The Associated Press
PHNOM PENH, Cambodia — The Cambodian government on Friday granted garment companies a two-year tax holiday on their profits to help them to stay competitive with other major producing countries.
The goal is "to guarantee political and socio-economic stability and job sustainability for 300,000 (garment) workers," a government statement said.
The decision was made during a Cabinet meeting Friday. The statement said that up to 2 million Cambodians have benefited from the wages earned by textile workers.
The tax holiday, under which no taxes need be paid on profits during the two-year period, will be enjoyed by those factories that applied for licenses before March 14, 2005, it added without elaborating. It wasn't immediately clear what period the two years covered.
Under the guideline, about 180 of the 270 garment factories currently operating in Cambodia qualify for the tax break, said Van Sou Ieng, president of the Garment Manufacturers Association, who added that the current profit tax for the industry ranges from 9 to 20 percent.
He hailed the government's decision, calling it "a gesture of confidence and support" for the industry.
He noted that Cambodia is a costly place to do business because of high utilities costs, poor infrastructure and an inefficient bureaucracy. It can also expect strong competition from neighboring Vietnam, which is slated to get membership in the World Trade Organization next year, he said.
The tax break will encourage the current investors to stay on not move to Vietnam, said Van Sou Ieng, who described Vietnam's situation as "a great challenge." Vietnam, he said has lower costs than Cambodia for doing business.
Garment exports, Cambodia's main foreign exchange earner, grew 10.6 percent last year to US$2.2 billion (euro1.74 billion), largely because of the restrictions imposed by the United States and the European Union on garment imports from China, according to the World Bank.
About 71 percent of Cambodian garments were exported to the U.S. and 23 percent to EU markets.
The goal is "to guarantee political and socio-economic stability and job sustainability for 300,000 (garment) workers," a government statement said.
The decision was made during a Cabinet meeting Friday. The statement said that up to 2 million Cambodians have benefited from the wages earned by textile workers.
The tax holiday, under which no taxes need be paid on profits during the two-year period, will be enjoyed by those factories that applied for licenses before March 14, 2005, it added without elaborating. It wasn't immediately clear what period the two years covered.
Under the guideline, about 180 of the 270 garment factories currently operating in Cambodia qualify for the tax break, said Van Sou Ieng, president of the Garment Manufacturers Association, who added that the current profit tax for the industry ranges from 9 to 20 percent.
He hailed the government's decision, calling it "a gesture of confidence and support" for the industry.
He noted that Cambodia is a costly place to do business because of high utilities costs, poor infrastructure and an inefficient bureaucracy. It can also expect strong competition from neighboring Vietnam, which is slated to get membership in the World Trade Organization next year, he said.
The tax break will encourage the current investors to stay on not move to Vietnam, said Van Sou Ieng, who described Vietnam's situation as "a great challenge." Vietnam, he said has lower costs than Cambodia for doing business.
Garment exports, Cambodia's main foreign exchange earner, grew 10.6 percent last year to US$2.2 billion (euro1.74 billion), largely because of the restrictions imposed by the United States and the European Union on garment imports from China, according to the World Bank.
About 71 percent of Cambodian garments were exported to the U.S. and 23 percent to EU markets.
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