Chapter 3. Cambodia

Cambodia has been undertaking regulatory reforms aimed at enhancing the competitiveness and diversity of Cambodian businesses since early 2004. It has introduced a number of policies and plans to improve the quality and efficiency of administrative services and public financial management, including systematic impact assessments and the use of information and communications technology (ICT). Recently, Cambodia has installed a central oversight and quality assurance body in its executive branch to oversee regulatory policymaking, making it among the first countries in the Association of Southeast Asian Nations (ASEAN) to do so. Cambodia has also embraced convergence with regional and national standards in formulating regulatory policies, including in tax collection and reporting. Support for micro- and small enterprises has been particularly highlighted in numerous national development plans and promoted at the highest level by the Prime Minister.

Regulatory context

The Cambodian government has committed broad support to small and medium-sized enterprises (SMEs) for more than a decade, with the Prime Minister emphasising the importance of SMEs to Cambodia’s economy since the first Rectangular Strategy for Growth, Employment, Equity and Efficiency (2004). This strategy highlights the need to streamline licensing and registration procedures to reduce red tape, improve market access for SMEs through better trade facilitation and support linkages between SMEs and larger enterprises.

Subsequently, the SME Development Framework 2005-2010 has aimed to establish an enabling environment for SMEs through legal and regulatory reforms in the following areas:

missing legislation on commercial enterprises, contracts, insolvency, dispute resolution (commercial arbitration and commercial courts)
inadequate legislation for secured transactions and sharing of credit information between banks
reformed business registration and link with Ministry of Economy and Finance (MEF) tax and value added tax (VAT) registration
collateral system and land titling
simplified accounting and taxation system for SMEs
setup of a One Window Service for all business licences.

The government’s efforts to support SMEs are progressing amidst a backdrop of three ongoing major public service reform programmes in Cambodia: the Public Financial Management Reform Programme (PFMRP); the National Programme for Administrative Reform (NPAR); and the Decentralisation and De-concentration Programme (D&D).

Simultaneously, economic developments such as Cambodia’s accession to the World Trade Organization (WTO) also continue to shape both the introduction and reform of regulation.

The latest exposition in Cambodia’s Industrial Development Plan 2015-25 (Ministry of Industry and Handicraft, 2016[1]) aims to “improve the regulatory framework” for trade facilitation, export promotion, industrial standards, property rights, tax payment, labour market development and industrial relations, among others. Under this broad mandate, the government has continued to support the improvement of customs systems and the rollout of Cambodia’s One Window Service Offices. The government is also keen to level the playing field for all businesses by strengthening VAT enforcement in general.

According to the Industrial Development Plan, priority sectors for national development include: new and creative industries; SMEs in all sectors especially those involved in biomedical production, materials production and other industrial production; agro-industrial production; supporting industries for mainstay sectors such as agriculture, tourism and textiles; industries serving regional or international production chains; ICT and green technology.

An SME Policy has been in preparation since 2015, led by the Ministry of Industry and Handicraft. However, it has not yet been approved and issued. It is to be seen how or whether the general election planned for July 2018 may affect the progress of SME Policy development in Cambodia.

Box 3.1. Major public service reform programmes in Cambodia

Public Financial Management Reform Programme (PFMRP)

The Prime Minister launched a 10-year Public Financial Management Reform Programme (PFMRP) as part of the government’s economic agenda in December 2004. Developed with the World Bank and other development partners, the four-stage programme aimed to strengthen realistic budgeting, effective financial accountability, an affordable policy agenda and programme management accountability. The PFMRP is currently in Stage 3. Evaluations of the PFMRP reveal that budgeting has improved, although public sector financial management and service delivery improvements require more work. The government recognises that a full rollout of the reform, including capacity building for line ministries, will take time and is committed to continuing to push forward with the PFMRP. Annual performance reviews of the programme since 2009, including key performance indicators, are available on the Ministry of Economy and Finance website (Ministry of Economy and Finance Cambodia, 2016[2]).

National Programme for Administrative Reform (NPAR)

The Public Administration Reform was highlighted as one of the key reforms necessary to achieving the Rectangular Strategy. In 2009, a four-year Public Administration Reform Programme (NPAR) was introduced by the Prime Minister to improve the transparency, quality, efficiency and accountability of civil service delivery, as well as develop human resource and management capacity. The NPAR has been renewed since, and the current programme runs from 2015-18 (Council for Administrative Reform, 2010[3]).

Decentralisation and De-concentration (D&D)

Decentralisation and De-concentration (D&D) in Cambodia have been in progress since the mid-1990s, eventually granting autonomy to sangkats (communes) in 2001 and passing of the Organic Law in 2008, which mandated the establishment of subnational structures and systems together with the appropriate functions and resources. As the D&D reform progresses, various provincial departments of different ministries are being brought under the management of the Governor, which may create potential for setting up integrated licensing arrangements (Niazi, 2011[4]).

Sources: Ministry of Economy and Finance Cambodia (2016), Annual Performance Report on Public Financial Management Reform Program: Stage 3, http://www.pfm.gov.kh/document/report/Annual%20Progress%20Report%202016%20English.pdf; Council for Administrative Reform (2010), National Program for Administrative Reform, http://www.cdc-crdb.gov.kh/cdc/twg_network/country_systems_cambodia/strengthening_national_systems/documents_for_reform/par/npar_programme_2010_en.pdf; Niazi (2011), Deconcentration and Decentralisation Reforms in Cambodia: Recommendations for an Institutional Framework, https://www.adb.org/sites/default/files/publication/28879/deconcentration-decentralization-cambodia.pdf.

