The Director of the General Department of Taxation, His Excellency Kong Vibol, signed off on Notification 11278 yesterday which temporarily suspends the implementation of “Primary Financial Services” as defined in Prakas 559, dated 25 May 2017.
Readers of our tax updates and the local newspapers in Cambodia may be aware of the controversy surrounding the definition of “Primary Financial Services” that is contained in Prakas 559.We provide a link here to our initial update with respect to Prakas 559.
In summary, the controversy is centered on the exclusion of ‘fees and charges’ under the Prakas 559 definition of Primary Financial Services. Prior to the passing of Prakas 559, banking and financial institutions in Cambodia have taken the approach that all of their revenue streams were considered as non-taxable supplies for VAT purposes, including documentation and transaction fees.
Arguably, the situation has deteriorated due to the fact that affected parties, including, it would seem the National Bank of Cambodia, the Banking Association of Cambodia, and the MFI Association, were not consulted on the Prakas beforehand and were given no opportunity to seek clarification as to its implementation.
Notification 11278 states that: “the GDT will continue to cooperate with the private sector in order to re-check and to study in details on the term “Primary Financial Services” and the implementation on VAT for primary financial services.”
As noted above, the confusion and uncertainty following the issuance of Prakas 559 could and would have been avoided if consultation between the authorities and the private sector had occurred prior to its passing; however, in this instance it appears to be a temporary delay before the law is fully enacted to suit all relevant parties.
We, at DFDL, applaud the General Director of Tax for acting on the feedback from the private sector and we look forward to the future issuance of a more complete and practical regulation concerning the definition of Primary Financial Services in Cambodia.
DFDL’s tax team, as always, stands ready to answer any questions that you may have on this and other tax issues of concern.
Tax services required to be undertaken by a licensed tax agent in Cambodia are provided by Mekong Tax Services Co., Ltd, a member of DFDL and licensed as a Cambodian tax agent under license number – TA201701018