How Taxation Affects Foreign Direct Investment in Cambodia

Foreign direct investment (FDI) plays a vital role in promoting economic growth, especially for developing economies like Cambodia. Various empirical studies have found contradictory results regarding the relationship between taxation and FDI. This study seeks to determine the prevailing relationship between taxation—tax on income (TOI) and value added tax (VAT)—and FDI. This research utilized secondary data obtained from the Ministry of Economy and Finance and the National Bank of Cambodia, covering the period from 2018 to 2023, to illustrate the application of widely used statistical methods—specifically correlation and multi regression analysis. The findings propose that there is no significant relationship between taxation and foreign direct investment (FDI) in Cambodia. Specifically, it finds no significant association between tax on income (TOI) and FDI (r = 0.237, p = 0.651), nor between value added tax (VAT) and FDI (r = 0.212, p = 0.686). The regression analysis supports this proposition, showing that neither TOI (B = 0.368, p = 0.831) nor VAT (B = 0.337, p = 0.901) significantly predict FDI. The regression model was not statistically significant (F(2,3) = 0.099, R2 = 0.062), explaining only 6.2% of the variance in FDI. Thus, the study concludes there is no significant predictive relationship between TOI, VAT, and FDI in the sample analyzed.