According to the Federation of Association for Small- and Medium-sized Enterprises of Cambodia (FASMEC), there are an estimated 530 000 SMEs in the country (Phnom Penh Post, 2017[5]). However, low compliance with regulations and uneven regulatory enforcement has meant that only some 39 141 SMEs have registered with the Ministry of Industry and Handicraft at the end of 2016 (Ministry of Industry and Handicraft, 2016[6]).

Cambodia’s industrial base remains narrow and uneven, with most of its activities concentrated in garment production and food processing. There is a “missing middle” in the industrial base, wherein a small percentage (0.6%) of large enterprises account for the majority of Cambodia’s turnover at some 76% and 63% of employment while the most numerous micro-enterprises (97%) account for only 12% of turnover and 30% of employment (Ministry of Industry and Handicraft, 2016[1]). 80% of the large industrial enterprises manufacture garments, textiles and footwear and more than 63% of large manufacturers are foreign direct investment (FDI) and export-driven (Ministry of Industry and Handicraft, 2016[1]). The bulk of Cambodia’s export revenues come from textiles at nearly 68% of total exports (World Bank, 2016[7]). By contrast, almost all micro- and small enterprises in Cambodia are locally-owned.

The number of informal businesses in Cambodia is very high. The informal sector is estimated to account for an overwhelming 98.6% of micro-enterprises, 62.8% of small enterprises, 28.6% of medium enterprises and 7.0% large enterprises (Ministry of Industry and Handicraft, 2016[1]). Given that micro-enterprises account for the vast majority of businesses in Cambodia, this means that a limited number of medium and large companies are formally registered and contributing the bulk of the government’s revenue from taxes. Approximately 45% of Cambodian women are self-employed in the informal sector (Ministry of Industry and Handicraft, 2016[1]).

Overall, the Cambodian government is making steady progress towards adopting best practice in many areas which affect SMEs, within the context of trying to formalise and diversify the economy. Business registration and taxation procedures have been simplified and clarified and some service fees set out. WTO accession has, and still is, driving reform - as are the opportunities and challenges of ASEAN integration. In particular, Cambodia has made significant efforts to introduce regulatory impact assessments in a step-wise approach, with the aim to eventually fully implement mandatory regulatory impact assessment (RIA). Cambodia is also well on-track in creating its National Single Window towards convergence with the ASEAN Single Window project.

Regulatory governance

Institutional and regulatory setup

Table 3.1. Institutional and regulatory setup in Cambodia
	Government
State structure	Monarchy
Head of state	King
Executive	● The Royal Government of Cambodia (RGC) is formed by the party occupying the highest number of seats in the National Assembly following general election. The executive power of the RGC is vested in the Prime Minister, who is a member of the National Assembly appointed by the King upon the recommendation of the President and Vice Presidents of the Assembly. The Prime Minister is responsible for appointing its members. ● The Council of Ministers is the central co-ordinating body working to link the executive and legislative branches, comparable to the Prime Minister’s Office in other countries. Its meetings are chaired by the Prime Minister. ● Ministry of Economy and Finance is responsible for approving the annual budget cycle and advising the executive on financial affairs. ● Line Ministries are responsible for formulating annual and medium-term strategic frameworks and plans within the national strategies set out by the central government.
Legislative	Bicameral legislature ● The National Assembly has at least 120 deputies elected every five years by general election. Its President and Vice President are elected by members. ● The Senate comprises no less than half the number of deputies in the National Assembly.
Legal system	Cambodia’s legal system is a hybrid of civil law (based on the French system) and common law (introduced with international aid and support to legal and judicial reform). ● The Supreme Court is the highest judiciary power. The Supreme Court generally only rules on questions of law following an appeal from the Appeal Court. ● The Constitutional Council is responsible for interpreting the Constitution (1972, Article 95), as well as overseeing the election of the President and Vice President of the Republic and deciding cases of contested elections of members of Parliament. Requests to review the constitutionality of any law may be made by the King, Prime Minister, one-fourth of the Senators or one-tenth of the members of the National Assembly. ● The High Court of Justice holds the power to judge the President, Vice President, as well as members of the Cabinet, Constitutional Court and Supreme Court for crimes and offences committed in the execution of their functions (Constitution of 1972, Article 97). ● An Appeals Court was created in 1992 following the arrival of the United Nations Conference on Trade and Development (UNCTAD), adding a third tier to Cambodia’s court system: Supreme Court, Appeals Court, and courts of first instance. ● A network of courts of first instance comprises lower courts extending to each of Cambodia’s 24 provinces and municipalities, as well as the military court. The provincial and municipal courts cover their respective territorial jurisdictions, while the military court covers the whole country. Decisions by the courts of first instance may be appealed to the Appeal Court on questions of fact and law. ● A Supreme Council of Magistracy was established in accordance with the 1993 Constitution. It is responsible for appointing judges and prosecutors of all levels, and for adjudicating disciplinary actions against them. The Supreme Council of Magistracy is chaired by the King and convenes under the chairmanship of the President of the Supreme Court or the General Prosecutor when adjudicating disciplinary cases.
Administrative-territorial structure	24 provinces and municipalities
Ministry or agency responsible for SMEs or SME-related issues	Ministry of Industry and Handicraft
Other support structures within government on regulatory policy	● Inter-Ministerial SME Sub-Committee leads the implementation of the SME Development Framework and provides policy co-ordination on behalf of SMEs. The sub-committee comprises 18 Line Ministries. ● Council for the Development of Cambodia (CDC) is tasked with leading, co-ordinating and implementing the Industrial Development Plan, including monitoring performance. The CDC has traditionally been very involved in the relationship between the RGC and donors and trading partners. ● Cambodian Investment Board (CIB) sits inside of the CDC and acts as the co-ordinating body of the government-private sector forum. ● Institute for Standards of Cambodia (ISC) has a role in the adoption of standards for key products and potential exports (e.g. milled rice, fish, beverages, soy sauce, cement, additives and contaminants in food), adopted as voluntary standards by the private sector and codified by the RGC through the ISC. However, it is not the main regulation-making entity. ● National Bank of Cambodia is the micro-finance and banking regulator. It issues regulations - Prakas, for instance, on the process of registration and licensing, under the Law on Banking and Financial Institutions. It is also leading the country’s discussions on Fintech.

