Economic overview
According to most observers, the decision by the Burmese junta to extend the state of emergency for another six months is an act that demonstrates its great weakness. The decision was made by General Min Aung Hlaing, chairman of the State Administration Council (SAC) and Supreme Commander of the Burmese Armed Forces, on February 1, 2023, two years after the overthrow of the government of the National League for Democracy (LND ) by Aung San Suu Kyi. The latter is currently in prison with a sentence of more than thirty years: an undeclared life sentence.
In the first place, the prolongation of the emergency conflicts with the same Constitution wanted and written by the military in 2008 which, paper in hand, provides for elections after a maximum of 24 months from an “institutional cleaning” operation. Secondly, precisely the indirect admission of not being able to hold elections demonstrates how little effective control of the junta over the country is. The percentages that go around, as happened during the war against the Taliban in Afghanistan, are relatively reliable but what is certain – and we have been able to see it with our own eyes – is that the only viable road is on the Yangon-Naypydaw-Bagan route, i.e. along the Irrawaddy. The junta controls the major cities but has serious difficulties in the countryside. In September 2022 the civilian shadow government (National Unity Government-Nug) declared that its People’s Defense Forces (Pdf) and allied ethnic revolutionary organizations (Ethnic Armed Organization-Eao or Ethnic Revolutionary Organization-EaO as the Nug prefers to call them) they have effective control of more than half of the country. The junta itself has admitted that it has stable control over 72 of the country’s 330 townships, a whopping quarter of Burma’s territory. According to NLD sources, it would have also lost 90 military bases.
The Nug for its part hopes for a breakthrough after President Biden signed the Defense Authorization Act for Fiscal Year 2023 on December 23, 2022 which in the part relating to Myanmar effectively recognizes Nug, Pdf and Eao and their right to have financial assistance even if only for technical and non-lethal support. The NLD hopes for an interpretation that allows at least the provision of advanced interception systems so as to be able to prevent air raids. In the expectation that the United States and the chancelleries that refuse to recognize the junta (as well as Italy) decide to consider the Nug as the legitimate government of the country.
Main sectors of industry
The goods mostly travel across the Burmese-Thai border. The main trading partners are Thailand, China, India, Japan, Singapore and Malaysia. ¾ of the population cultivates the land and only 10% work in the industrial sector.
As far as agriculture is concerned, the primary crop is rice, but in the northern regions, which are drier, other cereals are grown (wheat, millet, sorghum), potatoes, legumes and sugar cane. Opium cultivation is widespread in the northeastern mountains, near the borders with Laos and Thailand. Cultivated lands are 14% of the total territory, rice cultivation is practiced on 2/3 of the arable lands and the mechanization of agriculture is only just beginning.
There is also a substantial income from cattle breeding, as well as from fishing. The forests of Tenasserim, and of the Karen and Shan states, provide precious timbers, including teak, of which Myanmar is the world’s leading producer, and then bamboo and pynkado. There are also large rubber crops along the Tenasserim coast.
There are discrete oil reserves found in the coastal areas and in the central area; an oil pipeline connects the Syriam and Rangoon wells for 400 km. Important is the extraction of natural gas along the Irrawaddy and on the coast of the Gulf of Martaban. Lead, zinc, tin and tungsten are then extracted. Relevant revenues come from the export of rubies (extracted in the Mogok mines), which in Myanmar are highly prized and are considered among the best in the world. The industries are not very developed: there are textile and food plants but also heavy industries such as cement, metal and war.
Tourism could be an excellent way for the economic recovery of Myanmar, especially thanks to the temples of Pagan and a lot of work is being done in this direction.
Taxes in Myanmar
Resident nationals and foreigners are taxed on their worldwide income under the Myanmar Income Tax Act.
Non-resident foreigners are taxed only on income derived from sources within Myanmar.
Personal Income Tax (PIT)
Individuals carrying out a commercial, industrial or professional activity in Myanmar are subject to tax on their taxable income. Taxable income is given by gross income net of deductible amounts and exempt income. Expenses are generally deductible to the extent that they are incurred for business purposes in order to generate gross income. Profits from the sale, exchange or transfer of capital assets are generally subject to capital gains tax; the rate is 10% for residents and 40% for non-residents.
The Myanmar tax system provides for an annual flat-rate deduction of 20% for all income classes, which however cannot exceed 10 million MMK; an annual deduction of MMK 500,000 for a spouse and an annual deduction of MMK 300,000 for children under 18 who have no income and children over 18 who are students.
Taxable income
Taxable income consists of profits and and is calculated by subtracting the exempt income and the amounts allowed as deductions from the gross income. In general, expenses are tax deductible if they are incurred entirely and solely for the purpose of generating income. Operating losses can be carried forward and offset against profits in the following three consecutive years.
Capital gains are subject to tax at a rate of 10% for resident and non-resident companies. Capital gains arising from the sale, exchange or transfer of capital assets in the oil and gas sector are taxed at the rate of 40-50% of the profits.
Resident companies must declare capital gains tax within one month of the date of the sale, exchange or transfer of capital assets.
Finally, it should be noted that the dividends distributed by the companies are not subject to withholding tax.
Taxable income
Taxable income consists of profits and and is calculated by subtracting the exempt income and the amounts allowed as deductions from the gross income. In general, expenses are tax deductible if they are incurred entirely and solely for the purpose of generating income. Operating losses can be carried forward and offset against profits in the following three consecutive years.
Capital gains are subject to tax at a rate of 10% for resident and non-resident companies. Capital gains arising from the sale, exchange or transfer of capital assets in the oil and gas sector are taxed at the rate of 40-50% of the profits.
Resident companies must declare capital gains tax within one month of the date of the sale, exchange or transfer of capital assets.
Finally, it should be noted that the dividends distributed by the companies are not subject to withholding tax.
Investing in Myanmar
The Myanmar authorities have exempted foreign investments and companies operating in special economic zones from the law requiring the conversion of foreign currency into the local kyat. The announcement follows a series of complaints from the international community, which prompted the Burmese military government to draw up a list of exemptions: the list also includes the embassies and United Nations personnel in the country.
The exemption of production activities in the special economic zones benefits Japanese companies operating in the country, mostly concentrated in the Thilawa special economic zone, near Yangon. The Thilawa Special Economic Zone is the only one of the country’s three currently operating, and about half of the 112 companies operating there are Japanese.
In April last year, Myanmar’s central bank ordered the country’s banks to convert all foreign currency deposits into the local currency, the kyat. This was reported by the local press, according to which the forced conversion order was notified to individuals and companies and has already been in force since Monday 4 April.
The central bank order also stipulates that any sending of foreign currency abroad can only take place with the explicit approval of the military government. With the decision of the central bank, the junta begins to discount a shortage of foreign currency, necessary to import energy, armaments and other essential goods and to service the external debt, which amounts to about 10-11 billion dollars.