On 24 September 2019, the Union Parliament enacted the 2019 Union Tax Law (“2019 UTL”). One of the major features of this law is the introduction of a tax amnesty for Myanmar citizens with undisclosed sources of income. The new law provides for a reduced rate of tax based on the taxpayer’s unassessed income. The tax rates can be as low as 3%.
In addition, the 2019 UTL also provides for updated tax rates on certain specific goods, introduces a gemstone tax for precious stones, and outlines changes to the commercial tax and income tax. This new law is effective from 1 October 2019.
In this client alert, we provide the salient features of the 2019 UTL:
1. Tax amnesty to citizens with undisclosed sources of income
The 2019 UTL introduces an income tax amnesty for citizens of Myanmar with undisclosed incomes or “income escaped from assessment.” The tax is payable by citizens who cannot show the source of their income that was used for buying, constructing, or obtaining any assets, and establishing a new business. The Internal Revenue Department (“IRD”) uses this measure to ensure that the money used by its citizens for purchasing an immovable property or material purchases came from a properly-declared source, and such money has been properly subjected to tax.
The 2019 UTL provides that tax rates will be as low as 3% for unassessed income up to MMK 100 million, 5% for income between MMK 100 million to MMK 300 million, 10% for income between MMK 300 million to MMK 1 billion, 15% of income between MMK 1 billion to MMK 3 billion, and 30% for income exceeding MMK 3 billion. Prior to the introduction of the 2019 UTL, undisclosed sources of income were taxed between 15% to 30%.
A comparison of the tax rates:
|Income (in MMK)||Old Tax Rate (2018-2019 UTL)||New Tax Rate (2019 UTL)||Decrease in tax rate|
|100 million + 1||300 million||5%||10%↓|
|300 million + 1||1 billion||20%||10%||10%↓|
|1 billion + 1||3 billion||30%||15%||15%↓|
|3 billion + 1 and above||30%||No change|
The tax amnesty encourages citizens who have undeclared sources of income to settle their unpaid taxes with the Government. For example, if a citizen has undeclared source of income of MMK 100 million, it will be required to pay only 3% of the assessed tax instead of 15% tax under the previous tax laws. However, if the citizen has more than MMK 3 billion of undeclared source of income, the taxpayer will still be subject to 30% tax similar with the old rate.
Citizens have one year starting from 1 October 2019 until 30 September 2020 to avail of the tax amnesty.
The rules are currently not clear how a taxpayer can apply for this amnesty, and further guidance is expected from the IRD.
In 2018, there was a proposal to provide a tax amnesty for citizens with undisclosed sources of income where the tax was previously unpaid or underpaid. However, the provisions on tax amnesty were omitted when the 2018 UTL was passed as there was a need for better public education on the tax amnesty during that time, and the previous tax amnesty provisions do not provide clear penalty provisions for citizens with undeclared source of income after the amnesty period.
2. Introduction of Gemstone Tax and Changes to the Specific Goods Tax (“SGT”)
The 2019 UTL provides updated SGT rates on certain specific goods, clarifies the determination of SGT for imports, and removes gemstones as a specific good subject to SGT, as well as SGT on export of natural gas.
Changes to SGT tax tier and rates
The 2019 UTL increases the SGT rates on cigarettes, cheroots, alcohol and wine (as is noted below).
