With a view to firming up its informal economy, enhancing its business legitimacy and courting investment, Myanmar unveiled a new tax amnesty scheme through its Union Tax Law 2019, which was passed in September.
But as the 2020 election draws near, Myanmar’s new law may not be enough to quell the uncertainty among investors when it comes to this troubled market. Chris Hughes, founding partner of SCM Legal, gives a somewhat cautious assessment of the new tax amnesty. “I’d like to say it will have a large and very positive impact on both the economy and the tax administration but I’m not so sure – I fear that the opportunity it provides to bring people (and money) into the system and materially increase the government’s revenue base in the future may not be fully realised,” he says.
While he predicts more activity in the mid-market and “a bit of a boost for the construction and real estate sectors in particular”, Hughes remains part of the “wait and see” camp. “I’m toying with the idea of forming an infra-structure fund myself to channel some of this money into investments aligned with Myanmar’s sustainable development plan that will have a long-term public beneﬁt but I’m not sure the conditions are quite right for that. Let’s see,” he adds.
Among the potential drawbacks of the scheme is a lack of guidance from the government on how the programme will work. “Investors want to know more about the process for obtaining the concessional rates, what investments will qualify, whether cash must be transferred or simply committed to new investments, whether investments will be aggregated or treated separately and a whole bunch of further detail questions like that. Clear communication of the government’s enforcement plan and priorities post amnesty would also be welcome – the more credible the threat of effective audit and enforcement action down the track, the more successful the amnesty will be,” Hughes says.
Of course, there remain other hurdles – namely red tape and regulatory uncertainties. Says Hughes: “There are still important gaps in the business law environment too – we need the new insolvency law, better enforcement of contracts and effective dispute resolution mechanisms and improved tax administration too. It’s all coming, but it’s challenging for many investors in the meantime.”
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