An estimated 78 per cent of small businesses in Cambodia are unregistered. Supplied
The results of a recent survey conducted by the World Bank indicate that Cambodia’s informal economy presents the largest barrier to doing business in the Kingdom.
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The “Cambodia Economic Update December 2024”, released by the World Bank earlier this month, noted that the complexity of the tax system was ranked second, followed by corruption. It explained that these issues inhibit the labour productivity of Cambodian-based businesses, reducing the ability of some enterprises to successfully expand operations in the country.
In a concerning development, new business registrations at the Ministry of Commerce fell by almost 20% in the first 11 months of the year, when compared with the same period last year. In the same period, the number of requests for deregistration rose by more than 30%.
A ministry report noted that from January to November, 9,530 businesses/entities were registered, a 17.17% decrease compared to the same period in 2023, when 11,506 businesses were registered.
It added that 1,284 businesses/entities requested removal from the business registry, an increase of 32.78% from the 967 businesses which asked to be struck off last year.
Lor Vichet, vice-president of the Cambodia Chinese Commerce Association (CCCA), suggested that the decline in registrations and the increase in deregistration requests may be due to various challenges faced by businesses in Cambodia over the past year.
He also noted that many legal businesses face issues with informal competitors, with an estimated 78% of businesses being unregistered.
Vichet explained that this means that informal businesses can offer products and services at lower prices than registered and tax compliant companies, creating an unfair competitive environment.
According to the World Bank report , tax rates came in at number two as the most problematic factor for doing business in Cambodia, with 68 percent of all firm’s surveyed citing it as a significant challenge.
Cambodia’s tax system can be difficult to navigate for new business entrants and long term investors alike, creating ongoing conflicts between compliance and cost competitiveness in the market, it suggested.
The report noted a 6% percent increase in businesses noting this as a major challenge since 2016.
Chhin Ken, president of the Cambodia Digital Tech Association (CDTA), told The Post on December 25 that business registration is an obligation for every business owner. Registration is a major step forward for owners who want to see their business grow and gain legal recognition, he added.
He believed several factors could be behind the increase in requests for deregistration, including internal business crises, shareholder disputes or changes in the type of business.
“This is a global trend and is being seen in all countries. When market demand shifts toward a particular sector, business owners may close down a struggling business and open a new one that meets market demands,” he explained.
He added that the economic situation of any country is always connected to the regional and global economy. Therefore, when the global political and economic situation improves, the number of new businesses/entities will also increase accordingly.
“The government’s efforts to facilitate business registration procedures through online systems are increasingly becoming a key factor in attracting both domestic and international investors to establish businesses in Cambodia,” he said.