The Council of Ministers plays a key role in the preparation of laws, the central co-ordinating body. It works across all areas of government and serves as the link between the executive and legislative branches. This Council participates in the preparation of laws and serves as the final judge in administrative matters according to Article 104 of the Constitution of 1972. Meetings are chaired by the Prime Minister. Within the Council of Ministers sits two important players in preparing and reviewing regulatory policy:

The Economic, Social and Cultural Council (ECOSOCC) sits within the Office of the Council of Ministers and is responsible for tracking the evolution of cultural, social and economic situations in Cambodia. It examines the assessment of the impact of various legal regulations done by proposed line ministries and also makes suggestions for some particular cases to the government. Within ECOSOCC, the Regulatory Executive Team (RET) serves as the central oversight and quality assurance stage in regulation making. RET, on the other hand, helps ministries prepare Preliminary Assessment Statements (PAS) for new legislation and any subsequent Regulatory Impact Statements (RIS) necessary. RET also advocates good regulatory practices, assist with training, and generally promote the rollout of RIA across government.
The Council of Jurists helps ministries with drafting legal texts so as to harmonise them with the general principles governing the national legal order, and also checks proposed laws and regulations for the legality and quality of their drafts.

Figure 3.1 shows the lawmaking process in Cambodia. According to Principles 21 and National Assembly Internal Rules, a proposed law must include a “statement of cause”, or reason for its introduction. Additionally, the new law cannot aim at reducing public revenue or increase the burden on the people.

Business laws and regulations in Cambodia

In Cambodia, general business regulatory policies apply to businesses of all sizes. There is no specific regulatory policy for SMEs. Given that SMEs account for more than 99% of businesses in Cambodia (National Institute of Statistics, 2016[8]), it can be said that the general business regulatory framework is de facto sufficient for capturing SMEs. The main business-related laws that are currently in place include:

Cambodian Investment Law (1994) and Law on the Amendment to the Law on Investment (2003)
Foreign Exchange Law (1997)
Labour Law (1997)
Law on Commercial Enterprise (2005)
Law on Taxation (1997).

Several new laws have also been in draft following Cambodia’s accession to the WTO. These include:

Law on Commercial Enterprises
Law on Negotiable Instruments and Payments Transactions
Secured Transactions Law
Securities Law
Commercial Contract Law
Commercial Arbitration Law
Competition Law
Consumer Protection Law
E-commerce Law.

Investment projects that qualify as a “Qualified Investment Project” (QIP) can register its status as a project (rather than a company) with the Council for the Development of Cambodia (CDC) and the Cambodian Investment Board (CIB). The CDC and CIB jointly regulate QIPs. Special Economic Zones (SEZs) also fall under the category of QIPs. Registered QIP projects are eligible for a number of financial incentives including (Ministry of Commerce Cambodia, 2014[9]):

Profit tax exemption.
Special depreciation allowance.
Exemption on import taxes for production and construction equipment and materials, and production inputs where they are used to produce exports.
Exemption on export taxes, except where they are specifically applied for specific goods.
QIPs inside SEZs are exempt from paying VAT on imports.
Investment guarantees from the government that investors will be treated equally (with the exception of land ownership and specific investment opportunities); protection from nationalisation by the government; protection from price controls on products and services.
No restriction on foreign exchange remittance.

SME-specific regulatory policies and processes

SMEs may register with the government online through the Ministry of Commerce, or with the relevant Department of Taxation. If intending to employ staff, SMEs may also register with the Ministry of Labour and Vocational Training. To encourage more SMEs to register their businesses, the government is offering a two-year tax holiday for SMEs that voluntarily registers with the General Department of Taxation (Phnom Penh Post, 2017[5]).

SMEs may benefit from reduced taxation or tax exemption, along with simplified reporting requirements. Eligible SMEs are defined according to one or more of the three criteria: number of employees; size of capital; and/or annual turnover. There is no consistent SME definition in Cambodia; different ministries may define SMEs according to their own purposes. For example, the Ministry of Industry and Handicraft (MIH) takes into account all three criteria to define SMEs, whereas the Ministry of Economy and Finance focus on taxation category according to annual turnover as the key criteria (Ministry of Economy and Finance Cambodia, 2017[10]; Ministry of Economy and Finance, 2014[11]; Government of Cambodia, 2005[12]).

