Tax Updates PwC Myanmar l Tax Services

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Reginald Dawson
5 years ago
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1 Amended Income Tax Law update for FY (i.e starting 1 April 2016) Tax Updates PwC Myanmar l Tax Services The Amended Income Tax Law (" the Amended Law") has been approved by the Parliament on 31 August 2016 and was published in the local newspaper on 1 September The Law is effective from the financial year (i.e. starting 1 April 2016). We set out the key changes in the Amended Law that may be relevant to you for your reference. Summary of key changes in the Amended Law Corporate Tax As you may be aware in 2015, the Companies Circle Tax Office was renamed as the Medium Taxpayers Office. The Amended Income Tax Law 2016 has formalized the name change by replacing the name Companies Circle Tax Office to Medium Taxpayers Office throughout the Law. PwC View: For your information, there are 2 main tax departments for corporate taxpayers, i.e. Large Taxpayers Office ( LTO ) and Medium Taxpayers Office ( MTO ). The LTO adopt the self-assessment system. It appears that the government would like more taxpayers to be assessed under the LTO as there will generally be an improved tax reporting and automated tax payment and collection system. In addition, LTO officers appear to assess the tax matters based on the existing tax laws which could provide reasonable and technically sound tax positions/treatments. Previously, Section 5(d) stated that where benefits in respect of income tax are prescribed in any other existing law, those benefits shall be allowed accordingly. The Amended Law has expanded this to state that where benefits in respect of income tax are prescribed under any law of the United Nations, Diplomats, Consulate, International Organisations, and Investment and Special Economic Zone Law, those benefits shall be allowed in accordance with such provisions. Notwithstanding the benefits in respect of income-tax prescribed under any other law except aforementioned laws, the assessment shall follow the provisions stipulated under the Union Taxation Law and Income Tax Law. PwC View: (a) In the past, based on current practice, in order to enjoy exemption under any law of the United Nations, Diplomats, Consulate, International Organisations, upfront approval is needed to be sought and it was not written in the law. With this change, the Amended Law makes it explicit. (b) In relation to the Investment and Special Economic Zone Law, in the past it was not written in the law but now it has been formalized under the Amended Law. This implies that the government would like to promote foreign investment.

2 Under the previous Section 8 of the Income Tax Law, the term property was used. However, this provision was very broad and the definition of property could be open to interpretation. The Amended Law has substituted the term property with rental fees from property. PwC View: This change appears to be a clarification to make sure rental from property is appropriately included in income. Clarification will need to be sought whether other income from property will be subject to tax. Section 11(b)(iii) of the Income Tax Law in relation to deductibility of expenses states that expenditure not commensurate with the volume of business shall not be allowed a deduction. Under the Amended Law, this has been expanded to include, irrelevant expenses and expense incurred not for production of the income. PwC View: Currently, non-deductible items include capital expenditure, personal expenditure, expenditure not commensurate with the volume of business, payments made by associated persons other than a company or a cooperative society to any other associated person, and inappropriate expenditure. Under the Amended Law, the definition of non-deductible items has been expanded to include irrelevant expenses and expenses incurred not for production of the income. The terms irrelevant expenses and expenses incurred not for production of the income are broad and could be subject to interpretation. However, the term expenses incurred not for production of the income could likely mean that the pre-operating expenses are not incurred for the production of income and would not be deductible. This could also mean that the tax losses incurred in the year that income is not generated would not be allowed to be carried forward. Section 16 in relation to the procedures and deduction for payment of corporate income tax and capital gains tax has substituted Section 16, sub-section (a) and (b) of the Income Tax Law under the Amended Law as follows: (a) Income-tax payable under Section 15 shall be the tax due as computed on the estimated total income of that year. Such tax: (i) Shall be paid quarterly and the tax payment shall be made within 10 days after the end of quarter in accordance with the prescribed procedures. (ii) Tax paid within the specified days as mentioned above in sub-section (i) shall be considered as the tax paid in the respective income year. (iii) If the gain is realized from capital asset, the estimated tax shall be computed on such capital gains and paid within 30 days starting from the date of the sale, exchange or transfer by any other means of capital asset. Corporate Income Tax Under the existing Income Tax Law, the advance income tax had to be paid before the end of the relevant quarter. Under the Amended Law, the advance income tax shall be paid within 10 days after the end of the relevant quarter. In other words, for example, where advance income tax for the last quarter is paid by 10 April 2017, this would be regarded as the advance income tax for the financial year ended 31 March 2017.

