New economic legislation to facilitate economic growth in Myanmar

 

The government of Myanmar has passed a wide range of legislation aimed at economic reform since 2010. While much remains to be done, the body of new law on the books is substantial, covering areas from lighthouses to central banking. The new government under the National League for Democracy has been careful in introducing its own legislation, but it has been implementing much of what was passed before it took over.

Incremental Advances

Some of the new laws are incremental in nature, dealing with the loose ends inevitable in the transition from military to civilian government. These include the Pesticide Law, the Plant Variety Protection Law and the Law Amending the Myanmar Lighthouses Act.

However, most laws passed recently address subjects of importance to the development of the economy. While the previous administration was controlled by the military, it was nevertheless reformist. It wrote legislation dealing with taxation, finance, labour and foreign investment, covering much of what has been urged by international organisations. In most cases the new laws have been supportive of free enterprise. They have made commerce easier and more stable, and have encouraged more equitable treatment.

The Shops and Establishments Law was passed in 2015, replacing the 1951 Shops and Establishments Act. Under the new law, the entities in question may remain open for two additional hours per day, and can now close at 11.00pm rather than 9.00pm. Shops may not open for business before 5.00am. Establishments are permitted to remain open 24 hours a day with government permission. Overtime hours and working conditions are also covered by the Shops and Establishments Law. Workers cannot be forced to work for more than eight hours a day or 48 hours per week, but they can voluntarily choose to accept up to 12 hours a week of overtime.

In 2015 Myanmar set a minimum wage. Workers are to receive MMK3600 ($2.92) per eight-hour day, from September 2015. The level is roughly a 450% jump from what some workers had been receiving previously. Myanmar’s wages are now higher than those in Bangladesh, but still lower than those in Vietnam and Thailand. While the move was criticised by some, who say the rate is still too low, international firms in particular were supportive, noting that industrial action is more common in markets where earnings are below living-wage levels.

The Condominium Law was also passed in 2016, opening up opportunities for international investors. Under the legislation, which had been in the works for three years, foreigners are now allowed to own 40% of the units in a residential building. Some conditions must be met: the land under the project must be collectively owned; the project must be approved as a condominium project by the Ministry of Construction; it must be on a piece of land at least 0.2 ha in size; and the building must be more than six storeys tall.

In January 2016 a new Arbitration Law was enacted, replacing the previous law from 1944. Myanmar signed the New York Convention in 2013, but enforcement proved to be difficult. The 2016 law should make it easier to get foreign judgments recognised and will give effect to the treaty. Based on the UN Commission on International Trade Law’s Model Law on International Commercial Arbitration, the new law is seen as improving the business climate in the country, as it will bring confidence that disputes can be fairly settled.

Fundamental Importance

Of most interest to international investors are a number of new laws which are fundamental in nature. They deal with issues that must be addressed if Myanmar is to reform effectively, such as tax, foreign direct investment (FDI) and financial institutions.

Tax is a major issue, one that has caught the attention of international organisations advising Myanmar. The IMF has said that the authorities need to focus on tax collection, which as a proportion of GDP is less than 10% – far behind regional peers. The fund attributes this to a narrow tax base, excessive tax incentives and poor administration, and has called for a reduction of incentives, the introduction of a value-added tax and reform of the way extractive industries are taxed.

Much has been done already to rationalise the system. The Union of Myanmar Revenue Law was passed in 2014 along with four other tax-related bills. In it, the individual income tax rate was changed and the exemption increased. A number of old taxes were done away with or made more fair. The commercial income tax was maintained at 25%, but small businesses are exempt for a period. Self assessment was also introduced. The IMF noted the introduction of self assessment for some taxpayers, but said more resources should be committed to tax collection. It added that self assessment should be extended to more taxpayers only after procedures have been improved.

Union Tax Law

The Union Tax Law passed in 2016 increases the personal exemption from MMK2m ($1625) to MMK4.8m ($3899), but overall keeps the major rates unchanged. It only adjusts the commercial tax for some goods, with cigarettes now taxed on a per unit basis, reduces the commercial tax on some services – such as domestic airlines, which are now taxed at 3% – and raises the commercial tax on a number of exported items. The number of goods exempt from commercial tax was increased from 79 to 86, while the number of services exempt was increased from 23 to 29.

A 5% commercial tax on telecoms operators went into effect on April 1, 2016. The tax had been set for June 2015 but was delayed. While seen by some as a threat to growth in one of the country’s most successful sectors, the money collected will be channelled towards health, education and transportation, the government has said.

FDI

Changes have been made regarding FDI. Notification 26/2016 formalises the practice of requiring foreign investors to gain permission from the relevant ministry before doing business. Under the new Myanmar Investment Law, the Myanmar Citizens Investment Law and the Foreign Investment Law were merged. Tax holidays in the major cities have been shortened from five years to three. Investments in moderately developed areas attract tax holidays of five years, while those in the least developed areas will receive seven-year tax holidays. Tax incentives will no longer be automatic, and must be applied for. Most significantly, the law introduces a new form of approval, the Myanmar Investment Commission (MIC) endorsement. If a company is not in a restricted category, it will not have to apply for a permit from the MIC. All it will need is an endorsement, which is obtained in a streamlined process. The law was welcomed by the international community, though it was noted that much will depend upon how the MIC interprets the regulations.

Foundation For Finance

A new Financial Institutions Law was passed in March 2016, replacing the Financial Institutions Law of 1990. It promises to help make the economy more stable, calling for banks to keep 5% of customer deposits at the central bank and minimum capital of MMK20bn ($16.2m). It spells out what should be done in the case of weakness in the banking system, which will help avoid the use of the arbitrary measures imposed during past banking crises. The law also calls for higher levels of transparency.

While the sector objected to some of the capital levels, as smaller institutions might be unable to meet the requirements, the central bank felt that the requirements would be good for the economy.

 

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The Report: Myanmar 2017

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