Viewpoint: U Win Thin, Chairman, Win Consulting
Myanmar’s Internal Revenue Department (IRD) is undergoing tax reforms by gradually introducing an income tax self-assessment system and broadening the tax base to get revenue to lower rates, particularly indirect taxes, much like in neighbouring India and Malaysia.
When commercial tax (CT) was introduced in 1990 it had a mix of features from the goods and services tax (GST) – taxes collected by the seller from end users – and taxes on producers and importers to regulate consumption. As in any taxation system, the regulatory authorities were balancing two main objectives: fairness, on the one hand, as embodied by imposing a uniform rate of value-added tax (VAT) or GST on all consumers; and the regulatory feature, on the other hand, whereby essential goods and services see little to no tax, and those that endanger health, such as alcoholic beverages, are met with heavier taxes.
GST was only applicable to buying and selling, allowing the offset of input tax paid by the first buyer to the subsequent buyer for the avoidance of double taxation. In cases where the unit bought was then transformed into a different unit of sale by the second buyer, identifying the portion of the tax paid in the second buyer’s unit of sale was complex, and thus confused taxpayers.
In 2016 the excise feature of the CT was separated and enshrined in the new Special Goods Tax (SGT) Law. In Myanmar GST is envisaged to remain in CT Law. However, the original CT Law has not been restructured explicitly to place the duty and responsibility (burden or incidence) of the tax on the consumers through collaboration of the sellers. After the separation of the two features with the new SGT regime, the public expected that there would be a very clear future tax administration. However, some misconceptions in the administration of CT still persist because the old CT Law keeps the responsibility of CT assessment on the seller instead of putting it on end users. Moreover, further confusion arises from the fact that all the three tax regimes – income tax, CT and SGT – are being administered by the same department: the IRD. The CT Law definition of revenue receipts was envisaged to place the duty of collection of both cash sales and credit sales on the seller. It also has provisions requiring the filing of quarterly and yearly returns, and ensuring that all sales invoiced to be collected by the seller are duly collected and turned over to the IRD without any delay.
The IRD’s tax administration officers should have comprehensive knowledge of the mechanisms surrounding CT payment and the roles of all the players involved in the process, including the ultimate taxpayer and the seller. Once the seller complies with his or her duty of collecting the CT and remitting it to the IRD, this duty is completed and, unlike income tax, no further burden should be imposed on him or her other than the requirement to file quarterly and annual returns on sales. If the seller does not comply, he or she will be liable to pay the defaulted CT and a nominal penalty. This should not be viewed as tax liability but rather as a penalty for the failure of duty to comply with the tax law.
By interpreting the word “receivable” to include future receivables before they have been invoiced, an officer applying the CT Law issued a notice of demand to the seller, which required the payment of CT on premature revenue recognised under the accounting standards of income tax law, together with the penalty for not paying the CT promptly upon recognition of accrued revenue, even though the seller was paying CT on regularly issued invoices, in addition to a clarification already given by another officer of the same IRD.
When an appeal case was sought, the right to appeal was denied on the grounds of inability to pay or furnish collateral security for payment of the CT and the penalty in full. Instead of only amending the CT Law to remove the excise tax feature, the authorities should have redrafted the new law entirely, starting by changing the name of the tax into either GST or VAT, in order to depict the true nature of the tax, which is actually an indirect tax imposed on individuals and not on businesses.
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