Tax developments in Myanmar
As part of the reform agenda, Myanmar authorities have paid much attention to further development of the tax regime. It is clear that they are embarking on a two-pronged approach to raising revenues from taxes.
On one hand, they are updating the tax legislation as fast as possible to ensure it meets the needs of a modernising economy. Meanwhile, they are also putting significant efforts into educating the people and encouraging them to participate in the tax system to contribute to the development of Myanmar.
To this end, the Large Taxpayer Office, which includes experienced tax officers drawn from various departments within the Internal Revenue Department, was established to administer the tax matters of many large corporations in Myanmar as well as foreign investors. This will likely boost the level of compliance in Myanmar. Once there is greater understanding amongst these large tax payers, it is expected that the overall knowledge will be cascaded down to the smaller tax payers.
In 2014 we also saw some legislative changes introduced through the Union Tax Law 2014. We understand that this method of introducing major changes through a once a year update was much welcomed as compared to ad-hoc updates, since investors and tax advisors will now know when to expect changes which are effective in the new fiscal year rather than face changes which may have various effective dates.
On the commercial tax front, there have been strong calls to ensure that it is more broad based and for it to move towards a value added tax system. To this end, we see the coverage of the commercial tax move from a positive list system into a negative list system, which means that unless the product or service is specifically exempted, it is likely to be subject to commercial tax. To ensure that the commercial tax does not impact daily essential goods and services, exemptions for many food items and services like public transportation were included in the 2014 update.
Notwithstanding the 2014 update, there remains some uncertainty in relation to the ability to claim credits on input commercial taxes similar to a value added tax system. This has led to some goods having commercial tax applied to them several times which increases the overall cost of products when they reach the final consumers in Myanmar.
In addition, the commercial tax system is still being used as an excise duty mechanism which adds to the overall complexity of administering this tax. Fortunately, the authorities are well aware of these issues and are looking to rectify them soon.
On the income taxation front, higher income residents of Myanmar will be subject to a higher amount as a new tax bracket of 25 per cent was introduced. Whilst it is a significant increase, it is still considered far from being a location with the highest personal income tax rates.
Overall, the market has been hoping to see the insertion of more definition into the Myanmar income tax legislation enabling businesses to better understand where their Myanmar tax exposures are when they operate in the country.
The to-do list is long but at least we have a clearer picture of where tax developments are heading in 2015.
The author, Thomas Chan, is tax director of KPMG in Myanmar.