Table 3.2. Definition of SMEs in Cambodia
	Employees	Assets excluding land (USD)	Annual turnover (KHR)
Micro	< 10	< 50 000	< 250 million
Small	11-50	50 000 - 250 000	250-700 million
Medium	51-100	250 000 – 500 000	700 million - 2 billion
Note: USD and KHR from different sources of documents as below, according to different ministries.
Sources: Government of Cambodia (2005), Small and Medium Enterprise Development Framework, https://wits.worldbank.org/CountrySnapshot/en/KHM; Ministry of Industry and Handicraft, No. 951 MIH/2014, 31 March 2014 (says 10-50 employees); Ministry of Economy and Finance (2014), No. 5278 MEF, July 22 (says 11-50 employees).

Depending on their categorisation, SMEs may be eligible for tax exemption or reduction as follows (Government of Cambodia, 2016[13]):

Table 3.3. Progressive tax rates for SMEs in Cambodia as of 1 January 2017
Annual taxable profit (KHR)	Tax rate on annual taxable profit (%)
< 12 million	Exempt
12 000 001 – 18 million	5
18 000 001 – 102 million	10
102 000 001 – 150 million	15
150 million and above	20
Note: A minimum tax of 1% on annual turnover is charged if businesses fail to keep proper accounts.
Source: Government of Cambodia (2016), Law on Financial Management as promulgated by Royal Kram no. NS/RKM/1216/019, Phnom Penh.

SMEs may file taxes according to International Financial Reporting Standards (IFRS) or Cambodian International Financial Reporting Standards (CIFRS).

The General Department of SMEs and Handicraft under the Ministry of Industry and Handicraft has the core mandate to develop and implement SME policies and action plans. It is also responsible for promoting SMEs, supporting business registration, and developing the draft SME Policy. This department is expected to be the home of any kind of SME Agency if one is to be established.

The Ministry of Industry, Mines, and Energy (MIME), on the other hand, leads efforts on regulatory reforms targeted at enhancing competitiveness and diversity of Cambodian businesses, as well as improving the business environment in general. MIME has been working on such regulatory reform issues since 2008, with support from the ADB and other international partners.

The Ministry of Interior is responsible for overseeing the One Window Service Office, which also offers small business registration support, among other services.

The Ministry of Commerce is mostly dedicated to trade policy, development and facilitation but is also responsible for business registration. Much of their work to improve import, export, and customs arrangements has significantly benefitted SMEs, although SMEs are not a strict focus for the ministry. SMEs may also register their businesses online with the Ministry of Commerce.

Highlights of regulatory opportunities and challenges to support SMEs

Regulatory clarity

The Industrial Development Plan 2015-25 provides a specific list of activities intended to expand and modernise SMEs in Cambodia as follows (Ministry of Industry and Handicraft, 2016[1]):

Identify enterprises with good export potential and help them link to multinationals, connect to the value chain and regional production networks.
Strengthen SME Development Framework, focusing on registration in the formal tax regime so RGC has better information, credit support policies and advice.
Establish research and development (R&D) fund.
Scholarships for engineers and technicians.
Consider support for investment in machinery/production equipment.
Promote formation of sub-sectoral associations.
Build their capacity to help them deal better with large enterprises including in SEZs.
Amend the Law on Corporate Accounts, Audit and Accounting Profession to introduce simplified accounting standards for SMEs.
Use single window for registration and make registration criteria for incentives.
Implement National Single Window Service for trade.
Establish trade information centre online info on trade measures, tariffs and formal fees.
Improve customs clearance for tax-exempt goods by strengthening co-operation, streamlining paperwork, facilitating procedures and eliminating informal payments.
Reduce and abolish repetitive and non-transparent procedures.

The plan also sets targets to register 80% of SMEs by 2020 and for 50% of small companies to have financial accounts by 2025. There are no accompanying policies on monitoring the progress towards achieving the targets.

Regulatory delivery

Compliance with business registration

The vast majority of micro- and small enterprises are not registered. To encourage more companies to register, the government introduced a sub-decree in February 2017 offering a two-year tax holiday for any SME that voluntarily registers with the General Department of Taxation (GDT). There are also simplified accounting procedures for SMEs. Small companies with an annual turnover of under KHR 250 million (USD 61 425) are exempt from taxation.

Compliance with standards

Product testing capacity is currently weak and there is a lack of accredited laboratories and lack of knowledge of requirements.

Standards for key products have been developed by the national standards body, the Institute of Standards of Cambodia (ISC), based on international standards. These standards have been endorsed by the private sector. Accreditation of ISC by an international standards-setting body has been completed. However, compliance with Technical Barriers to Trade requirements is still in progress (World Bank, 2017[14]).

As part of its WTO accession process, Cambodia has passed a Law on Standards of Cambodia (“Standards Law”) to improve the quality of products, services, management, product efficiency and use, consumer protection and all activities related to standardisation and quality assurance in Cambodia. The first version of the law (promulgated in 2007) currently requires a revision.

As laws are being created to help Cambodia meet international standards, there are opportunities for these to be made SME-friendly the first time around. For example, Camcontrol, the import-export inspection and fraud repression department of the Ministry of Commerce, is preparing a modern Food Law with support from the United Nations Food and Agriculture Organization (FAO), which should supersede current requirements from both the Ministry of Health and the Ministry of Tourism. The Food Law is likely to include good practice such as public rating systems and should be aligned with regional standards. The current draft is being reviewed at FAO headquarters. However, there remain significant issues around the Law, including which should be the implementing institution.

