Chris Woo, Managing Director, Tax Services, PwC Myanmar, on improving and reinforcing the tax system

4The IMF concluded its Article IV Consultation with Myanmar, as well as its first review of the Staff-Monitored Programme, in May 2013. Shortly thereafter it made an announcement to the press, which said, “Sustained increases in tax revenues are crucial to boost expenditure and reduce dependence on natural resources. This requires broadening the tax base and improving compliance, including through the planned establishment of a large taxpayer office.”

Since the opening up of Myanmar, the importance of enhancing tax collection has been understood, and various tax incentives have been offered to attract the right kind of companies to invest in the country and to help further its development.

However, such incentives may actually reduce the amount of tax revenue the government could otherwise obtain as a result of increased foreign investment. The government of Myanmar has indicated a series of priority targets in order to help fuel the country’s continued economic growth. However, to drive initiatives such as upgrading public infrastructure, increasing agricultural productivity, enhancing the power grid, and improving health care and education, the government will need to increase tax revenue in the coming years.

The increasing attention by the Organisation for Economic Cooperation and Development and tax authorities globally on base erosion and profit shifting presents a key opportunity for the government of Myanmar to incorporate anti-avoidance rules into its own tax regime. This will ensure that Myanmar stands a better chance of getting its deserved cut of system profits by adopting international transfer pricing standards and revenue recognition principles.

New taxes can also be introduced. There has already been some indication that the government of Myanmar may replace the current commercial tax system with either a value-added tax, or a goods and services tax system, which is in place in many countries around the world. However, such a tax places a significant burden on businesses and requires robust tax authorities to avoid abuse of any input tax credits and allow for good compliance.

Public education regarding taxation is something that should be considered, too. A successful campaign would have a potentially long-lasting impact.

As the economy of Myanmar grows and people become more affluent, tax contributions from the general population are expected to greatly increase.

There is, however, a risk that some may choose not to pay their fair share. It is thus crucial that Myanmar’s citizens realise how important their tax contributions are in supporting the country’s sustained development. The government also needs to demonstrate the proper application of such collections.

The government of Myanmar may also consider introducing a tax amnesty programme where people are encouraged to come forward to pay off outstanding tax liabilities with no penalties. Programmes that include the waiving of penalties or even payment of only a portion of the actual tax liabilities owed have been implemented in other countries such as Greece, Mexico and Spain.

Although such a programme will help to provide a one-off injection of tax revenue, it should ultimately be used to allow companies, as well as individual citizens, to start with a clean slate, thereby encouraging compliance with tax laws going forward. A subsequent strong enforcement of penalties would further enhance this.

The government of Myanmar has a great opportunity to bring about changes to its tax system in a sustainable manner. These changes will go a long way toward growing the national economy and helping the country fulfil its enormous potential. As a country opening up, rich in resources and with a large and young population, it is able to draw on the experiences and lessons of other countries. The journey ahead may be long, but with help from other countries, it may prove to be relatively smooth sailing.