Economic Overview
Myanmar, a lower-middle income economy with a GNI per capita of $1,455 in 2017, is one of the fastest growing economies in the East Asia and Pacific region.
The GDP growth rate for 2016/2017 was 6.4 percent, the same in 2017/18, expected to growing to 6.7% in 2018/19 and 7 percent in 2019/2020, mainly driven by services, industry and agriculture.
The country must continue to improve its investment climate, banking sector and strengthen its implementation capacity on major reform programs.
Burma now has a mixed economy with a private, state, and a joint private-state sector.
Agriculture, light industries, and other businesses are in the private sector. Heavy industries that require huge capital investment are in the state sector.
The economic reforms of the last decade sought to promote joint ventures between private Burmese and foreign firms. Therefore, foreign investments were once again encouraged with modest success.
– Myanmar’s GDP expanded by 7.7% in FY 2017/18 and is forecast 8% in FY 2018/19 on the back of improved global commodity prices and stronger demand from trading partners.
– Myanmar is part of the China-ASEAN Free Trade Area (CAFTA). It has entered into double tax agreements (DTAs) with the UK, Singapore, Malaysia, Thailand, India, Laos, Vietnam and Korea, and concluded an investment protection agreement (IPA) with Hong Kong.
– Myanmar’s exports increased by 6.9% to US$11.9 billion in FY2016/17, with imports rising by 3.7% to US$17.2 billion.
– Hong Kong’s exports to Myanmar increased by 55.8% YOY to US$179 million, while imports from Myanmar rose 26.6% YOY to US$49 million.
Myanmar is the seventh largest economy of the 10-member ASEAN bloc. It has a large service sector which accounts for about 46% of GDP, with industry and agriculture respectively accounting for 28% and 26% of GDP. Major sectors include agricultural processing, manufacturing, construction and transportation.
Key sectors in Myanmar
Agricultural Sector
Primary Sector: The agricultural sector provided employment to 70% of the country’s work force. Rice was the only major agricultural produce, covering, 60% of the total cultivated land area. If measured by weight, 97% of the total production is rice.
Some other major agricultural products include beans, pulses, sugarcane, sesame, groundnut, teak, and fish.
Myanmar’a government sees a lot of growth potential in this sector. For years, it has also lent money to farmers, although due to interest some do not find it interesting.
Manufacturing Sector
Secondary Sector: Myanmar’s manufacturing sector is characterize by slow growth. Only 7% of the country’s workforce is engaged in the industrial sector.
Petroleum, liquefied natural gas (LNG), and minerals are the major industries in the country. It has a wealth of gold, jade and gems, copper, tin and zinc.
Tobacco is also produced on a large scale by government-owned factories as well as cottage industries. Some other industries include food and beverages, electronics, electrical products, steel processing, chemicals, garment, metal and machine products.
Services Sector
Tertiary Sector: The services sector has 23% of the labor force and this sector remains weak in terms of growth.
Socio-economic conditions and poor infrastructure have crippled Myanmar’s tourism industry, which used to contribute a significant share to the country’s GDP at one time.
However, Myanmar is now participating in international travel trade shows and also encouraging domestic travel agencies, airlines and hotels to attract tourists. The banking sector is also suffering from tight controls that restrict the private sector’s access to formal credit.
Taxes in Myanmar
The main taxes levied by the Internal Revenue Department of Myanmar are the Corporate Income Tax, the Personal Income Tax and the Commercial Tax, as there is currently no Value-Added Tax.
Corporate Income Tax
Companies in Myanmar are generally taxed at a standard flat Corporate Income Tax Rate of 25%. It is applied to all income from business or professional operations, properties and other sources, such as capital gains.
Companies are considered resident in Myanmar if they are formed under the Myanmar Resident Act, the Myanmar Foreign Investment Law – MFIL – or other Myanmar law.
Branches of foreign companies are usually considered to be non-resident.
Since April 2015, the taxation rates of both resident companies and non-resident companies have been harmonized at 25%. A 10% tax on capital gains is also levied on both resident and non-resident companies.