Enforcement and inspection

Inspection and enforcement mechanisms vary depending on the ministry, department or inspectorate. Each one is responsible for the dissemination and delivery of its own regulations. Under the Trade Support Programme, for example, customs inspections have started to take a risk-based approach, effectively reducing inspections from 100% to below 25% for imports and below 5% for exports.

Non-compliance to regulations tends to be attributed to lack of knowledge and the most common government response is to deliver training workshops. There have been no studies to assess the effects of enforcement action on SME compliance, for example, and it may be worthwhile to pilot such exercises.

An independent telecommunication regulator implements policies and regulations issued by the Ministry of Post and Telecommunications. A regulator may also be created for tourism. It is not clear whether the potential SME Agency will have any regulatory role, for instance in relation to registration.

Administrative simplification

The government is carrying out a number of administrative reforms aimed at improving the efficiency and standard of government processes and services, including civil service registration and payment, public service standards and service feedback mechanisms. The main regulatory reduction initiatives in Cambodia since 2009 have stemmed from trade policy and trade facilitation efforts, which has led to a Trade Sector-Wide Approach to funding. Much of the business registration, customs automation and trade policy developments have happened with and through this programme. Each project has been successful; trade has increased and benefits of economic growth have accrued, although Cambodian SMEs are still largely lagging behind their neighbours.

Box 3.2. Administrative improvements in Cambodia’s civil service

Under the Public Administrative Reform Programme (PARP), several significant civil service-wide administrative improvements are taking place. For example, civil servants are now registered and paid directly via the banking system. Ministries are also starting to install online HR Management Information Systems.

The current phase of the PARP (2015-18) focuses on public service standards. The RGC has adopted a Guide on Public Service Standards (2013 sub-decree), including a complaint and feedback mechanisms. The next focus will be on standardised job descriptions and performance assessments.

The National Public Service Evaluation Committee has been created and tasked with monitoring the administrative bodies that are responsible for public services and issuing warning letters to those that do not meet the appropriate standard. This was alongside publication of the correct fees for a range of services. It is early days but this can clearly apply to regulators (Government of Cambodia, 2015[15]).

Source: Government of Cambodia (2015), National Program for Public Administrative Reform 2015-2018, http://www.era.gov.kh/eadmin/data/2017/4/national_public_admin_reform_khmer_and_english.pdf.

Regulatory simplification is not a specific policy in Cambodia, but it is nonetheless implemented in a targeted way, driven by identified needs. In recent years, the government’s regulatory simplification efforts have targeted customs clearance, business registration, among others. Regulatory simplification efforts are often combined with donor interest.

At present, SMEs have to liaise with as many as 18 ministries to register their business. A draft sub-decree for a one-stop shop for SME registration is under review. The Ministry of Industry and Handicraft would be responsible for overseeing the one-stop shop, while the other 17 ministries would provide support. It is hoped that this one-stop shop will improve registration compliance for some 450 000 SMEs that are estimated to be operating informally in Cambodia (Phnom Penh Post, 2015[16]).

The Trade Development Support Program administered by the Ministry of Commerce and supported by the World Bank has supported other “automation” in addition to business registration, including simplification in the issue of Certificate of Origin and trademark registration, and reduction of clearance times of cargoes at the General Department of Customs and Excise through the Automated System for Customs Data (ASYCUDA) (General Department of Customs and Excise of Cambodia, 2017[17]).

Getting VAT refunds on inputs to export sectors can take several years. Short-term import licences are expensive, uncertain and time consuming for renewal. Informal payments are common, so there is also competition with informal flows.

E-government

The government is increasingly using ICT to automate and simplify administrative processes, for example through online registration and online fee payments. However, public sector capacity (skills and willingness to budget) to maintain and develop websites is limited. In many cases, development partners support the development and installation of an online system; however, with no further capacity to sustain the system after the project has ended, it becomes outdated over time.

Cambodia has introduced several databases for regulations. For example, the ECOSOCC database should include laws, decrees and sub-decrees. However, it does not include legislation at the level of Prakas or below, which would mean that it omits a significant body of regulatory and procedural information. Some Ministries maintain good records of regulatory policies relevant to their duties, while others do not. It can be difficult to track when old regulations have been superseded by new ones, as many new regulations simply say that any older ones are overruled without naming them.

The Customs Department has implemented the ASYCUDA to automate customs in 54 major customs offices, covering nearly 87% of total trade volume (General Department of Customs and Excise of Cambodia, 2017[17]). It is also in progress to converge all import, export and transit-related regulatory requirements in a National Single Window by 2018. The Cambodia National Single Window (NSW) is intended to facilitate government-to-business, government-to-government and business-to-business trade, including towards convergence with the ASEAN Single Window (ASW).

Regulatory quality management

Regulatory impact assessment

All new laws need to be accompanied by a regulatory impact assessment (RIA). Following a Preliminary Assessment Statement (PAS) and a Regulatory Impact Statement (RIS) (Box 3.3), draft laws are considered at the Technical Meeting held by the Council of Ministers. Depending on whether agreement is reached, draft laws may be sent back or allowed to go forward to the full Cabinet meeting. Once the Cabinet approves, the draft law can proceed to the National Assembly and Senate and thereafter be signed into law by the King.

