New Tax Exemptions to Raise Take-Home Wage for Workers

Certain non-salary allowances will no longer be included in calculating private-sector salary taxes, the Ministry of Finance decreed last week, in a move tax experts say is designed to help lower-income workers and increase tax compliance among employers.

The circular, released by the ministry on Thursday, said employee benefits including transportation, accommodation, food, insurance, maternity leave and severance pay would no longer be included in the department’s calculation of an individual’s salary tax—provided employers submitted proper documentation of the benefits.

The salary tax, which previously included taxes on “fringe benefits,” is generally withheld from employees and plays a significant factor in determining salary structures for low-income workers, said Vann Sinat, tax manager at Bun & Associates.

“So it’s a good measure for poverty reduction in Cambodia,” he said. “It will help employers by reducing the burden of providing these things to employees.”

Anthony Galliano, chairman of the tax committee for the European Chamber of Commerce, agreed that the measure was designed to help poorer workers. He said the exemptions have already been in place for garment factory workers for some time, but that many other low-income Cambodians could use the break.

“This type of worker is really low-paid. Someone who works in a restaurant—by the time they pay gasoline to get to work, and then buy their food—well, it’s basically a zero-sum game,” he said.

“Before, employee meals—even for restaurant workers—were seen as ‘fringe benefits.’ You’d have to put a value against it, say $3 or $4, and then you’d pay a 20 percent tax, the ‘fringe benefit’ tax.”

Hel Chamroeun, undersecretary of state at the Finance Ministry, said tax officials would prevent employers from using the circular to avoid taxes by setting higher allowances and lower salaries for their employees.

“Other regulations will be implemented…to prevent tax avoidance by using the circular that way,” he said.

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