UNDERSTANDING CAMBODIA S NATIONAL BUDGET...Understanding Cambodia's National Budget 2006 Economic...

UNDERSTANDING CAMBODIA’S NATIONAL BUDGET

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ECONOMIC INSTITUTE of CAMBODIAMay 2006

Supported by:

WORLD BANK

Understanding Cambodia's National Budget 2006

1Economic Institute of Cambodia

What is a National Budget?

Cambodia's national budget is both a plan for fund raising, and a

spending plan to ensure funds are used effectively for the benefit of the

Cambodian people. This plan is made by the Royal Government of Cambodia

and adopted by the National Assembly and the Senate.

Like some individuals or families, the government does not have

enough money to carry out all the programs it needs.

Therefore, the government plans ahead. It estimates how much

money will be available in the coming financial year (1st January to 31st

December). In a consultative manner, it decides on the most important

activities to be undertaken to improve the quality of life for citizens.

Domestic Revenue

Domestic revenue includes money collected by the tax department,

customs department, and non-tax department of the Ministry of Economy

and Finance.

Domestic revenue is also comprised of non-tax revenues raised by

some government institutions within other ministries.

In Cambodia, there are hundreds of kinds of taxes and government

fees. Economists or tax professionals generally divide the domestic rev-

enue into four main classifications: direct taxes, indirect taxes, interna-

tional trade taxes, and non-tax revenue.

The following table shows who collects what, and how much*:


Economic Institute of Cambodia2

*in billions of riel



Revenue from Direct Taxes

The direct taxes are comprised mainly of tax on salary, tax on

profit, and tax on land and property. Tax officers directly receive these

taxes from individuals or companies.

In 2006, the government expects to collect CR 205 billion from

direct taxes, indicating an increase of 23 percent compared with the

national budget of 2005.

Tax on profit is the most important direct taxes in Cambodia, rep-

resenting about 74 percent of total direct taxes in 2006, while taxes on

salary and on property represent only 19 percent and 7 percent, respectively.



Revenue from Indirect Taxes

The indirect taxes are comprised mainly of value added taxes, and

excise taxes on consumer goods and machinery, which are imported or

locally produced.

These taxes are not directly perceived by users or buyers, but

from importers, producers or traders. The amount of these taxes is

already included in sale prices.

In 2006, the government expects to collect CR 1,238 billion from

indirect taxes, showing an increase of 22 percent compared with the

national budget of 2005. Value added taxes represent about 65 percent of

the total indirect taxes.



Revenue from International Trade Taxes

International trade taxes, or "customs duties" are applied on

imported and exported goods. Therefore, these taxes are directly

received from importers or exporters by customs officers.

Like indirect taxes, the final consumers do not perceive these

taxes, as its amount is already included in sale prices.

In 2006, the government expects to collect CR 692 billion from

international trade taxes, an increase of 23 percent compared with the

national budget of 2005. The taxes on imported goods represent about 96

percent of the total international trade taxes.



Non-tax Revenue

The non-tax revenue generally includes government fees on the

concessions of state properties, such as fishing lots, forestry, state owned

enterprises or real estate.

Fees for the rights of doing some business, such as telecommunica-

tion and casino, constitute an important source of non-tax revenue.

Revenue generated from privatization and sales of state properties

could be included in the non-tax revenue. In Cambodia, the amount of this

revenue is insignificant.

In 2006, the government expects to raise CR 678 billion from over-

all non-tax revenue, of which CR 228 billion are generated from tourism

related activities, CR 120 billion from telecommunication, CR 50 billion from

casino, and CR 40 billion from the sale of state property.



Budget Spending

In order to provide public services to the citizen, the government

expects to spend a total of CR 3,718 billion on the salary of civil servants,

general operational activities, and public investments, such as roads,

schools, and hospitals, in 2006.

In 2006 , the government expects to dedicate CR 793 billion to the

salary of the civil servants, an increase of 9 percent compared with the 2005

budget. However, the spending on the general operational activities should

amount to CR 1,621 billion, increasing 29 percent from the 2005 budget.

In its spending programs, the government has identified four

"Priority Sectors". Special attention has been given to these ministries:

Education, Public Health, Agriculture, and Rural Development.

Defense and Security 13%

Other Ministries30% Public Investment

36%

Priority Sectors 21%



Spending on Priority Sectors

In the 2006 national budget, the four priority ministries of

Education, Public Health, Agriculture, and Rural Development, have an

allowance of CR 793 billion, which corresponds to an increase of 17 percent

compared with the 2005 budget. This amount is equal to 21 percent of the

total national budget spending.

Education represents about 56 percent of the total, followed by

Public Health (33 percent). Agriculture and Rural Development together

represent only 11 percent of the total spending of the priority sectors.

Additional priority areas for 2006 will be labor and vocational

training, gender, and land management.



Spending on Defense and Security

In order to protect the country's territorial integrity, and guaran-

tee security and safety of citizens, the Cambodian government expects to

spend CR 488 billion in its 2006 national budget, an increase of 8 percent

compared with the 2005 national budget.

The budget allocated for Defense and Security represents 13 per-

cent of the total 2006 national budget.

The National Defense represents 64 percent of the total budget

allocated for Defense and Security in 2006.



Spending on Other Ministries

In order to ensure the functioning of the public administration, the

Cambodian government allocated CR 1,133 billion of its national budget

2006 for the rest of the ministries and state institutions. This amount pro-

vides a substantial increase of 33 percent compared with the national

budget of 2005.

The budget of the Royal Palace, Senate, National Assembly, and

Council of Ministers amounts to CR 168 billion and represents 5 percent of

the total 2006 national budget. It was increased by 21% compared with the

2005 budget.



Spending on Public Investment

Public infrastructure, such as roads, schools, and hospitals, is crit-

ical for economic development and the well being of citizens. Cambodia still

profoundly suffers from a lack of adequate public infrastructure.

To improve the country's public infrastructure, the Cambodian gov-

ernment allocated CR 1,304 billion in its 2006 national budget for public

investment spending. This amount indicates an increase of 19 percent com-

pared with the national budget of 2005.

The budget for public investment represents 36 percent of the total

national budget 2006. This budget is mostly financed by foreign donors.

Foreign Aid and External Debts

After years of war and conflicts, Cambodia strongly needs supportsto rebuild the country and develop the national economy. Domestic staterevenues alone are not sufficient to finance these urgent needs.

After the signing of the Paris agreement in 1991, multilateral andbilateral donors have strongly committed to support Cambodia. A consulta-tive group (CG) composed of the Cambodian government and donors wasformed, and meet annually to discuss reform progress, and pledge financialassistance to Cambodia.

Since 1993, Cambodia has received about US$ 600 million per yearin foreign aid, which is composed of grants and loans. The overall loansaccrued since 1993 are estimated to amount to US$ 1 billion at the end of2005. If we include the not-yet-recognized loans owed to the USA during70's and Russia during 80's, the total amount of Cambodia external debtsshould reach almost US$ 3 billion.



The objective of this booklet is to explain the National Budget

of Cambodia: where does the money come from, and where

does it go to?

Public money belongs to all Cambodian citizens, and the way

it is collected and spent affects their daily life.

WORLD BANK

Prepared by:

with the support of:

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