RIA is gradually being introduced across Ministries in a step-by-step approach, a number of ministries at a time and on a voluntary basis. Since 2016, Decision No. 132-SSR requires all line ministries and institutions to establish a Regulatory Impact Assessment Working Group. Each ministry appoints champions who get trained in RIA and who are responsible for writing the PAS/RIS. The scope of the RIA could potentially cover primary and subordinate regulation, such as laws, Royal decrees, sub-decrees and Prakas. The execution of RIA is presently voluntary. The current focus of RIA is on capacity development.

Box 3.3. Preliminary Assessment Statement (PAS) and Regulatory Impact Statement (RIS)

Preliminary Assessment Statement

A Preliminary Assessment Statement (PAS) is the first step of the RIA process in Cambodia. It asks whether the proposed law is regulatory, advising that policymakers “consider all alternatives, noting that regulating should not be the first option” (Section 3 of the PAS template). The PAS should also identify the costs of the proposed regulation on businesses. If the proposed law is regulatory, and if it has a non-negligible impact on business, then the PAS will be followed by a Regulatory Impact Statement (RIS). There is no quantification of the cut-off that determines whether a PAS imposes a significant enough impact to require a RIS.

Regulatory Impact Statement

A Regulatory Impact Statement (RIS) asks policymakers to make a base case and then to identify and quantify costs and benefits where possible. It is expected that most cost-benefit estimates will be derived from existing research or simple calculations, applying the discount rate. When benefits cannot be quantified, then other measures such as break-even analysis or qualitative analysis may be used. The distributional impact of regulations should be considered. For example, there is a Gender Impact Statement template available for assessing the distributional impacts of regulations on women.

Source: OECD communications with the Government of Cambodia, 2017.

There is a methodology for measuring administrative burden in the PAS/RIS process, but this is not how areas for attention are identified. Those have come from international benchmarking (such as the Doing Business survey) or arisen from debate with development partners that support global best practice areas. There is a checklist of compliance costs, which includes costs for the government and costs for businesses.

Box 3.4. Checklist of compliance costs for PAS/RIS

Costs for the government

Designing regulation*
Consultation (notification, designing questionnaire).
Training staff and stakeholders.
Administrative arrangements such as checks and approvals.
Equipment and services to administer and enforce (e.g. cars, buildings, legal advice).
Record keeping – storing and maintaining records – filing time, server maintenance, paper copies.
Printing and publishing documentation, websites, awareness workshops.
Enforcement – wage-based costs for compliance officers, inspections, issuing fines, car rental.

Costs for businesses

Consultation – time, transport.
Training and keeping up to date with changes.
Administrative costs – applying and seeking permission, licence fees, internal checking.
Services or materials and equipment to comply.
Record keeping.
Printing (e.g. instructions, warning signs).
Cost of co-operating with audits, inspections.

* Usually the cost of developing the regulation is included even though the bulk of the design would have been completed by the time the PAS is prepared.

Source: OECD communications with the Government of Cambodia, 2017.

Monitoring and evaluation of regulatory reduction initiatives have been undertaken on a project-by-project basis. There have been examples where progress monitoring has shown significant regulatory improvements resulting from the implementation of good regulatory practice, such as the One Window Service Office (Box 3.5). Monitoring mechanisms are also in place in the form of internal audits for the National Strategic Development Plan and the IDP.

Box 3.5. Evaluation of Cambodia’s One Window Service Office (OWSO)

Analysis from a 2011 project to increase the use and capacity of Cambodia’s One Window Service Offices (OWSOs) showed that use of this service resulted in a large decrease in administrative costs for businesses in the construction sector. Average spending decreased significantly from KHR 1.5 million (USD 378) to KHR 157 000 (USD 39) as people shifted from accessing services at line departments to the OWSOs. OWSOs were also shown to provide services faster than the line departments across three areas: tourism (4.6 days compared to 10.3 days); transportation (14.3 days compared to 24.8 days); and construction (22.4 days compared to 26.5 days) (Neb, 2017[18]).

There is potential for the OWSO to take on a wider SME-support role. This has been recommended in several ways, including by the Japan International Co-operation Agency (JICA)-supported SME Promotion Policy Formulation Project which proposes an SME Development Framework. They recommended that the OWSO becomes a gateway for consultation and an information centre for SMEs on import-export procedures, taxation, safety approval, technical assistance, business advice, etc. Some, or all, of these recommendations may appear in the SME Policy document when it is finally approved. However, given centralised views in the Ministry of Industry and Handicraft (MIH), these may be reserved for a proposed SME Agency first.

Source: Neb, S. (2017), “One window service offices: Improving government transparency and responsiveness”, Social Science Asia, Vol. 3/2, pp. 12-24.

Overall, evidence-based regulatory policy preparation and evaluation is in its infancy in Cambodia. Some government programmes - such as the Public Financial Reform Programme (PFMRP) - have started to pilot results-based management (Box 3.6.). Regulatory reviews have also been undertaken in specific policy areas, driven by concerns that Cambodia’s regulatory policies may be more burdensome than those of ASEAN neighbours or compared against international benchmarks. At present, the capacity to conduct monitoring and evaluation for regulatory policy is very limited in most ministries. Evaluations, where they exist, tend to be carried out for projects funded by development partners, who are proponents of international best practice.

