Last week we talked about the basic tax rates in Myanmar and who must pay. The next thing any taxpayer wants to know is what’s included in my income and how can tax payments legally be reduced.
If you’re being paid for work in Myanmar, you’ll receive a paycheque every month from your employer. Let’s say it’s the equivalent of $4,000. Remember, it doesn’t matter where it’s paid, if you’re a resident of Myanmar, you owe taxes on it.
But what about fringe benefits? Let’s say your company gives you a car and driver and an apartment which together are worth $5,000 a month. For Myanmar taxes, your taxable gross income will be $9,000, not $4,000, because Myanmar taxes the fair market value of fringe benefits as income. We talked last week about exemptions for spouse and children. Are there any deductions from your gross salary that will reduce the amount you’re taxed on?
The maximum you can deduct is 25 percent of your salary while the basic allowance is 20 percent, with the caveat that the final allowance cannot exceed K10,000,000.
Here’s an example dealing with fringe benefits. We’ll calculate an employee’s taxable income. Let’s say you as an employee receive a monthly salary of $9,000 with no fringe benefits, making your estimated annual income $108,000. If we convert this to kyat with the current exchange rate of K962/USD your annual salary is K103,896,000. It’s important to convert the salary to kyat as taxes must be paid in kyat. Since the basic allowance is 20 percent we can calculate that you can deduct K20,779,200. Unfortunately this exceeds the cap of K10,000,000 mentioned above so you will only be able to take a K10,000,000 deduction.
Based on the above, we can now calculate that your taxable income will be K103,896,000 – K10,000,000 = K93,896,000. Individual circumstances such as dependents and life insurance can mean further deductions, as the 20 percent deduction is treated separately from other deductions.
You can also deduct life insurance premiums on worldwide life insurance and contributions to charitable organisations recognised by the Myanmar government.
In Myanmar, income taxes are withheld and then paid to the government by the employer. This means your employer must subtract them from your paycheques in order to make tax payments to the government. You are paid a net amount by your employer after this subtraction has taken place. The reason for this is to reduce the risk that individual employees won’t pay taxes. If an employee is paid a gross amount including what will be taxed, he or she could become bankrupt or leave the country, leaving the government without its taxes. Withholding is the mechanism that ensures the government will get its taxes, regardless of what you do.
After your employer withholds part of your monthly salary as taxes they must be paid over to the respective Township IRD (Internal Revenue Department) with a statement of what has been withheld within seven days of withholding. In practice, this is usually done every three months.
Your employer must provide an annual statement for all its employees of everything withheld and paid within three months of March 31, which is the end of the tax year. If the annual statement isn’t filed within the three month period, there is a penalty of up to 10 percent, at the discretion of the tax authorities.
All withheld taxes are credited towards the tax burden for the employee. After the annual statement is submitted, the tax authority issues form IRD (IT-8) “Notice of Demand for payment of tax under section 53 of the Income Tax Law,” which will let the employee know if he or she owes any more taxes. The IT-8 also tells the employee what penalties, if any, apply for late payments.
If the employee does not owe taxes, the tax authority will provide a form certifying that no more taxes are owed. In practice, tax officers do not issue individual returns but provide a tax record book for both Myanmar citizens and resident foreigners that is used to track tax payments during the tax year to the government. From the tax record book employees will know they owe no further taxes.
James Finch is a partner at DFDL Myanmar Limited, resident in Yangon. Kyaw Swa Myint is an advisor at DFDL Myanmar Limited’s Yangon Tax Business Unit.