Myanmar urged to strengthen tax revenues

Myanmar has been urged to strengthen its tax revenues, in light of widening budget deficits, according to the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).

With increased expenditures, the country’s budget deficit widened to 4.9 per cent in 2013, from 3.9 per cent of gross domestic product (GDP) in 2012.

“Going forward, strengthening tax revenues is a priority,” ESCAP said in its annual report “Economic and Social Survey of Asia and the Pacific 2014”.

The International Monetary Fund estimate puts Myanmar’s tax-to-GDP ratio at about 7 per cent and non-tax revenues including net transfers from state enterprises at 15-16 per cent.

The Escap report showed that the fiscal budget was equivalent to one-third of GDP in 2013. The country is spending more on education and healthcare services. The budget for the two areas was raised by 30 per cent and 78 per cent respectively, albeit from a low base.

Higher social spending is expected to help to enhance social outcomes. For example, Myanmar’s average years of schooling stood at 3.9 years in 2012, compared with an average of 7.2 years in East Asia and the Pacific. The Rural Development and Poverty Reduction Strategy aims to bring poverty incidence down to 16 per cent by 2015, from 26 per cent in 2013, in line with the Millennium Development Goals.

Fact box

– 7.8% GDP growth anticipated for 2014-15 fiscal year

– 2013 current account deficit at 4.9% of GDP

– 2013 FDI at 25% of GDP

– Budget deficit up from 3.9% of GDP in 2012 to 4.9% in 2013

– Efforts in place to reduce poverty rate from 25% in 2013 to 16% in 2015

To save budget for social investment and boost revenue, the government is promoting private-sector participation in infrastructure projects. In 2013, telecommunication licences were granted to two foreign companies to provide the full range of public fixed and mobile services nationwide. This should help enhance the telecommunication facilities, which are still limited. For example, the mobile phone penetration is estimated at only 11 per cent in Myanmar, the fourth-lowest rate in the world.

Amidst a surge in new businesses, particular attention was given to environmental and social impacts. The Environmental Conservation Law of 2012 stipulates that every company doing business in Myanmar must carry out environmental and social impact assessments.

Myanmar is expected to see an economic growth rate of 7.8 per cent in the 2014-15 fiscal year, driven by new investments, compared to 7.5 per cent in the previous fiscal year.

“Improved business confidence following recent reforms has attracted foreign investment in telecommunications, infrastructure and garments, among others. This was reflected in increased capital imports, new business registrations, and rapid credit growth in the private sector.”

Aside from budget deficit, the country is also seeing a widening trade deficit, but the survey showed that foreign direct investment (FDI) should help offset the trade deficit.

At present, natural gas exports remained strong. A surge in capital goods imports to support new investments contributed to a widening of the current account deficit in 2013, to 4.9 per cent of GDP from 4.4 per cent of GDP in 2012.

FDI inflows have increased steadily in recent years, to US$2.6 billion in 2013 from less than $1 billion in 2009. Still, as a share of GDP, FDI stocks stood at about 25 per cent in 2013, compared with 60 per cent in Cambodia and 28 per cent in Lao PDR.

Moreover, FDI is highly concentrated in natural resource sectors. There is ample room to boost FDI in non-resource sectors as economic reforms continue. In particular, integration into regional and global supply chains would require FDI to flow into manufacturing.

The report showed that Southeast Asia’s overall economy is set for slower growth this year: 4.6 per cent compared to 4.9 per cent last year. Developing countries in Southeast Asia are forecast to grow at an average of 5.8 per cent in 2014, up from 5.6 per cent last year. This marks the third successive year of growth below 6 per cent. By comparison, growth averaged 9.5 per cent in the pre-crisis years of 2005-2007 and over 7 per cent in 2010 and 2011.

Other countries in the Asia Pacific are also urged to strengthen tax revenues to cope with infrastructure investment needs. ESCAP estimates an annual infrastructure development funding requirement of $800-$900 billion in the region. With the current tax bases, Escap showed that some countries had a tax gap of more than 5 per cent of GDP, while in others it was as high as 12.5 per cent. Closing existing tax gaps in 16 Asia-Pacific developing economies would increase total revenues in excess of $300 billion, boosting tax revenues by more than 70 per cent in some countries.

“The constrained domestic growth prospects of the region have underlined the importance of productive counter-cyclical public spending to support inclusive growth and sustainable development,” said ESCAP executive secretary Dr Shamshad Akhtar.


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