3 Capital Gains Tax Under the existing Income Tax Law, income arising from a capital gain shall be paid within 30 days starting from the date of the sale, exchange or transfer. Under the Amended Law, if a gain is realized from a capital asset, the Amended Law specifies that the estimated capital gains tax needs to be computed and paid within 30 days from the date of the sale, exchange or transfer. PwC View: Corporate Income Tax This change appears to provide a more reasonable timeline to allow the taxpayer to provide more accurate estimated tax payable. Capital Gains Tax The Amended Law remains unclear however if upon the final assessment of the capital gains tax there is an underpayment or overpayment of capital gains tax whether this will be subject to penalty or refundable respectively. Further clarification should be sought from the Myanmar tax authorities. Section 30(a) in relation to assessment and collection of tax has added a provision stating a person who is allowed to compute and pay the tax on the income that he earned based on the self-assessment under this Law. This appears to allow taxpayers to self-assess on the taxable income earned. PwC View: This is applicable to taxpayers under the assessment of the LTO. This could possibly mean that whilst currently only taxpayers under the LTO are under self-assessment system, this could be extended to taxpayers under the MTO in the future. Taxpayers may also volunteer to be assessed under the LTO subject to the discretion of the LTO. If taxpayers are assessed under the LTO, they can expect an improved tax reporting and automated tax payment and collection system. For example, the taxpayers will be able to prepare the tax vouchers by itself without having a need to go and obtain the tax vouchers from the tax office physically. The LTO adopts the Self-Assessment System and the LTO officers appear to assess tax matters based on the existing tax laws which could provide reasonable and technically sound tax positions/treatments. Section 31 in relation to agreements made between States has substituted, sub-section (a) of the Income Tax Law as follows: If the Union Government enters into an agreement with any foreign state or with any international organization relating to income-tax including Avoidance of Double Taxation Agreement or agreement for exchange of information on taxation or loan agreement at low interest rate, the terms of the said agreement shall be followed, notwithstanding anything contained in any other provisions of the Law. In the past, upfront approval from the Myanmar tax authorities had to be obtained in order to apply the provisions of the agreements between States.

4 PwC View: This change is positive and could promote foreign investment in Myanmar as it appears to honor the terms of the Double Taxation Agreements which are in line with international tax principles. However, certain tax benefits under the Double Tax Agreements may still need upfront approval from the Myanmar Tax Authorities. Clarification from the Myanmar tax authorities will need to be sought. However, specifically for agreements entered with any foreign state or any international organization relating to exchange of information on taxation or loan agreement at low interest rate, it appears that these provisions would be honored without prior written approval from the Myanmar tax authorities. Nevertheless, clarification would still need to be sought from the Myanmar tax authorities. Sub-section (c) of Section 37 in relation to refunds shall be added as follows: With regard to the refund, if the taxpayer requests to offset against the tax due under any of the income tax assessment or to consider it as advance income tax in the current financial year, the Head of Township Revenue Officer may proceed accordingly as requested by the taxpayer. The current Income Tax Law only provides a provision for refunds. But with the Amended Income Tax Law, this has been expanded to include a provision which allows offsetting tax. However, notwithstanding that it is not mentioned in the Income Tax Law, based on current practice, the Myanmar tax authorities generally allow overpayment of taxes to be offset against the tax due in future income years. The Income Tax Law states that it may be possible to claim a refund within one year from the date of receipt of the demand notice. However, in practice this is very difficult to obtain. PwC View: This appears that the taxpayers now have an option to either offset or obtain a refund. Section 44 (b) under the Income Tax Law states that the right to place marks of identification on the books of account or documents or to make extracts or copies therefrom in the course of entry into the premises and inspection thereof. Under the Amended Law, it has now been substituted as right to examine any accounts or documents kept in any systems, to place marks identification, to make extracts or copies of the whole system or some extracted contents, to record business operation in photos or videos while executing inspections in accordance with sub-section (a). PwC View: This change means that the Myanmar tax authorities now have the right to examine accounts or documents in any system and not just manual accounts or documents as part of the tax audit process. The term a penalty equal to fifty per cent of the amount of tax increased on account of the concealment in section 47, sub-section (b) of the Income Tax Law shall be substituted under the AmendedLaw with the term a penalty amount equal to one time of the amount of tax increased on account of the concealment. PwC View: The Myanmar tax authorities are seeking to improve tax collection and this change is part of the initiative to reinforce tax collection.

