At the January 19th 2017 DFDL tax seminar one of the main talking points related to a possible amnesty on penalties and interest for those taxpayers who voluntary disclosed under-declared tax with respect to their previous tax declarations that were lodged with the General Department of Taxation (“GDT”).
We are pleased to advise our readers that yesterday the GDT issued Notification 1219 which outlines exactly how this voluntary disclosure process will work and what benefits come with it. Simply put all registered taxpayers in Cambodia have an amnesty until 1 April 2017 to voluntarily disclose and pay underpaid tax relating to their last three years of tax declarations. During the amnesty period the GDT will not impose penalty and interest on disclosures of underpaid tax made by the taxpayer.
A registered taxpayer in Cambodia files monthly and annual tax declarations and makes tax payments to the GDT on a self-assessment basis. Typically if a taxpayer fails to declare the correct amount of tax they can either amend their tax declarations voluntarily, within three years of their lodgment date, and pay the under-declared tax to the GDT or be subject to a tax re-assessment for the underpaid tax, following a tax audit.
In both scenario’s outlined above, the underpaid tax would be subject to penalty and interest. The penalties for underpaid tax can range from 10% to 40% dependent on whether the taxpayer has been deemed to be found negligent, seriously negligent or fails to supply sufficient information to the GDT respectively.
Interest is applied at the rate of 2% on the underpaid tax from the date that the tax should have been paid.
Notification 1219 introduces a very important opportunity for those taxpayers who believe that they may have underpaid their tax in previous years to come forward and disclose the tax, during the amnesty period, without needing to be concerned about the application of penalties and interest. What taxpayers should be aware of is that this amnesty period only extends to 1 April 2017 and does not apply to those taxpayers who have already received a notice of tax re-assessment from a tax audit.
By voluntarily declaring underpaid tax during this amnesty period taxpayers in Cambodia will have an opportunity to put their historical tax affairs in order before they are subject to a future tax audit and a potentially large bill for penalties and interest. In our experience the penalty and in particular the monthly interest can by themselves result in a large bill which in some cases even exceeds the amount of underpaid tax itself.
With tax auditors now receiving 10% of the interest collected from tax audits as a bonus it is now extremely difficult to obtain a reduction on the amount charged for penalties and interest – this is why we believe Notification 1219 provides a good opportunity for taxpayers to avoid this issue and reduce their tax bill.
Whilst Notification 1219 refers only to penalties being exempted we understand from the GDT that the exemption applies to both penalties and interest.
DFDL is currently in the process of assisting a number of taxpayers to utilize this development by carrying out an independent tax review of their last three years of tax declarations to determine areas where the taxpayer may have underpaid taxes. Being fully informed about the potential savings involved in a voluntary disclosure scenario will allow taxpayers to take the most appropriate action.
Please contact either myself or Mr. Py Borapyn if you would like further information on a no-obligation basis as to how DFDL can help your business to maximize the potential benefits of this limited offer from the GDT.
Senior Director, Head of Cambodia Tax Practice
Tax Country Associate Director