|Previous tax rates (under 2018 UTL)||New tax rates (under 2019 UTL)|
|Various kinds of cigarettes||If sales price per pack of 20 cigarettes is:||If sales price per pack of 20 cigarettes is:|
|Sales price tier in MMK||SGT in MMK||Sales price tier in MMK||SGT in MMK|
|Up to 600||6 per cigarette||Up to 600||8 per cigarette|
|From 601 to 800||14 per cigarette||From 601 to 800||17 per cigarette|
|From 801 to 1,000||19 per cigarette||From 801 to 1,000||22 per cigarette|
|From 1,001 and above||21 per cigarette||From 1,001 and above||25 per cigarette|
|Cheroots||MMK 0.50 (50 cents) per item||MMK 0.75 (75 cents) per item|
|Various kinds of alcohols||If the liter value is :||If the liter value is :|
|Liters value tier in MMK||SGT in MMK||Liters value tier in MMK||SGT in MMK|
|Up to 1,000||122 per liter||From 200 to 1,000||170 per liter|
|From 1,001 to 2,000||366 per liter||From 1,001 to 2,000||424 per liter|
|From 2,001 to 3,000||609 per liter||From 2,001 to 3,000||707 per liter|
|From 3,001 to 4,000||853 per liter||From 3,001 to 4,000||990 per liter|
|From 4,001 to 5,000||1,097 per liter||From 4,001 to 5,000||1,273 per liter|
|From 5,001 to 6,000||1,341 per liter||From 5,001 to 6,000||1,555 per liter|
|From 6,001 to 8,000||1,706 per liter||From 6,001 to 7,000||1,838 per liter|
|From 8,001 to 10,000||2,194 per liter||From 7,001 to 8,000||2,121 per liter|
|From 10,001 to 12,000||2,681 per liter||From 8,001 to 9,000||2,404 per liter|
|From 12,001 to 14,000||2,681 per liter||From 9,001 to 10,000||2,686 per liter|
|From 14,001 to 17,000||3,778 per liter||From 10,001 to 11,000||2,969 per liter|
|From 17,001 to 20,000||4,509 per liter||From 11,001 to 12,000||3,252 per liter|
|From 20,001 to 23,000||5,241 per liter||From 12,001 to 13,000||3,535 per liter|
|From 23,001 to 26,000||5,972 per liter||From 13,001 to 14,000||3817 per liter|
|From 26,001 to 29,000||6,703 per liter||From 14,001 to 15,000||4,100 per liter|
|From 29,001 and above||60% of one liter’s value||From 15,001 and above||60% of one liter’s value|
|Various kinds of wines||If the liter value is:||If the liter value is:|
|Liter value tier in MMK||SGT in MMK||Liter value tier in MMK||SGT in MMK|
|Up to 750||81 per liter||Up to 750||81 per liter|
|From 751 to 1,500||244 per liter||From 751 to 1,500||244 per liter|
|From 1,501 to 2,250||406 per liter||From 1,501 to 2,250||406 per liter|
|From 2,251 to 3,000||569 per liter||From 2,251 to 3,000||569 per liter|
|From 3,001 to 3,750||732 per liter||From 3,001 to 3,750||732 per liter|
|From 3,751 to 4500||894 per liter||From 3,751 to 4500||894 per liter|
|From 4501 to 6000||1,138 per liter||From 4501 to 6000||1,138 per liter|
|From 6,001 to 7,500||1,463 per liter||From 6,001 to 7,500||1,463 per liter|
|From 7,501 to 9,000||1,788 per liter||From 7,501 to 9,000||1,788 per liter|
|From 9,001 to 10,500||2,113 per liter||From 9,001 to 10,500||2,113 per liter|
|From 10,501 to 13,500||2,600 per liter||From 10,501 to 13,500||2,600 per liter|
|From 13,501 to 16,500||3,250 per liter||From 13,501 to 16,500||3,250 per liter|
|From 16,501 to 19,500||3,900 per liter||From 16,501 and above||50% of one liter’s value|
|From 19,501 to 22,500||4,550 per liter|
|From 22,501 to 26,000||5,254 per liter|
|From 26,001 and above||50% of one liter’s value|
Determination of SGT upon importation of specific goods
The 2019 UTL clarifies the value of imported goods for SGT purposes. The new law states that the value of such imported goods will be the higher of the landed cost or the prescribed value by the Management Committee of the IRD (as determined through an issuance). Previously, the value of specific goods upon importation was based only on landed cost.
Introduction of Gemstone tax
Gemstones are now excluded from the list of specific goods subject to SGT. Effective from 1 October 2019, SGT will no longer apply on the importation, manufacture, and export of jades, ruby, sapphire, and other precious stones. However, gemstones will now be subject to Gemstone Tax.
The following are the tax rates applicable to the importation, sale, and export of gemstones:
|Types of Goods||Old Rate under SGT||New Rate under Gemstone Tax|
|Raw Ruby, Sapphire, and other precious stones (excluding diamond and emerald)||10%||9%|
|Finished gemstones of Jade, Ruby, Sapphire and other precious stones (except diamond and emerald), and the jewelries which entail Jade, Ruby, Sapphire and other precious stones (excluding diamond and emerald)||5%||5%|
|Products made with gemstone||NA||5%|
The tax for the import of gemstones will be based on the landed cost of the imported items. Meanwhile, the tax on the sale of gemstones will be based on the higher of the actual sales value or the value as determined by the Myanmar Gems Enterprise. It is not currently clear whether this valuation also applies to exports of gemstones.