5 Personal Tax Section 5(a)(iv) specifies the classes of income that are exempt from tax which has been expanded to include pension and gratuity. PwC View: Clarification needs to be sought from the Myanmar tax authorities whether the pension has to be received inside or outside Myanmar to be exempt from tax in Myanmar. For your information, legally a gratuity is defined as a sort of award which is paid by the employer to the employee towards the gratitude for his long and meritorious service with the organization, at the time of retirement or termination. However, clarification should be sought from the Myanmar tax authority on the definition of gratuity and whether there is any prescribed service period. Under Section 6(a) and 6(c) of the Income Tax Law states that an allowance in respect of parents, spouse and children will be deductible against the total income tax of the individual. The Amended Law specifies that the parents, spouse and children must be living together with the taxpayer in order to qualify to the allowance. Prior to this, there was no provision in the law stating that the spouse and children must be living together with the taxpayer. However, based on an internal directive issued by the Internal Revenue Department, the parents, spouse and children have to be living together with the taxpayers. This requirement was not previously written in the law but merely stated in an internal directive. With the Amended Law this requirement is made explicit. PwC View: Based on this Amended Law, it appears that the Myanmar tax authorities are being more stringent with the claims for deductions made by taxpayers. Based on current practice, the tax authorities will typically request for the household registration certificate, marriage certificate, birth certificate and passport (for expatriates only) as proof that the parents, spouse and children are living together with the taxpayers. Section 9 of the Income Tax Law states that the tax shall be payable by any person under the head salaries in respect of the following income received or receivable by him from his employer: (a) salary, wages, annuity, pension, gratuity; and (b) any fees, commissions or perquisites received in lieu of or in addition to any salary and wages. The Amended Law has removed gratuity and perquisites from the definition of salary and is now read as The tax shall be payable by any person under the head salaries in respect of salaries, wages, annuity, bonus, award and any fees, commissions received in lieu of or in addition to any salary and wages received or receivable by him from his employer. PwC View: The Income Tax Law does not define award and perquisites. Clarification needs to be sought from the Myanmar on the definition of award and perquisites.

Contacts If you would like to discuss any of the issues raised, please get in touch with your usual PwC contact or any of the individuals listed below: Paul Cornelius Tax Partner +65 6236 3718 paul.

6 Contacts If you would like to discuss any of the issues raised, please get in touch with your usual PwC contact or any of the individuals listed below: Paul Cornelius Tax Partner Ding Suk Peng Tax Director This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers Singapore Pte Ltd, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it PricewaterhouseCoopers Myanmar Co. Ltd. All rights reserved. PricewaterhouseCoopers and "PwC" refer to PricewaterhouseCoopers Myanmar Co. Ltd or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate legal entity.

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