Corporate tax incentives
Companies registered under the MFIL benefit from a tax exemption of five years as well as for the production of goods or services and reinvested profits. They also enjoy an accelerated depreciation, a 50% reduction of tax on export profits and other tax deductions on imported equipment and machinery. The Special Economic Zone – SEZ – law grants special tax incentives and advantages to favor companies setting in free zones and promotion zones.
These incentives include corporate tax relief for five or seven years, advantages for investors and reinvested profits, advantages for developers, exemption of import duties and taxes on certain goods.
Personal Income Tax
The Personal Income Tax rate in Myanmar is progressive from 0 to 25% depending on the amount of revenues.
It is applied to all employment income such as salary (including perquisites and benefits), revenues from profession, business, property and other income.
Foreigners are considered tax residents if they reside in Myanmar at least 183 days in a calendar year.
Myanmar citizens and resident foreigners, including foreigners working for MFIL companies, are taxed on their worldwide income. However, Myanmar citizens working outside of the country benefit from a tax exemption on salaries received abroad.
The Burmese personal income tax rate is progressive from 0% to 25% of yearly income as follows:
– MMK 0 – 2,000,000: 0%
– MMK 2,000,001 – 5,000,000: 5%
– MMK 5,000,001 – 10,000,000: 10% – MMK 10,000,001 – 20,000,000: 15% – MMK 20,000,001 – 30,000,000: 20% – Above MMK 30,000,001: 25%
Commercial Tax
There is no Value-Added Tax in Myanmar, but a commercial tax is levied on the turnover of the sales of goods and services.
It is usually applied at a standard rate of 5% on a range of goods and services produced or rendered in Myanmar, as well as on imported goods.
According to DICA, the country’s cumulative inward FDI reached US$62.6 billion as at July 2017. Major FDI sources were:
- The Chinese mainland – 30.3% of the total;
- Singapore – 27.4%;
- Hong Kong (12.2%).
About 58% of the FDI stock in Myanmar is tied to the sectors of oil & gas and power, while FDI in the sectors of transport and communication and manufacturing, accounted for 13% and 12% of the total respectively.
The law allows for 100% foreign ownership in non-restricted sectors and an increase in land lease duration.
It also grants foreign investors corporate income tax exemption for three years at a minimum, and exemption from or reduction of taxes on imported capital goods and raw materials.
Myanmar has the right “ingredients” and potentials for sustainable growth: The country offers natural resources and arable land in abundance – most importantly, however, Myanmar possesses a skilled, motivated and young population to realize the potentials and positive change.
Legal Benefits
Foreign investors granted an MIC Permit are generally permitted to enjoy certain benefits and guarantees under the Myanmar Foreign Investment Law that are not otherwise available to foreign investors registering business entities without an MIC Permit.
These include:
– Exemption from income tax for five consecutive years from the commencement of commercial operations;
– Opportunity to lease and develop land for a period not exceeding 50 years, but renewable for two terms of 10 years each; – Ability to engage in import-export activities; and
– A legal mechanism for repatriation of capital and profits.
The Myanmar Foreign Investment Law also expressly provides that recipients of an MIC Permit will not be nationalized during the term of their investment.
Investing in Myanmar
Investors that invest in these activities and create jobs, upgrade the technology & productivity of Myanmar industry will enjoy benefits such as 3 to 5 years tax exemption and long term lease on property.
Depending on the activities that you invest in foreign investors may be required to JV with local Myanmar citizen.
