PHNOM PENH— Tax experts raise the potential of a worst-case scenario in which the U.S. may impose significantly higher tariffs on Cambodian exports compared to other countries. They highlight that Cambodia should urgently reform its tax regulations and policies to ensure clarity, consistency, and fairness to support foreign investment and maintain competitiveness as it prepares to graduate from least developed country (LDC) status in 2029.

The experts emphasized that a predictable and efficient tax system is pivotal to attracting foreign investment and supporting Cambodia’s transition.

Casey Barnet, president of CamEd Business School, noted that Cambodia has long attracted investors due to a combination of incentives, a growing market, and limited competition. However, he warned that this business-friendly environment may not last.

“The incentives will be given to manufacturers in general and will be likely careful to avoid any subsidies that single out exporting manufacturers,” Barnet said during the UK-Cambodia Joint Trade & Investment Forum Deep Dive Series on April 29. “We will see some pressure on changing the incentives that Cambodia gives to exporters and manufacturers.”

He explained that U.S. scrutiny is partly due to Cambodia’s generous tax holidays, duty-free access, subsidized electricity, and import exemptions for manufacturing materials—benefits that Washington now sees as distortive.

“As a starting point, I would say that this 3,500 percent tariff on the solar panels is actually a bad sign for the future of Cambodia exporting to the U.S.,” he added.

Last week, the U.S. announced plans to impose tariffs of up to 3,521 percent on solar panels from Cambodia, Thailand, Malaysia, and Vietnam in response to alleged Chinese subsidies and transshipment practices.

Barnet interpreted the move as a signal of intolerance from the U.S. administration, which remains wary of Cambodia’s trade links with China. 

In August 2023, the U.S. Department of Commerce finalized determinations that solar cells and modules completed in Cambodia, Malaysia, Thailand, or Vietnam using components from China, and exported to the United States, are circumventing the antidumping and countervailing duty orders on solar cells from China. This finding indicates that Chinese manufacturers have been routing products through Cambodia and other Southeast Asian countries to avoid existing tariffs, effectively using these nations as transshipment points.

“Cambodia doesn't have much to offer the U.S.,” Barnet remarked. “Given that the U.S. already is taking a hard line against Cambodia it's best that we all prepare for a worst-case scenario that Cambodia may have higher tariffs than many other countries.”

But the ripple effects could reach beyond Cambodia.

“The U.S.'s massive tariff will more or less have an impact on the global economy, not only on Cambodia,” said Seng Cheaseth, Director of the Department of Law, Tax Policy, and International Tax Cooperation at the General Department of Taxation.

Cheaseth attributed the tariff partly to the trade imbalance. “A small economy like Cambodia can’t buy much from the U.S., which creates a huge trade imbalance,” he said, noting that reducing imports—such as second-hand U.S. cars—might be a possible response.

Currently, Cambodia hosts nine vehicle assembly plants, including a new BYD electric vehicle plant under construction in Preah Sihanouk province.

Cheaseth pushed back against the accusation that Cambodia enables transshipment. “Casey has alluded to something besides this trade that we have with the U.S.,” he said. “There could be some undecided policy, but what we have provided is a part of our incentive system. There's no discrimination between the U.S., Chinese, or any other companies in Cambodia.”

International experts argue that clarity and transparency in tax policy will be key to navigating this turbulent period. Steven Solomon, Partner and Head of M&A Tax for KPMG in Vietnam and Cambodia, compared Cambodia’s tax challenges to those of its regional peers.

He cited Singapore’s clear and investor-friendly tax regime as a model. “As a small island with limited resources and population, Singapore prioritizes kindness and fairness… designing regulations to encourage business, not quickly changing them without consulting businesses,” he said.

By contrast, Indonesia’s aggressive tax system leaves little profit for investors, prompting many Chinese firms to relocate to countries like Cambodia and Vietnam. Malaysia, he noted, has improved its tax fairness, though rising rates have made it less attractive than Singapore.

“One thing I'd say about Malaysia’s system that I quite liked is that the authority there does talk to the tax consultants and businesses very regularly,” Solomon said. “They have a big body that often speaks to the tax authority and discusses regulations and gets clarity that would never happen in Vietnam and Indonesia.”

Solomon also highlighted the growing global focus on capital gains tax and the need for consistent rules so businesses can plan effectively.

On the domestic front, Cheaseth said Cambodia is actively modernizing its tax system. The government’s five-year revenue mobilization strategy (2024–2028) outlines 47 reform measures, including digitizing administration and overhauling VAT and side tax policies.

He also acknowledged international tax shifts that Cambodia is now navigating. “Now, we all focus on trying to regulate global minimum tax in the country,” he said, referencing the OECD’s 2021 tax reform agreement, which Cambodia joined along with 135 jurisdictions.

“Having said that, we are not staying behind. We have a team studying the impact of the global minimum tax, particularly with the incentive,” Cheaseth added.

Carbon tax mechanisms are also under study, supported by institutions like the World Bank. To aid compliance, Cambodia has introduced standard operating procedures for state duties and property taxes, aligning tax practices more closely with day-to-day business operations.

As global pressure mounts, experts agree that Cambodia’s ability to reform and communicate its tax strategy will be critical to avoiding punitive tariffs and retaining investor confidence.