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An Inquiry on Tax

Red capital letters sitting on coins stacks write Tax before defocused background. Horizontal composition with copy space. Great use for tax reduction concepts.

We have been seeing more than our share of deaths and destruction within this beautiful country of ours, so lets spare a little time to lighten up the mood by dwelling onto the tax system and some of its stats. Spoiler alert: you be surprised!

Typical five features of a good tax system include fairness, adequacy, simplicity, transparency and administrative ease. Let’s bring all these down to earth in Myanmar. MI has spoken to IRD (Inland Revenue Department) to get ourselves updated on current issues of the day.

The good features are all here?

Fairness refers to the tax system treating all tax payers equally and consistently. People and businesses would pay their fair share of tax and income should be subject to tax only once. Yet fairness as defined by whom? Some businesses and individuals in states and regions outside of central government control end up paying some sort of protection money to EAO, rebels or NNCP terrorist groups. Some restaurants in major towns and cities are still evading the payment of 5% commercial tax, by either refusing to issue receipts or asking patrons to fort out extra for the shop having to stick stamps onto receipts.

Among the three siblings of regressive, proportion and progressive taxes, most of Myanmar taxes are not progressive in nature yet, resulting from inability to accurately assess ones income or wealth.

Tax collections are not adequate either at present. We are running budget deficits for nine out of the past fifteen years. The country is grossly short on infrastructure to supply basic services.

Simplicity is one area that Myanmar tax system can be proud of. This could be as a result of lack of advancement in the economy and the financial system. E.g., most of the taxes on transactions such as properties or cars, are simply based on the value of the property and applying a fixed percentage of tax. The value of the property is also only officially determined for tax purposes. There is also no centralised transaction register either. Fat hope for those wanting to do a valuation report of any property here.

Transparency refers to tax payers and citizens ability to learn of how the money collected from them was distributed. Tax payers being clear on exemptions, deductions, tax credits, etc. Since 2021, the transparency has somewhat done down, based on disclosure of spending and allocations by the central government. At the ground level, we also need transparency as lack of it encourages corruption across all civil services. A good example would be the change of ownership titles for farmland. Without transparency and publicity thereof on fees structure, citizens ended up having to cough up whatever amount demanded by civil servants, just for the latter to do the job they get paid for by the government.

The last of the lot, the administrative ease, refers to both the collectors and tax payers. The system itself cannot be cumbersome or expensive. At present, due to different registration requirements of various government departments, citizens, business owners and companies are given a run around having to register at different places, do to different departments, etc. There is also the issue of frequent change of tax collectors and assessors, requiring the tax payers to restart the whole process from the beginning.

Here comes interesting stats

In terms of evasion of commercial tax, the government has taken action at least 884 times in the last financial year. Fines have been imposed depending on the frequency of offence, totally 980 million Kyats. Yet, it still represented only 0.03% of the total commercial tax collections of the year.

Out of 283 branches of IRD across the country, only 4% falls under SAS (Self Assessment System). Yet collection wise, offices under SAS collected 80% of the taxes. The moral of the story seems to be to trust the tax payer instead of the tax collectors. Most countries have also done away with OAS (Officer Assessment System) too.

There are many hotlines, branches and emails to ask for details on the taxes and clarify thing, yet, disagreement of the assessment can only be via a written correspondence to the Director General of IRD.

The surprising finding on our inquiries was the fact that there has not been any reduction in tax revenues collected after 2021. Yes, there was reduction during Covid period, but not thereafter. Saved by the SAS perhaps.

Legal systems, integration issues and high level push is lacking to ensure that Myanmar has one unique id number for every individuals and entities that could be used for ALL government departments. This centralised registration system is still not in place yet.

Last but not least, the issue of Facebook getting all ad revenues out of Myanmar based companies, targeting Myanmar consumers and not paying any income tax here, is unlikely to be addressed at any time soon. Meanwhile Myanmar continues to lose out on its share of tax revenues.