How Will Capital Gains Tax Affect the Real Estate Market in Cambodia?

• 11 September 2020
• Local News
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The implementation of the 20% captain gains tax starting from January next year has become a controversial debate in Cambodia following the announcement last month, especially within the real estate sector (Read more).

Some have claimed that the tax is way too high and is not the right time amid the COVID-19 crisis. Others have said it is an effective way to control unregulated inflated property transactions and increase state revenue.

Construction & Property Magazine sat down with several experts to discuss the implications of this tax in detail. Are there any special exemptions? When should be the right time to enforce this new tax and at which rate? And what can be done at the moment?

Some real estate transactions are exempted

According to the announcement, profit gained from the sale or transfer of property are exempted:
• Type of property owned by state institutions
• Assets of foreign diplomatic missions or consulates and international organizations or technical operating agencies of other governments
• Main residential property. (This refers to the property that the seller has occupied and lived in for at least five years. However, this capital gains tax exemption is only for the sale or transfer of the primary or first residential property only)
• Immovable property transferred between close relatives (detail stated in the stamp duty regulation)
• Assets transferred and sold for public benefit.

20% capital tax prevents unregulated inflated real estate pricing

CEO of LSCG Real Estate Ly Sok Chhay told Construction & Property Magazine that the 20% capital gains tax would increase the cost of real estate transactions.

“The law’s main objective is to stop those who buy property, keep it and then sell it in the short term. This action can cause high price fluctuations and make the market very difficult to control,” said Mr Ly.

“However, if the property has been occupied for more than five years, then the 20% tax is exempted. This means this tax helps stabilize property prices, rather than hurting the market,” he added.

Meanwhile, President of KW Cambodia Dr Kim Heang said there are always two sides of every policy.

“The negative one is from those who never pay tax at all for the real estate transactions. So, they are shocked and criticize. It’s normal. The positive one is from those who pay taxes regularly. However, they analyze the real intention of this purpose before they take any action or comment,” Dr Kim said.

This is not the right time to implement the capital gains tax

The president of the Cambodian Valuers and Estate Agents Association (CVEA), Chrek Soknim, told the Construction & Property Magazine, that he supports the tax, but the timing is quite inappropriate.

“Collecting a new type of tax at such a difficult time like this could slow down the flow of the real estate market and cause long term effects,” said Mr Chrek.

“The real estate sector remains a strong bone of economic growth despite the COVID-19 crisis. Thus, if the new tax hurts the real estate sector, it will also hurt the economy, which later reduces state revenue,” he added.

Mr Chrek suggested that implementation should be postponed until the COVID-19 pandemic ends.

Dr Kim Heang also agreed that the implementation of the capital gains tax should be postponed, expressing the same concern that it will negatively impact the real estate market at the moment.

“Overall, I support the payment of taxes, but I think it is too early. We should wait until things go back to normal. If we implemented it now, it would only make things even worse,” said Dr Kim.

“We can wait until 2022, or until the real estate market recovers. When foreign buyers come back, there will be more transactions. Then it is the right time,” he added.

CEO of LSC Real Estate Mr Ly again agreed that the implementation date is too early given the current economic situation.

Tax should be lower than 20% during the early stage

Mr Chrek suggested that the tax rate should lower at the early stage, and later increase gradually.

“I can see we are in the middle because most of the other ASEAN countries range from 10 to 25%. However, I think we should start from 15% first and gradually increase it later,” said Mr Chrek.

To sum up, although the law has positive intentions to help control real estate inflation as well as generate additional revenue for the state, given the COVID-19 crisis, the timing is not appropriate.

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