Box 3.6. Results-based management in Cambodia’s Public Financial Management Reform Programme (PFMRP)

The Public Financial Reform Programme in Cambodia is moving the government programme budgeting towards a more results-based approach, which could improve the environment for evaluation generally. The first two phases of budget credibility (Phase 1: 2004-08) and financial accountability (Phase 2: 2009-15) have created a public accounting system with some traceability and accountability. The programme is now rolling out programme-based budgeting (Phase 3: 2016-20) with some output and outcome indicators. As the focus moves to achieving results, the selection of indicators will become much more critical (Ministry of Economy and Finance Cambodia, 2018[19]).

Source: Ministry of Economy and Finance (2018), Public Financial Management Reform Program, www.pfm.gov.kh/index.php/en/.

Stakeholder engagement

The PAS/RIS process intends that the submitted documents may be used for public consultation. There is also a website for the publication of PAS/RIS, which includes a comment and feedback option. The website provides a mechanism for online consultation, although this is not yet common practice. It is worth noting that general computer ownership is low in Cambodia, so it may be that online feedback would be transmitted via representative organisations, which typically have web access.

There is a Government-Private Sector Forum with sectoral working groups, which helps carry out public consultations on regulatory issues. The tourism working group is the most developed to date. Across sectors overall, public consultations are neither formalised nor consistent.

Box 3.7. Government-private sector forum for tourism

The Government-Private Sector Forum for Tourism is overseen by a Joint Secretariat comprising the General Department of Tourism and EuroCham. The tourism forum includes nine thematic task forces as of January 2018, each of which comprises technical officials from the ministry as well as private sector representatives:

Tourism Industry
Training
Cleanliness and Green Tourism
Research and Development
Domestic Marketing and Promotion
International Marketing and Promotion
Investment and Tourism Products Development
China Ready
Safety and Transportation.

These task forces meet regularly to discuss, identify, and address challenges in the tourism and hospitality industry, as well as to increase the efficiency of public-private co-operation to promote tourism in Cambodia. So far this public-private collaboration has helped improve law enforcement, safety for tourists, environmental awareness, and joint-promotion of Cambodia as a tourist destination.

The Cambodia Tourism Federation (CTF) has increasingly taken on responsibilities in co-ordinating the private sector, with support from EuroCham, whose ultimate objective is to hand over the Secretariat to the CTF.

Source: EuroCham correspondence with OECD, 2017.

Appeals

Formal appeals against a regulatory decision by an individual business – SME or not – is highly unusual. It is possible to take an appeal through the commercial court system, although this is uncommon.

The first systematic steps towards a local appeals process take place at the local authority level, at the District Ombudsman Office (DO, or the Citizen’s Office) which is created alongside the One Window Service Office. The DO has the following duties:

Receiving and resolving complaints or conflicts from citizens regarding the district administration.
Overseeing that citizen concerns are served in line with laws and rulings.
Fighting corruption.
Building a good relation between businesspeople and the administration.

The Phnom Penh Municipal Court of First Instance is the court most frequented by commercial litigants. The lower courts preside over all types of legal matters including civil, criminal, insolvency and commercial disputes. An unsatisfied litigant may appeal a municipal court’s decision at the Court of Appeal, which will review both questions of law and fact. A final appeal may be taken up to the Supreme Court, but generally only on questions of law.

For customs duty disputes, the procedures for challenge and settlement are clearly set out in Prakas no. 618 MEF.PR.CE dated 24 July 2009 on Customs Offence Mediation and Prakas no. 570 MEF.PR dated 19 August 2010 on Complaining Procedures against Customs Record.

For challenges relating to resolving overlapping competencies or disputes regarding responsibilities for rulemaking, the challenge has to be referred back to the relevant ministries for a change in the appropriate level of the law. The only resolution mechanism is debate at the Council of Ministers or the personal intervention of the Prime Minister.

SME linkage policies

The Industrial Development Plan 2015-25 highlights support for industries serving regional production chains linked with either global markets or global value chains in the form of forward linkages and backward linkages (Ministry of Industry and Handicraft, 2016[1]).

According to the IDP 2015, the government has also committed to developing industrial zones in provinces as hubs for SMEs, equipped with electricity, clean water, and logistics services. There are currently 22 special economic and industrial zones across Cambodia. The IDP 2015-25 intends to monitor and evaluate the plan, including industrial clusters.

Special Economic Zones (SEZs) were established in 2005 by Sub-decree No. 148 on the Establishment and Management of the SEZ. As of November 2015, Cambodia has 35 SEZs operating under the authority of the Cambodia Special Economic Zone Board, which sits in the Council for Development of Cambodia. The SEZs offer better infrastructure, tax breaks, as well as dedicated import and export support. As an SEZ also qualifies as a “Qualified Investment Project” (QIP), its developers and investors are eligible to receive preferential financial incentives including profit tax exemption for nine years, import duty exemption for construction materials, VAT exemption, guarantees against nationalisation and price fixing, and unrestricted foreign exchange (Ministry of Commerce Cambodia, 2014[9]). The SEZs are governed by the Law on Investment.

Cambodia has a very open financial framework for investors local or international. According to the 1997 Foreign Exchange Law, there are no restrictions on foreign exchange operations, including transfers. Investors are only required to report foreign transfers valued at USD 10 000 or more to customs, who would then report to the National Bank of Cambodia.

Cambodian law permits 100% foreign company ownership. By contrast, foreign investors cannot own land in Cambodia, although they may nonetheless exercise some control over land through a land-holding company.

Most government support for SEZs and industrial zones goes into financial incentives (as foregone revenue), while the bulk of the financial investment comes from donors, loans or foreign developers. Most frequently, government funding goes to salaries for officials while donors fund the activities.

