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Economy

Cambodia announces tax cuts to counter virus and EU tariffs

Visitor numbers falling and apparel sector running out of stock

Cambodian Prime Minister Hun Sen delivers a speech to passengers after they disembarked from the MS Westerdam cruise ship at the port of Sihanoukville on Feb. 14. His government permitted the vessel to dock there after five other nations refused to do so due to coronavirus fears.   © AP

PHNOM PENH -- Cambodia's Prime Minister Hun Sen has unveiled a suite of measures, including tax cuts, aimed at mitigating the double economic blow of the new coronavirus and looming new European Union tariffs.

In a speech on Monday, the longtime leader said Covid-19 had dealt a blow to the country's tourism and apparel sectors. Cambodia is set for a 60% drop in visitors in February, with Chinese visitors down 90%, he said.

The country's apparel sector, meanwhile, is largely dependent on China for raw materials and is on the verge of running out of stock.

Hun Sen also acknowledged there would be consequences from the EU's decision to partially suspend Cambodia's duty-free access over human rights concerns. Even then, he played down the impact and remained defiant, saying Cambodia would not seek a reversal of the decision, which applies to about 20% of the country's exports to the bloc, or some 1.1 billion euros ($1.19 billion).

"Cambodia will not trade its sovereignty for aid," he said, estimating the impact of the tariffs would be about $100 million. The levies will come into effect in August unless the EU parliament or its member states intervene.

Capital Economics has forecast the partial loss of Cambodia's trade privileges could reach about 2% of GDP -- about $500 million.

For the apparel sector -- responsible for about $9.5 billion in exports last year -- Hun Sen said Cambodia's Ministry of Economy and Finance would help struggling factories receive tax exemptions for between 6 and 12 months.

Should factories suspend operations, they will be exempted from paying into Cambodia's National Social Security Fund and will only have to provide 40% of workers' salaries, he said. The government will augment this, paying an additional 20%.

Furthermore, the Ministry of Labor will pay to re-skill workers laid-off from the sector. Those undergoing this four-month training course will receive six months of salary at 60% of the minimum wage -- around $120 a month. Details of what the training would include were not mentioned.

For the tourism sector, Hun Sen said hotels and guesthouses in Siem Reap province -- home of the visitor drawcard Angkor temple complex -- would receive a four-month tax exemption. The price of admission to the temples will also be reduced, he said.

Among other measures to help the economy, Hun Sen said the 4% registration tax would be suspended for all houses sold for less than $70,000 between now and January 2021. He also pointed to a planned state bank created to lend to smaller businesses and agro-industrial enterprises.

The prime minister also urged China -- his main economic and political patron -- to continue its support by finalizing a planned free trade agreement, boosting investment and persuading Chinese-owned garment factories to remain in the country.

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