“There are only two certainties in life: death and taxes” the famous quote says. Yet in Myanmar, tax system is nothing but certain. A good tax system should follow four basic principles: fairness, certainty, convenience and efficiency. The country is either backward or inadequate on each of the four principles.
The first issue relates to none of the four principles. It is a cultural issue where people are simply not used to paying taxes. Even though we were taught calculus, trigonometry and advance mathematics in high school, the subjects 99% of us have no use in life, we were not taught about finance, accounting or taxes. Taxes are not taught in universities either, other than perhaps in accounting, finance and economics courses. So students have been taught to stand up in the cinema during national song and rising of national flag, yet, they were definitely not taught that paying taxes is a mandatory civic duty for all citizens. When adults have to pay taxes now, they tend to question on what the government would do specifically for them, for paying taxes. They look for direct benefits akin to a business transaction. No one has been taught that it is patriotic and stately to pay taxes, hence, no one is motivated to pay.
This issue not not limited to Myanmar alone. Even in the world biggest county, our good neighbour China, only 2% of the population pay taxes. Considering being the world second largest economy, it suggest there might be significant grey economy within China too, likely conducted via WeChat. That modus operandi even extends to the famous jade market in Mandalay, where the money changed hands via WeChat pay, evading any form of taxes payable to Myanmar or Chinese government.
This habit of not paying taxes is evidenced in the amount of tax revenues as a percentage of GDP (Gross National Product). In US, that percentage is 17%. For China, it is 9%. Myanmar government tax revenues as a percentage of GDP varies between 5% – 8% in the past ten years. If the grey economy within the country is to be included, the percentage would be a lot lower. It means, essentially, MOPF (Ministry of Planning and Finance) has two main tasks; to induce the population to pay taxes and to include more grey economy into tax assessments.
The second issue is the implications for non-payment of taxes. May be the government does not have the resources or competence to track down tax dodgers. Or may be government is holding that offence as a hidden card, in case of wanting to charge or arrest a person on a separate charge, which has insufficient evidence to apprehend that same individual. Without much serious implications, people here got used to the concept of paying only upon need basis, such as when they need white money or when they buy something that needs registration or disclosure, etc.
One of the common complaints from regular payer of taxes, through pay as you earn system for middle and high income earners, has been the fact that the monthly taxes that they had paid are not fully allowed for offset against the white money requirements. The sometimes promotional tax rates between 3%-10% are also a disincentive for regular payer of taxes, such as wage earners. The effective tax rates may be a lot higher than 3%, especially for high wage earners. So why pay regularly?
Even if the tax dodgers or under payers or late payers are found, the penalty is normally just 10% of the outstanding tax liability. Even if the tax liability has been outstanding for only a year, that 10% is less than the current borrowing rate of 13%. Technically, it is better off financially to delay paying taxes, rather than go into debt or overdraft in order to pay taxes.
The third issue is related to companies. Currently there are two tax assessment systems in place for companies and businesses: Official Assessment System (OAS) and Self Assessment System (SAS). SAS has been applauded by most tax payers for convenience and fairness, especially for the ability to do online and claim allowable expenses first. The eventual target would be for all companies to be able to filed under SAS. At this point of time, only large tax payers and some medium tax payers are being able to filed under SAS. There comes the legacy issues related to OAS. Paper based system means loss of documents sometimes. Frequent change of tax officers in charge is not helping either. The assessment is simply subject to tax officer whims and fancies, that could eventually gives rise to under table payments and corruption. If you happened to dispute the tax officer assessments, he or she would put your case under ‘pending’ leading to years incommunicado from either the officer or income tax department.
The fourth and final issue seems to be systemic. The tax system in Myanmar is a direct descendant of the British system, in which the tax law is principle based, instead of rule based, just like the US. Principle based systems are subject to many interpretations and a lot of interpretations are based upon precedents. With the judicial system in Myanmar very much underdeveloped, especially in relation to commercial cases, precedents are hard to come by as companies rarely challenged the tax department decisions. The usual approach would be to resolve through ‘negotiations’ with the tax officer concerned.
Typical complaints by business taxpayers would include the allowing of expenses in the income statement, not being able to carry forward losses (especially in relation to OAS), preference being given to irregular tax payers over regular payers and commercial tax payments being not in line with collections.
The way forward
How do we best achieve fairness, certainty, convenience and efficiency in our tax system? MOPF is already on the right track pushing for conversion from OAS to SAS. May be due to Covid or change of government, the process has been slow and hence, the results have not materialised yet. SAS would reduce human to human interactions (‘negotiations’). Doing everything online would reduce paperwork and loss of paperworks. Best of all, the responsibility to be honest is pushed towards the tax payer and the responsibility to dispute against the tax filed is in the hands of the tax officers. Supplement that with education across all ages, especially the young ones, coupled with continuous training for tax officers, we would have a fair, convenient and efficient system in no time.