Myanmar continues to push tax reforms with the passage of five new tax laws. Notable changes include amendments to the personal income tax rates and their application; expansion of the scope of Commercial Tax (CT) on services; and adjustment to stamp duty rates.
On 28 March, the Union of Myanmar Revenue Law of 2014 and four other tax bills were signed into law and effective from 1 April 2014. The Revenue Law of 2014 essentially legislates and introduces changes to the rates for Income Tax and CT, which were previously determined based on Notifications by the Minister of Finance and Revenue. The other new laws include separate amendments to the Income Tax Law, Commercial Tax Law, the Stamp Duty Law and the Court Fee Act.
Below is a comparison of the salient modifications introduced by the new laws:
1. The Personal Income tax (PIT) rates and income bands have been changed. The top rate has increased to 25 percent from the old 20 percent. The income band rates have been adjusted. For instance, under the old law, the exempt income band was only up to K500,000, but now it has increased to K2,000,000 (Table 1).
2. The available exemptions for Myanmar residents having children and/or spouses have also been increased (Table 2).
3. Income by individuals from profession, business, property and other income are now subject to tax in the same way as tax on salary. Previously, such types of income were subject to an income tax of 2 to 30 percent. Under the new law, all these types of income are added together with salary and subject to the income bands and tax rates in Table 1.
4. Under the old income tax law, a person wishing to purchase immovable property was required to prove the source of the funds to be used for the purchase. If the individual cannot prove the source of the funds, a 30 percent tax on “income from undisclosed sources” would be applied to the purchase price.
Under the new Union Revenue Law, a person buying property for the first time will be granted a slight reprieve. “Income that has escaped assessment” will now be subject to a graduated rate of 3-30 percent of income tax for such first purchase. Subsequent purchases, however, will be subject to 30 percent (Table 3).
5. The new Union Revenue Law retains the same Corporate Income (CIT) rate of 25 percent that was applied under the old law and notifications. However, newly set-up small and medium enterprises shall not be subject to income tax for a period of three years or until the enterprise earns revenue in excess of K5,000,000, whichever occurs first.
6. The amendments to the Income Tax Law mentions “self-assessment” by the tax payer. In general, in the self-assessment system, the taxpayer bears the responsibility of declaring, computing and paying his or her own income tax. In this system, the assessment by the tax authority comes at a later time through a subsequent tax audit. Under the current practice in Myanmar, the taxpayer submits the tax returns, but does not pay until the returns are assessed by the tax officer and a payment order is made. This system can make payment and collection of tax rather time-consuming and inefficient.
It is unclear for now whether the inclusion of the term “self-assessment” will pave the way for a self-assessment system in Myanmar.
Commercial Tax (CT)
1. CT now applies to all types of services unless specifically exempted. This is reverse of the previous rule that CT does not apply to services unless specifically provided for. Thus, CT will be applied in a greater number of services. It is unclear, however, whether service providers can now claim CT input credits.
The services specifically exempt by the Union Revenue Law of 2014 are: house rental, car parking, life insurance, microfinance, health care, education, transportation of goods, services of employment agencies, banking, customs clearance, renting out objects such as tables, chairs or crockery for social functions, licensed slaughtering of animals, contract manufacturing, funeral services, container transport, child nursery, Myanmar traditional massage/massage performed by a blind person, moving services, services for which a road toll is charged, animal health care, services consisting in the provision of public toilets, outbound air transport services, services concerning culture and art, information technology and management consultancy services, and public transport services (bus, railway and ferry).
2. No CT shall be assessed from businesses in the cooperative sector or private sector if their sale proceeds or revenue from services do not exceed the amounts mentioned in Table 4.
3. Similar to the old law, CT generally applies to the manufacture and sale, trading and importation of all types of goods. Under the new law, there are still a number of goods exempt from CT when produced in Myanmar, but subject to CT when they are imported. These consist mostly of agricultural and other essential goods. There are also a number of goods that are exempt from CT irrespective of whether they are imported produced and sold or traded in the country. These include fertilisers, insecticides, medical equipment, textbooks, military equipment, among others.
4. Schedule 6 to the Commercial Tax Law identifies non-essential goods whose import or sale within Myanmar carries a higher rate of CT than the standard 5 percent applicable to most goods. The rates contained in Schedule 6 stayed the same except for the changes mentioned in Table 5.
5. Export CT applies to crude oil (5 percent), natural gas (5 percent), teak and hardwood logs (50 percent), jade, rubies, sapphires, etc. (30 percent) and jewellery made from jade, rubies, sapphires, etc. (10 percent).
6. Local entrepreneurs and state-owned enterprises get a break from CT. In order to encourage competition with imported goods, only 2 percent CT is levied on the proceeds from the sale of goods which are produced and sold by registered citizen entrepreneurs or production businesses owned by citizen entrepreneurs or state‐owned enterprises.
The Stamp Act has been amended in many respects. The most significant change is the amendment to Section 20 which pertains to the taxation of foreign currency denominated documents. Section 20 now reverts to the older rule of merely converting the foreign currency to Myanmar Kyat and applying the regular ad valorem rate. For most documents, the erstwhile rule of 1 percent rate for foreign currency denominated documents can be steep compared to documents denominated in Kyat. There are a few documents where the defunct 1 percent rate is lower, such as for instance conveyances which apply a 3 to 5 percent rate of SD. The most relevant changes to the Stamp Act are depicted in Table 6, 7 and 8.
Jack Sheehan is partner, Regional Tax Practice Group, and Bernard Cobarrubias is director, Regional Tax Practice, at Mekong Region-focused legal and tax firm DFDL. They can be reached at firstname.lastname@example.org and email@example.com respectively.