IMF Research: Increase property tax to advance economic growth in Cambodia

• 10 September 2019
• Local News
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A new research paper funded by the International Monetary Fund (IMF) suggests Cambodia should increase property tax to fund billions of dollars of infrastructure spending, a move that will help advance economic growth.

Published on 06 September, the ‘IMF Working Paper: Advancing Inclusive Growth in Cambodia’ analyses how increasing either property tax, VAT, or income tax can secure the funding for the infrastructure spending budget, which is approximately 0.5% of total GDP.

The increase in government spending on infrastructure, according to the research, could help raise income, especially in rural areas, by improving market access and factor mobility.

This 26-page research paper indicates that increasing property tax until it reaches 0.6% of the GDP— currently property tax contributes only 0.1 % of GDP— will increase GDP by up to 2.7%. Meanwhile, the increase in VAT and income tax will only increase GDP growth to 1.8% and 0.3% respectively.

In addition to the GDP growth, such reform to increase property tax will also have great impact on inequality reduction, illustrated by the reduction of Gini coefficient score to 0.1 percentage points. However, the effect of doing the same with income tax and VAT instead will bring less inequality reduction.

“This reform generates both the largest positive effect on GDP and the largest reduction in inequality,” the research notes, “This is because property taxes are inherently progressive: wealthier households own more and valuable property and will thus also pay a higher property tax”.

The research suggested that increasing property tax can be applied if there is an effective implementation of such measures that would be eased by administrative improvements in the collection process such as an updated taxpayer register including property values.

In line with this public policy approach, in July the government began imposing a new tax base for stamp duty tax to increase tax revenue and match the growth in real estate in Cambodia. (Read more)

In addition, the government has recently allocated more than half the US$14.4 billion budget for infrastructure development over a period of three years. (Read more)

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