Aug 23, 2011

Finance Ministry widens tax cuts

President U Thein Sein said the depreciation of the US dollar had “dealt a blow to some exports” during his speech to economic and social leaders in Nay Pyi Taw on August 17.

He added that “ways and means are being sought to ease the crises”.

In the past week the government has lived up to the president’s words and announced three cuts to export and income taxes to assist people affected by the weakening of the US dollar.

The most recent measures came on August 19 via the state-run New Light of Myanmar newspaper, which featured front page announcements from the Ministry of Finance and Revenue and signed by the minister, U Hla Tun.

The first was a reduction to export taxes for garment cutting, making and packing operations from 10 percent to 2pc. The second announcement was a reduction in income taxes for foreign currency earners, also from 10pc from 2pc. Both reductions will be in place until February 18 next year.

The measures, which took effect from August 19, follow cuts to export taxes on seven basic commodity types from 7pc to 2pc, effective from August 15 for six months, as reported by The Myanmar Times last week.

Associate professor of economics at Macquarie University, Dr Sean Turnell, described the measures as “positive policy moves” but warned that they would be outweighed by the weakening US dollar.

“The tax reductions will not be sufficient to compensate for the foreign exchange losses,” he said on August 19.

“The main thing [the government] needs to do is get the fundamentals right in terms of policy [such as] reducing the budget deficit and removing some shackles in terms of the absurd restrictions in so many areas, and improve infrastructure such as electricity, ports, rail and roads, which would help keep costs down against the rising kyat,” he said.

A Ministry of Commerce official in Yangon said the income tax reduction would lessen the burden for people earning dollars or Foreign Exchange Certificates.

“Seeing money flowing will be better for the market and the trade environment, even thought it means that less money will go to the government,” he said.

He said the US dollar’s value internationally had fallen by about 10pc in recent weeks as a result of the financial trouble in Europe and the United States, while the decrease had been about 30pc here.

“Even though there has been some tax reductions here I don’t expect that commodity prices will rise significantly,” he said.
Economist U Khin Maung Nyo said the cut to income taxes would probably encourage Myanmar expats abroad who remit money home to use the banks instead of illegal hundi networks.

“I’m watching to see what the impact will be because it’s too early now but I expect there will be many positives from these announcements,” he said.

Dr Turnell also addressed the issue of remittances, saying: “The change in tax of overseas incomes is a step in the right direction but if such moves are to work in driving funds back into the formal economy … they’ll need to fix the banking system too.”

An official from one of the government-run banks said the income tax reduction was needed to protect nationals paid in foreign currencies

“Nobody abroad uses the Myanmar Foreign Trade Bank (MFTB) to remit money and as a result, the government doesn’t get that tax anyway. The decision to cut income taxes benefits both the government and private sectors,” he said.

He added that he expected further economic measures would be unveiled by the government in coming months.
Dr Aung Htun Thet, a senior advisor and coordinate in the UN Resident Coordinator’s office, said the latest measure provide encouragement for people across several sectors to work harder.

“This is a big change … most people think this will reduce the government’s income but in my opinion it won’t do that at all. These reductions will reward people for working hard, which in turn increases the government’s income,” he said.

Dr Maung Maung Lay, an economist and vice president of the Union of Myanmar Federation of Chambers of Commerce and Industry, said many business associations had been lobbying the president to implement measures such as the latest round of tax cuts.

However, he warned that the cuts might further strengthen the kyat.

”Generally speaking, the steps will alleviate some of the symptoms [for foreign currency earners and exporters]. But as the dollar is still weak and most exporters are not that happy.

“The political climate seems to be calming down and that may make the kyat even stronger.”

Source: Myanmar Times