More tax laws planned
Myanmar plans to introduce more laws and regulations to increase its tax income over the coming years, sources said.
The Internal Revenue Department (IRD) currently sets polices under the Myanmar Tax Law and the Union Tax Law. Sources at the IRD said they will issue further notifications, if required, to add to the Myanmar Tax Law, while the Union Tax Law, which governs commercial and income tax rates, will be updated based on suggestions made in parliament.
“The department will create different laws that support efforts to stop tax avoidance, and make payers follow the procedures,” said a director of the department.
A Tax Administration Procedure Law is being drafted with the assistance of the International Monetary Fund. It will outline ways to ensure tax collection is as watertight as possible.
Once the draft is complete, it will be sent to the Minister of Finance, the Union Attorney General, the cabinet, the bill committee and finally to parliament for approval.
The IRD has plans to draw up additional laws, including a law dedicated to commercial tax, said the director.
It needs to become easier for officials to identify tax dodgers because, while the main channels are clear, companies are able to evade tax in multiple different ways, he said.
“We have found evaders everywhere. The most popular method is transfer pricing, but there are many other methods that we still need to identify.” Transfer pricing is price-fixing between different companies within the same group, so that prices can be set artificially low to avoid taxes.
For example, if a local alcohol manufacturer wants to sell his beer at K1000 a bottle, he can charge 60 percent tax to make his product K1600, said the IRD director.
Then he will set up another company to sell beer to the first company at K320 (K200 and 60pc tax). He will only pay K120 in tax but is able to sell the beer to the market at K1600.
“We are also aware that there are much more complicated methods of transfer pricing with many more transactions and third parties involved,” he said.
Some foreign companies also sell goods to Myanmar to avoid tax. A European company exporting through Singapore will be subject to double taxation, but if they trade through Myanmar, they are able to avoid this.
A department to research direct trade transactions has recently been formed in the Ministry of Finance head office, he said. “We need to set up more rules to increase the speed of tax reforms.”
U Win Myint, director at the Ministry of Commerce, said traders avoid taxes in a number of ways, including reporting artificially low prices, importing different goods to those on their licence applications or illegally transporting goods across the borders.
“We are currently checking goods without delay according to our facilitation policy, but we miss them sometimes,” he said.
The ministry has found many different discrepancies between documents and goods, including the model, the country of origin, the number or the type, all in a bid to avoid tax, he said.
Some traders evade tax by smuggling goods along the border – the Ministry of Commerce’s Mobile Team confiscated about K8 billion [US$6.2 million] worth of illegal trade in the 2015 fiscal year.
Last year, one watch shop was caught importing Swiss made brands from China and South Korea. Officials discovered that the watches reported at a value of $40 but in reality were worth between $100 and $600.
The IRD received around K4.3 trillion in tax income for the 2015 fiscal year – around K300 billion more than its target. The Ministry previously told The Myanmar Times that they hope for around K5 trillion by the end of the current fiscal year.
