Member Article

On 14 January 2021, the Ministry of Economy and Finance issued Prakas No. 010 on “the Local Manufacturers Obligation to place devices for measuring the volume of beer and non-alcoholic drinks” (“Prakas 010”).

The purpose of Prakas 010 is to establish rules and procedures for managing the use of devices which measure the volume of beer, and/or non-alcoholic beverages that are produced locally. The rules and procedures concerning the devices on which beer and non-alcoholic beverages are measured are designed to strengthen the transparency and effective collection of tax revenues – in particular specific tax.

Prakas 010 applies to taxpayers who operate factories that produce beer and/or non-alcoholic beverages in Cambodia (“Producers”) and who fall under the management of the Large Taxpayer Department of the General Department of Taxation (“GDT”).

Producers are now obliged to install a volume measuring device, consisting of a volume measuring meter and liquid analyzer and field control box, at their factories in compliance with the installation technical standards as set out by the GDT. Producers are required to regularly use the volume measuring device and liquid analyzer at each packing chain.

Producers are required to ensure that the volume measuring device cannot be tampered with and are also required to permit the GDT to access it – either in person or electronically.

The data collected from the volume measuring device will be used by the GDT to determine the total volume of beer and/or non-alcoholic beverages produced and reconcile that with the taxes declared and paid by the Producer. Prakas 010 allows for a deviation of up to 1.5%, due to leakage/overflow, with respect to the amount of beer/non-alcoholic beverages that pass through the volume measuring device.

The tax officer stationed at the factory of the Producer will be tasked with checking the volume measuring device and the production volume data to ensure the effective management of revenue collection.

Failure by a Producer to install the volume measuring device or manipulation of the device will be considered to be an act of obstruction under the Law on Taxation which would subject the Producer to a fine from five (5) million Khmer Riel to ten (10) million Khmer Riel and/or imprisonment from one (1) month to one (1) year.

Producers are obliged to comply with Prakas 010 by 1 April 2021.

Commentary

The rates of Specific Tax applicable to ex-factory sales of beer and non-alcoholic beverages by Cambodia Producers are not to be sneezed at. The calculation of Specific Tax was recently updated under Prakas no. 012 MEF.Prk dated 14 January 2020 (“Prakas 012“). Under Prakas 012 Producers would have to pay Specific Tax at the rate of 30% on the “ex-factory selling price”, which is defined as 90% of the selling price excluding Value Added Tax and Specific Tax and Public Lighting Tax. For non-alcoholic beverages the Specific Tax rate is 10% on the “ex-factory selling price”. Non-Alcohol Beverages are defined to include liquid which may be aerated (carbonated); have added sugar or other sweeteners, flavored or other non-alcoholic drinks except water and mineral water, milk and fruit or vegetable juice.

Given the high rates of Specific Tax that apply on the sales of locally produced beer and non-alcoholic beverages it is critical that there is a level playing field for all Producers with respect to the application of the tax. It would be economically unsustainable for a tax compliant Producer to try and compete with a Producer who is not properly declaring the applicable Specific Tax on the sales of their beer and/or non-alcoholic beverages. To that extent it is hoped that the implementation of the volume measuring devices at the factories of all Producers will encourage transparency and compliance with the tax regulations that apply to the industry.

Flow meters are not new with respect to encouraging the tax compliance of beer and non-alcoholic beverage producers in the region. Indeed until recently Thailand also used flow meters however they have now progressed to Direct Coding” technology allowing the Thai tax authority to collect tax on canned beer and domestic bottled beer produced at all plants from 2021. Under the Direct Coding technology no stamps or tax payment marks are displayed on the products, only a label on the side that says ‘tax already paid’.

It is interesting to note that the Thai authorities replaced flow meters as they were seen to have a limited lifetime, high maintenance costs and were not capable of measuring the amount of beer produced daily or the median losses for accurate tax calculation.