Both local and foreign investors are also eligible for full import and export duty exemptions on projects that qualify as Quality Investment Projects (QIPs) by the Council of Development of Cambodia (CDC). Additionally, local and foreign investors alike are eligible to access one-stop services to process investment applications, tax and customs duty exemptions.

The Rice Export Policy is so far the only major effort to help SMEs integrate into global value chains. This policy aims to develop Cambodia’s brand (new varieties) and milling capacity for higher-value exports. In addition to offering seed variety production and Sanitary and Phytosanitary Standards (SPS) arrangement support, the government also purchases and warehouses paddy at market price. The government is investing in the extension of agricultural techniques and basic marketing, together with piloting an online trading platform. The government has also continued to run a price dissemination system for vegetables by SMS messaging, a service that is available to farmers but predominantly used by traders. Cambodian Rice Federation, a nominally private sector organisation, has been authorised by Prakas as the only body that can represent the rice sector to the government. The Cambodia Rice Federation (CRF) is involved in policy dialogue, although it mainly represents large millers rather than smaller actors.

Recommendations

Consider unifying SME registration under one portal. At present, SMEs may register in a number of places including the Ministry of Commerce, Labour and Vocation Training, and the General Department of Taxation. SMEs may register with the government online through the Ministry of Commerce, or with the relevant Department of Taxation.
Consider unifying online databases for regulations of all levels under one portal, which will help track overlaps or outdated regulations between ministries. This could be done by building the existing ECOSOCC database, which already includes laws, decrees and sub-decrees but does not include legislation at the level of Prakas and below.
As laws are being created to help Cambodia meet international standards, there are opportunities for these to be made SME-friendly the first time around.
Review targets for SMEs in regulatory policies to set relevant indicators and measures for monitoring progress towards achievement.

References

[3] Council for Administrative Reform (2010), National Program for Administrative Reform, http://www.cdc-crdb.gov.kh/cdc/twg_network/country_systems_cambodia/strengthening_national_systems/documents_for_reform/par/npar_programme_2010_en.pdf.

[17] General Department of Customs and Excise of Cambodia (2017), ASYCUDA Project, http://www.customs.gov.kh/trade-facilitation/customs-automation/.

[13] Government of Cambodia (2016), Law on Financial Management as Promulgated by Royal Kram no. NS/RKM/1216/019, Phnom Penh.

[15] Government of Cambodia (2015), National Program for Public Administrative Reform 2015-2018, Committee for Public Administrative Reform, http://www.era.gov.kh/eadmin/data/2017/4/national_public_admin_reform_khmer_and_english.pdf.

[12] Government of Cambodia (2005), Small and Medium Enterprise Development Framework, https://wits.worldbank.org/CountrySnapshot/en/KHM.

[9] Ministry of Commerce Cambodia (2014), Cambodia Trade Integration Strategy 2014-2018, http://www.kh.undp.org/content/dam/cambodia/docs/PovRed/Cambodia%20Trade%20Integration%20Strategy%202014-2018.pdf.

[11] Ministry of Economy and Finance (2014), No. 5278.

[19] Ministry of Economy and Finance Cambodia (2018), Public Financial Management Reform Program, http://www.pfm.gov.kh/index.php/en/ (accessed on 10 August 2018).

[10] Ministry of Economy and Finance Cambodia (2017), Prakas No. 638 on the Criteria of Improper Accounting Records and Procedures for Paying Minimum Tax, Ministry of Economy and Finance Cambodia.

[2] Ministry of Economy and Finance Cambodia (2016), Annual Performance Report on Public Financial Management Reform Program: Stage 3, Ministry of Economy and Finance Cambodia, Phnom Penh, http://www.pfm.gov.kh/document/report/Annual%20Progress%20Report%202016%20English.pdf.

[1] Ministry of Industry and Handicraft (2016), Cambodia Industrial Development Policy 2015-2025, http://www.mih.gov.kh/File/UploadedFiles/12_9_2016_4_29_43.pdf.

[6] Ministry of Industry and Handicraft (2016), MIH Summarised Report 2016, http://www.mih.gov.kh/File/UploadedFiles/4_20_2017_3_18_48.pdf.

[8] National Institute of Statistics (2016), Cambodia Socio-Economic Survey 2015, http://www.nis.gov.kh/nis/CSES/Final%20Report%20CSES%202015.pdf.

[18] Neb, S. (2017), “One window service offices: Improving government transparency and responsiveness”, Social Science Asia, Vol. 3/2, pp. 12-24.

[4] Niazi, T. (2011), Deconcentration and Decentralisation Reforms in Cambodia: Recommendations for an Institutional Framework, Asian Development Bank, https://www.adb.org/sites/default/files/publication/28879/deconcentration-decentralization-cambodia.pdf.

[5] Phnom Penh Post (2017), Efforts to Formalise SMEs Fall Short, http://www.phnompenhpost.com/business/efforts-formalise-smes-fall-short.

[16] Phnom Penh Post (2015), Paving the Way for New SMEs, http://www.phnompenhpost.com/business/paving-way-new-smes.

[14] World Bank (2017), Trade Development Support Project Completion Report, World Bank.

[7] World Bank (2016), World Integrated Trade Solution (WITS): Cambodia Trade Summary 2016 Data, https://wits.worldbank.org/CountryProfile/en/Country/KHM/Year/LTST/Summary.