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Stricter Enforcement of Tax Collection on Rental Income: Positive Impact on The Real Estate Market?

According to the latest news, the Myanmar Internal Revenue Department (IRD) is aiming to ensure the enforcement of its tax legislation by increasing the number of taxpayers in the real estate market. An interview with an official of the IRD revealed that only 10 percent of landlords currently pay taxes on their rental income. Property owners who rent out apartments, condos, houses and land try to circumvent the system by paying taxes on a much lower value of the property than agreed with their contracting party or do not pay taxes at all.  It is obvious that this negatively impacts Myanmar’s economy and faith in the enforcement system. Small and medium size enterprises (SMEs) are especially struggling to start business in Myanmar due to high rental fees.

According to Myanmar tax laws, a landlord has to pay taxes if the rental income reaches more than K2 million ($2,000) a year. The taxation starts at two percent with progressive increases up to 25 percent, depending on the value of the property. The published tax reforms earlier this year stipulate “relaxed taxes” on property purchases. The former 30 percent income tax is still applicable for the purchase of immovable property, but on a one-time basis it is possible for the taxpayer to invoke progressive rates from three percent up to 30 percent. This reform should mainly benefit smaller property transactions by paying lower taxes. However, Myanmar tax laws are complex and there are landlords who are not familiar with their rights and duties to pay taxes.

Therefore, the IRD has now announced plans to proceed and better enforce its tax collection system on rental income. This shall also constitute an effort to generate more state income and better regulation of the real estate market in Myanmar. Furthermore, the government and the IRD are willing to take several steps to implement measures that increase awareness of the Myanmar tax system. With the announcement of a stricter approach on tax regulation there have been also reports on an IRD plan to work with Yangon City Development Council (YCDC) to collect data for the creation of a consolidated database of tax-evading individuals by compiling an accurate list of landlords. By holding seminars on the importance of taxes, and providing information on the tax system, the IRD wants to ensure that property owners become aware of their rights and duties.

Although the IRD already took measures, such as announcing its tax collection plans in newspapers, there has to be much more effort to ensure that tax on real estate transactions is paid. The price hike of the real estate market has so far only benefited property owners. Announcing stricter rules regarding taxes on real estate is a step in the right direction on behalf of the Myanmar government because it increases state revenue. However, as mentioned above a few more steps toward successful implementation of this system have to be done. Therefore, the IRD must collect clear data to ensure not only transparency, but also clarification in the system. As reported earlier this month, the IRD is planning to provide seminars on that matter and launched new specialised tax offices with experienced tax officers to provide high-quality services.

It is to be expected that the new enforcement plan shall also have a positive impact on the real estate market. With the opening of the country and the increasing inflow of foreign investment into Myanmar, rental rates in bigger cities like Yangon are rising to unrealistic rates in relation to the cost-benefit ratio. Additionally, the property price hike with rocketing rental fees makes Myanmar unattractive for many foreign investors. This also has a significant impact on local citizens with special regard to the poorer population in Myanmar.

However, the announced improvements, as well as the tax system reform by implementing stricter rules and penalties, one can expect a positive impact for the real estate market and also for Myanmar’s economy in general. Therefore, one can assume that this reform will not just “baffle” the price hike, but will also ensure investors continue to enter Myanmar’s market.  

Strohal Legal Group (SLG) is a law firm offering highly personalized services specializing in international and cross border business. SLG enjoys a well-established reputation across Europe, Southeast Asia and the Middle East. In Myanmar, SLG provides services under the name U Min Sein& Strohal Associates Law Firm.

The views and opinions expressed here are the author’s own and do not necessarily reflect Myanmar Business Today’s editorial opinion.

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