1. Education Services
- Private basic education school, technical, vocational and training school;
2. Export promotion industries
- Preference is for foreign investment with >80% export operation
- Garment, shoes and bag manufacturing
- Electronic manufacturing
- Myanmar agriculture – rice, maize, pulse, bean, etc
- Myanmar fruits – mango, avocado, water melon, etc
- Myanmar jewellery made from Myanmar jade, sapphire, ruby, gold, etc
- Processed metal products made from Myanmar’s mined metal such as lead, tin, antimony, copper, etc
- Myanmar designed furniture or crafts made from Myanmar wood or other natural resources
3. Import substitution industries
– Manufacturing of different types of vehicles and vehicle related fixtures and parts of machines
– Manufacturing of tractors and trailers
– Manufacturing of telephone and telecommunication equipment
– Production of machine and machinery equipment
– Manufacturing of electricity distributing and control apparatus
– Production of iron and steel
– Production of fertilizer
– Manufacturing of plastic raw materials, paper, emulated fibre, edible oil, medicine and cosmetics products
4. Logistic industries
– Dry Port Services
– Bonded Warehouses Services
– Highway Bus and Freight Terminals
– Warehouses and Wholesale Centers
5. Agriculture and its related services, value-added production of agricultural products
– Distribution of low-cost irrigation systems to rural communities (e.g. solar-powered, with instruction)
– Leasing of agricultural tools and machinery
– Distribution of high-quality seeds for higher yields
– Establishment of the production of fertilizers, crop protection chemicals etc
– Contract farming (i.e. direct sourcing from rural communities based on partnership agreements)
– Introducing value-added production / processing based on local agricultural produce
– Establish packaging / canning industry for agricultural produce
– Establishment of research and training institutions or demonstration farms on integrated agriculture, crop sequencing, fertilizer use, organic agriculture and agriculture-related business skill development
– Construction of temperature controlled warehouses and cold storages for fresh produce
– Microfinance, micro-insurance and trade finance services for farmers
6. Livestock production, breeding and production of fishery products
– Aquaculture of different types of fish, shrimp and prawn
– Fish food production
– Fish and seafood processing facilities
– Cooling, canning and packaging facilities
7. Power sector
– Construction of medium to large-scale hydro and gas-fired power plants in Public-Private-Partnerships
– Investments into the transmission system (e.g. high-voltage transmission lines between the North of Myanmar and Yangon)
– Realization of small-scale hydro-power projects e.g. to supply a village tract
– Establishment of solar energy farms and wind power farms
– Provision of efficient and practical solar-power kits to communities currently off-grid as well as of solar-power based solutions (e.g. solar- powered pumps, solar lighting)
– Upgrading of the current power infrastructure in urban centers and industrial zones
– Import, storage, wholesale, distribution and retailing of petroleum products
8. Manufacturing
– Labor – intensive industries in second-tier cities in production of garments and shoes or assembling of toys and stationary articles
– Agro-processing industries at the locations of agricultural produce in rural areas (see section on agriculture)
– Production of building materials strongly demanded by the national construction industry (e.g. cement, bricks, steel, glass, paints, doors)
– Gemstone processing industries (e.g. jade, sapphires, rubies) to establish value-adding production such as design, cutting and polishing
– Capital-intensive industries (e.g. automotive, land machinery) particularly at locations with good access to international and national markets (e.g. SEZs)
– Wood-processing industry particularly based on hardwood and bamboo (e.g. furniture production)
– Paper and cardboard industry
– High-tech industries (e.g. in Yangon, Nay Pyi Taw, Bago and Mandalay) based on local, regional and global demand and the opportunities through the proximity of international airports
– Chemical industries (e.g. pharmaceutical and plastic articles) based on local and regional demand
– Industrial services, e.g. waste water management, recycling, training
9. Infrastructure Development
– Road, bridge and railway construction, airports, ports
– Establishment and retrofitting of industrial parks and supportive infrastructure
– Logistics infrastructure
10. Extractive Industries (Minerals/Oil & Gas)
– Exploration and feasibility studies for projects in mining as well as oil and gas
– Offshore and onshore opportunities for the exploration and extraction of oil and gas
– Establishment of petroleum-based industrial, processing and supportive facilities (e.g. refineries, fertilizers, LPG, LNG)
– Value-added production based on natural resources
11. Forest-based industries
– Establishment of wood-processing industry (e.g. furniture production)
– Rubber-based industries
– Expansion of bamboo forests and bamboo-based production
– Teak and hardwood plantations
– Sandalwood-processing industries
12. Real Estate & Construction
– Realization of projects for affordable housing in Yangon, Mandalay and second-tier cities in all states and regions. Nearly 20,000 low – cost and affordable apartments are planned only in Yangon, Pathein and Mawlamyine in FY 2015-16. Demand is to increase rapidly.
13. Tourism & Hospitality
– Exploring new high-potential investment locations in hospitality and tourism
– Developing eco-tourism (e.g. development of eco-tourism oriented hotels and lodges along with respective activities such as trekking routes or tours)
– Building cultural and community-based tourism (e.g. development of shops for the sale of locally produced cultural artefacts)