PC Penetration in Cambodia

Author: 
Madhurjya Kumar Dutta
Sokros Chann
Tyler Marcus
Sarong Vit-Kory
Sopiseth Lim
Description: 
Working Paper
JEL codes: 
Abstract: 
Information, Communications and Technologies (ICTs) play a crucial role in improving the quality of lives by facilitating the promotion of economic, social and human development. ICTs enable trade in other sectors by enhancing market access and broadening the customer base, facilitating customs, transport and logistics. Computer and internet usage is generally recognized for its significant contribution to a broad variety of activities and economic growth. However, Cambodia is lacking behind other countries in terms of promoting and facilitating trade of ICT goods with the rest of the world. As compared to countries with per capita incomes below US$1,000, Cambodias Personal Computer (PC) penetration rate is 5.4 times less than its potential. This is mainly due to the high tariff rates for ICT products thereby resulting into low computer penetration and preventing the country from the benefits of ICT use. Currently ICT products and particularly PCs are subjected to 15 percent tariff. Besides, the tariff duty of 15 percent, PC related products are subjected to a Value Added Tax (VAT) of 10 percent. According to the ASEAN Free Trade Agreement (AFTA), Cambodia has approved the importation tariff duty of 5 percent on some of the IT related products but the implementation of the Harmonized System Code (HS) and ASEAN Harmonized Tariff Nomenclature (AHTN) are yet to be put in force. Additionally, the e-ASEAN framework, which Cambodia has signed, requires members to eliminate import tariffs and non-tariff barriers on intra-ASEAN trade of ICT products in three tranches. Cambodia, Lao PDR, Myanmar and VietNam (CLMV) will implement the three tranches in January 2008, 2009 and 2010 respectively. There is a compelling argument to encourage Cambodia to adopt tax rates similar to countries that have signed the ITA, where duties have been reduced to zero or near zero to expand the market and increase PC penetration. Cambodia joined the WTO in October 2004, and is yet to be a signatory of the IT Agreement. Compared to other developing countries like the Philippines and Thailand, the nonzero tariff scheme on computers has led Cambodia to a slower adoption of ICT. The high tax rates has resulted in high prices to end consumers, hampering wider scale PC adoption and encouraging informal imports. Informal imports hinder the ability for legitimate distributors to compete legally on price and deprive the government of import tax revenue. Cambodia recently announced a reduction of import duty to zero percent on IT products from ASEAN countries. However, finished IT products can arrive from any parts of the world in the global supply chain or some components may originate from within ASEAN countries. The new zero duty on ASEAN originated product is in the process of implementation. Apart from tax, there are other factors that contribute to the price of the ICT products in Cambodian market, especially PCs. Some of the causes include price differential resulting from unpaid tariffs of informal importation of PC which make the formal ones face high competition as they need to pay all tariffs and other necessary legal fees. Another barrier is the poor infrastructure of importation procedures making Cambodia less competitive compared to neighboring countries. Low level of investment incentive for the ICT industry also affects the price of ICT products in the country. The study comes out with specific suggestion to increase the potential growth for PC related products. ICT agreement among ASEAN members is quite beneficial in improving the ICT intertrade within ASEAN countries. It is important for Cambodia to sign the ITA agreement with WTO to expand the trade facilitation with other non-ASEAN member states. Awareness generation among the business community on CEPT and ASEAN agreement is vital for an informed IT business community.