Cambodia Introduces Capital Gains Tax in 2022... Real Estate and Securities Industries on Alert

Two-Year Delay in Implementation Due to COVID-19 Impact... 20% Profit Share "Too High" Sparks Backlash

[Asia Economy Phnom Penh Correspondent Ang Gil-hyun] The Cambodian government’s decision to introduce a capital gains tax starting in 2022 has put related industries on edge. Considering the economic level, the prevailing view is that the tax rate is too high and the timing is premature.

According to local media on the 27th, Cambodia will impose an income tax of 20% on profits from the sale of land and other assets starting January 2022. The capital gains tax was originally scheduled to be introduced in July this year, but was postponed to next year due to the impact of the COVID-19 pandemic. However, Prime Minister Hun Sen accepted requests from industries such as the Housing Construction Association to delay it again for another year.

Prime Minister Hun Sen announced, "The delay is to provide taxpayers and citizens with sufficient time to understand and to implement the policy smoothly and effectively," but local industry analysis suggests that the economic downturn and concerns caused by the COVID-19 situation are significant. If the Cambodian government implements the system as planned next year, a 20% tax will be imposed on profits from the sale of not only land but also buildings, stocks, bonds, patents, foreign exchange, and more.

The Cambodian government’s tax revenue heavily depends on customs duties and corporate taxes. Last year, customs duties accounted for 53.5% of total tax revenue. Taxation on personal income is limited to wages. Therefore, the introduction of the capital gains tax is widely regarded as a major change in the tax system, marking the beginning of full-scale taxation on personal income.

The sectors expected to be most affected upon introduction are real estate and the securities market. Currently, the tax payable when selling real estate is about 4% of the assessed value. With the introduction of the capital gains tax, the tax will be based on the actual transaction price rather than the assessed value. Because of this, the real estate and housing construction industries welcome the government’s postponement but remain alert to the impact on the real estate market 14 months later.

The capital gains tax is exempted if a household meets the five-year residency requirement, so it does not affect actual residents. However, some express concerns that the capital gains tax might be passed on to buyers during transactions, potentially driving real estate prices even higher.

The securities market is also expected to face shocks. Currently, stock trading fees are only 0.5% of the transaction amount. Ha Jong-won, Deputy Director of the Cambodia Securities Exchange (CSX), expressed concerns that while taxation on tangible assets might increase tax revenue, the negative effects would be greater. He said, "Losses will be greater due to investor withdrawal," adding, "If the securities market shrinks, it will become more difficult for companies to raise funds, making corporate development challenging."

This content was produced with the assistance of AI translation services.