We provide below an update on some of the recent changes in the tax landscape in Myanmar.
1. Clarification on the offsetting mechanism for commercial tax (“CT”) purposes
The Internal Revenue Department (“IRD”) recently issued two Notices clarifying the treatment of recording CT upon the sale and purchase of goods and services. Notice No. 2/2018 dated 11 October 2018 provides the CT treatment from the seller’s perspective (for output CT) while Notice No. 3/2018 dated 29 October 2018 provides the CT treatment from the point of view of the buyer (input CT).
According to Notice No. 2/2018, the seller must pay the output CT to the IRD within 10 days after the end of the month “when sales proceeds are received or when sales proceeds are to be received, whichever comes first.” Although not stated in these Notices, the first condition refers to the date on which payment is received while the second condition is generally interpreted as the date on which the invoice was issued. From this, the CT must be reported at the earlier of the date of actual receipt of cash or the date on which the invoice is issued. Meanwhile, according to Notice No. 3/2018, the buyer is required to recognize the related input CT only at the time that the CT is paid.
To illustrate: Assume that Company A (engaged in the business of trading appliances) sold microwave ovens at a cost of MMK 42 million (including MMK 2 million CT) to Company B on 14 April 2018. Company B paid the full amount on 14 June 2018.
In this case, Company A is required to report the CT within 10 days after the month of April and must submit a copy of the Form 31 to the IRD on the same month of filing. The original Form 31 will be issued to Company B only at the time of CT payment. Meanwhile, Company B will be able to claim the input CT paid only in the month of June 2018 (subject to Form 31 compliance).
Our understanding of the CT treatment is provided below:
|Output CT (on sales)||Input CT (on purchases)|
|Timing of recognition of CT||Output CT on the transaction must be remitted to the IRD within 10 days after the month when the invoice or related receipt was issued (irrespective of whether the transaction has been paid or not).||Input CT on the transaction must be reported in the month when payment takes place.|
|Form 31 requirement||The Form 31 must be prepared in triplicate, and a copy of the Form provided to the IRD in the same month of CT reporting. The original copy of the Form 31 will only be provided to the buyer once the payment has been settled.||
The input CT must be supported by the original Form 31 to be provided by the seller.
No offsetting shall be allowed in cases of input CT paid on unsold goods, damaged goods, fixed assets, and capital assets. The CT paid on unsold goods can only be offset when the related goods have been sold.
- Notice No. 2/2018 did not clarify the CT treatment for credit notes and those transactions that result in sales adjustments after the issuance of the invoice.
- Notice No. 3/2018 did not clarify the CT treatment in cases where the invoice was already issued in a prior year but the payment (as supported by voucher or bank confirmation) was only settled in the subsequent year. An argument can be raised that the related input CT should be reported following the actual payment date, irrespective of whether the related invoice was issued in the prior year. Nevertheless, this may still be a point of contention during an assessment given the absence of clear guidelines on the matter.
- Notice No. 3/2018 clarified that the excess input CT over output CT during the year will be deducted as business expenses when calculating the annual income tax due.
2. Bribes or similar payments to government officials as non-deductible expenses for income tax
The IRD, in its Notice No. 1/2018 dated 29 October 2018, clarified that bribes paid to public officials are not considered valid business expenses for income tax purposes.
This Notice defines “public officials” as: 1) government officials (including officials from outside Myanmar); 2) those with positions in the Legislative, Judicial, and Executive Branches of the Myanmar Government; 3) those who have been appointed to a Board or related Commission as organized by the Myanmar Government; and 4) those who work for public international organizations.
3. Clarification on the tax treatment during the transition period 1 April to 30 September 2018
Based on the confirmation letter that we recently received from the IRD concerning the tax treatment during the transition period 1 April 2018 to 30 September 2018, the IRD clarified that:
Only state-owned enterprises are required to adopt the new tax year effective 1 October 2018. This is in line with the provisions of the 2018-2019 Union Tax Law and the MOPF Notification 72/2018 dated 5 September 2018. In this case, they will be required to close their financial accounts for the six month period (from 1 April 2018 to 30 September 2018) and would be required to file their annual tax returns not later than 31 December 2018.
Previously, the Large Taxpayers Office announced that banks and financial institutions must adopt the new tax year starting 1 October 2018. However, as recently confirmed by the IRD, they have clarified that banks and financial institutions have the option of selecting their preferred tax year of reporting – whether to close their accounts using the six-month period (from 1 April 2018 to 30 September 2018) or to follow the regular 12-month period (from 1 April 2018 to 31 March 2019). In this case, banks and financial institutions must notify their respective tax office of their preferred financial year of reporting. To summarize:
|Type of taxpayer||Comments on the tax year of reporting|
|State-owned enterprises||Required to close their accounts for the six month period (ending 30 September 2018) and adopt the new tax year starting 1 October 2018.|
|Banks and financial institutions||Optional to close their accounts by 30 September 2018 or by 31 March 2019. Banks and financial institutions must notify the related tax office on their preferred year of reporting.|
|Other taxpayers (including private businesses, insurance companies and microfinance institutions)||Required to close their accounts by 31 March 2019.|
Taxpayers who are required and those who opted to close their financial accounts by 31 March 2019 will eventually follow a six month transition period from 1 April to 30 September 2019 in order to come into alignment with the new financial year of reporting in Myanmar by 1 October 2019. Therefore, effective 1 October 2019, all taxpayers will follow the same tax year of reporting (October to September of the following year).
- The transition period of 1 April to 30 September 2018 is considered as one full financial year from a tax assessment perspective and in determining the carry-over loss period. From a tax assessment perspective, this may be favourable to taxpayers as the six month period will be considered one full year when counting the statute of limitations or the period in which the tax authorities can conduct an assessment or investigation of the taxpayer. However, from an income tax perspective, this may not be favourable to taxpayers that have racked up substantial losses in the past three years, as the unutilized loss in the third year (prior to the six-month transition period) will be forfeited and may not be carried over. Under the Myanmar Income Tax Law, unutilized losses can only be carried over for three consecutive years following the year when the loss was incurred.
- Employees’ personal income tax is not covered by the transition period. All individual taxpayers, including those working for state-owned enterprises and banks and financial institutions that choose to adopt the new financial year, are still required to report their income on salary for the period 1 April 2018 to 31 March 2019.
The information provided here 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.