Removal of SGT on export of natural gas
Another significant change on SGT is the removal of SGT imposed on export of natural gas. Previously, exporters of natural gas are subject to 8% SGT. Effective 1 October 2019, this SGT on export of natural gas will no longer apply. However, local sale of natural gas remains subject to 8% SGT.
3. Changes to Commercial Tax (“CT”)
Changes to CT exempt list
The 2019 UTL provides 42 types of goods and 32 services that are exempt from CT. The latest changes include:
- CT-exempt goods:
- CT exemption on certain milk products, yogurt and raw cotton.
- “Variety of corns and corn powder” previously exempted under the 2018/2019 UTL is now replaced by “seedless corn and various corn seeds”
- “Goods exempted from tax by Union Parliament due to requirements of the State” previously exempted under the 2018/2019 UTL is now rephrased to “Goods which are granted tax exemption by issuing notifications by Union Government with the approval of the Union Parliament subject to the requirement of the State.”
- CT-exempt services:
- CT exemption on post office services performed by the Union Government.
- “Services exempted from tax by Union Parliament due to requirements of the State” previously exempted under the 2018/2019 UTL is now rephrased to “Services which are granted tax exemption by issuing notifications by Union Government with the approval of the Union Parliament subject to the requirement of the State.”
Clarification on offsetting of input CT paid on purchase of gold jewelry
The 2019 UTL provides that CT paid on the purchase of gold jewelry (whether at the time of importation or local purchase) is not allowed to be offset with the output CT on domestic or export sales. Currently, the sale or importation of gold jewelry is subject to a lower CT rate of 1% based on sales proceeds (in case of sale) or landed cost (in case of importation).
Clarification on CT threshold and registration
The CT threshold remains at MMK 50 million, which will be based on the sales received during the next 12 month period, including the month when the business commences. Therefore businesses that exceed this threshold and are not under the CT exemption list must register for CT.
The new law provides that taxpayers with revenues under the threshold can register for CT. Previously, the option to register for CT was not available to taxpayers under the threshold.
Penalties for failure to issue invoices and attach CT labels on invoices
The 2019 UTL states that a taxpayer who fails to issue invoices to customers or fails to attach the correct CT labels (stickers) on the related invoices will be subject to penalties.
|Not issuing invoices to customers or incorrectly using CT labels (or stickers) on invoices.||
100% of the additional tax payable on the invoice amount plus a fixed amount per offense:
|Selling goods to customers without the corresponding CT labels (stickers)||100% of the value of the goods|
4. Changes to Income Tax
The 2019 UTL provides minimal changes to the income tax apart from the reduced tax rate for citizens with undisclosed source of income.
The granting of income tax exemption or relief by the Ministry of Planning and Finance now covers “income tax matters related to development of securities market.” Previously, it only relates to public companies that are listed in the Yangon Stock Exchange. This could mean that the granting of income tax exemption will not be limited to public companies only, but could also extend to activities that would help promote or develop the securities market of Myanmar.
Note: The new law appears to restrict the reliefs that can be deducted by an individual taxpayer or a partnership business when computing its income tax. Section 19 of the 2019 UTL qualifies that reliefs under Section 6(A) of the Income Tax Law can be allowed as deduction. This Section of 6(A) of the Income Tax Law covers only personal reliefs and allowances for spouse, children and parents. Previously, the 2018/2019 UTL made reference to Section 6 of the Income Tax Law, which also covers life insurance payments of the taxpayer and spouse, social security contributions, and qualified donations as allowed deduction when computing for income tax. Hence, the IRD should provide clarification on any restrictions of tax exemptions that are provided under these tax laws.
How we can help?
The 2019 UTL provides updates on a number of important tax matters, particularly on the reduced tax rate or amnesty for citizens with undisclosed sources of income. This tax amnesty is a major tax development in itself and is an opportunity that can be explored by taxpayers to correct any taxes that were previously not declared. The IRD is expected to issue guidance on amnesty procedures for taxpayers. Should you wish to discuss any of the issues in this client alert, please let us know.
Partner & Head of the Regional Tax Practice Group
Senior Tax Manager
The information provided in this email is for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.