though the government has issued a similar tax incentive for listed firms in 2015, which expired last year, Sophanita said the new sub-decree provides more attractive incentives than the 2015 predecessor.
This is because it exempts tax liabilities for a longer period (up to nine years prior) and all types of indirect tax liabilities in addition to providing a 50 per cent reduction on profit tax for three years.
She added that it does not require companies to receive a comprehensive tax audit by the GDT prior to issuing securities – a process which is very time-consuming and complicated.
“The 2015 [sub-decree] exempts only tax liability on profit for only the previous five years. Companies which have many years of unaudited financial reports are afraid of having too much tax liability found, which will have to be paid."
“This is a good time for them to clear that liability by listing. If the GDT commits to strengthening tax audit capabilities and getting all companies [listed or unlisted] to pay tax in a fair manner, there will be more companies deciding to list due to a rise in competition,” Sophanita said.
SBI Royal Securities managing director Seng Chan Thoeun said on Wednesday that the tax incentive is a big reward for companies planning to list on the CSX as they will not merely receive tax reductions, but also eliminate their previous tax debts.
Chan Thoeun, who underwrote corporate bonds for Hattha Kaksekar Limited (HKL), said the government tax incentive will enable HKL to save about $2 million annually on average, offsetting its cost of issuing fees and the high coupon rate.
“There are many other firms who intend to issue bonds but have been reluctant to do so, as they are waiting for the government tax incentives."
“With the tax incentive in place, I believe there will be at least four or five new companies in the CSX this year, mostly financial firms,” Chan Thoeun said.