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Myanmar: Fiscal year 2017-18 will dawn with new economic policies and priorities
The new fiscal year will start on April 1, which also marks the start of new laws and economic policies for Myanmar. The new Myanmar Investment Law, which was recently passed, will come into effect on April 1 and its implementation and enactment will spell changes for the country’s businesses and investors.
Myanmar Investment Commission secretary U Aung Naing Oo spoke to The Myanmar Times in October 2016 from the office of the Directorate of Investment and Company Administration in Yangon. Daniel de Carteret / The Myanmar Times
A developing country’s economy relies heavily on its investment sector. Likewise, revisions and updates on laws and policies are essential for a sound regulatiory framework and an efficient liberalisation for the country’s economy.
Myanmar Investment Commission (MIC) has already stated that they would focus on the issue of income tax exemption and that there will be a categorisation for different groups or types of investments, to be implemented in the upcoming fiscal year.
Applying permissions for businesses and income tax exemptions will be different from current practice and this will affect investors. All investments will be regulated under the new laws, and investors should pay attention to the adjustments and changes.
“We are now trying to implement the newly enacted Investment Law fully in this coming fiscal year. Issuing income tax exemption will [not like before] be analysed systematically, and only the enterprises which should be given income tax exemptions will be given such exemptions,” said U Aung Naing Oo, MIC secretary and Directorate of Investment and Company Administration (DICA) director general on March 14.
Myanmar Investment Law replaces two older ones
In this fiscal year, investment businesses are given permissions based on interpretations of both the Myanmar Citizens Investment Law of 2013 and Foreign Investment Law of 2012. Only the MIC has given foreign investors permissions for operating businesses.
In the upcoming fiscal year, another option will be available: permissions are to be directly given by regional and state investment commissions. This will speed up the process and allow more efficient bureaucracy than before.
Investments can be divided into two types: those that require an MIC full permit and those that need an MIC endorsement. The maximum investment amount that can be approved by regional and state governments has been set at US$5 million (K6 billion). For investments lower than that amount, regional and state investment commissions will now be able to approve proposals without seeking permissions from the MIC.
The new Myanmar Investment Law of 2016 is a combination of Myanmar Citizens Investment Law and Foreign Investment Law.
According to the new law, not all types of business proposals require permission from the MIC. Those which require a full permit from the MIC include strategic investments, capital-intensive investments, investments with possible environmental impacts and investments selected by the Union Government. An MIC endorsement is required for tax reliefs and long-term rights of land use, though more details are yet to be published.
“According to [the new] investment policy, businesses which are inclusive in the specification will have to ask permission from the commission, whatever their investment amount is. Asking permission for businesses is needed in order to get a tax relief and other incentives specified by the state,” said U Aung Naing Oo.
Under the current policy, every investment that operates with MIC’s permission will enjoy equal rights to a five-year income tax exemption. Policies coming into effect in the new financial year will provide exemption, but only for government-promoted sectors (priority sectors).
The MIC secretary added that a direct statement on the types of businesses which would be given tax exemptions will be released this month.
Promoted sectors
With the investment policy released in November 2016, the agricultural sector has been identified by the government as a sector to be promoted, especially those businesses which operate high-value agricultural production and which connect local and international production lines.
Other priority sectors include industries which facilitate the development of infrastructure and which are labour intensive, providing many employment opportunities and offering vocational training to improve the skills of domestic labourers.
They also cover industries which make investments in regions where the economy is still weak and underdeveloped.
Investment in industrial zones and special economic zones (SEZ), as well as investments related to the tourism industry will also be included.
Furthermore, the policy also states that foreigners shall not have a right to operate security-related and businesses related to socio-culture sector.
“Currently, we have chosen to cover all businesses but we are trying to release a statement that will specifically show each business included in promoted sectors this month,” said U Aung Naing Oo.
This is in line with what he suggested during an interview with the Myanmar Times in October.
“Promoted sectors … definitely, number one, will be manufacturing, particularly labour intensive manufacturing will be in the list of promoted sectors. Number two is infrastructure development. Private investment in infrastructure will be in the list of promoted sectors. Agriculture and food processing will also be included. About 70 percent of Myanmar’s population is either directly or indirectly involved in agriculture so we have to promote agriculture for foreign investment. We have also already made a public announcement to say that the MIC will promote investment into industrial zones across the country,” he told the Myanmar Times at that time.
Tax reliefs and investment zones
According to the new investment policy, there will now be more opportunities for tax reliefs. Income tax exemption will be granted for investments on a “zoning basis” for state-recognised underdeveloped areas.
If investments are made in Zone 1 districts (least developed zones), the income tax relief duration is seven years, five years in Zone 2 (moderately developed zones) and three years in Zone 3 (sufficiently developed zones).
“[However] if the enterprise does not include the kinds of enterprises that the state chooses to support, they will not get an income tax relief, whatever zone they are in,” said U Aung Naing Oo.
Specified Zone 1 includes 138 different townships in four different states – Kachin, Kayah, Kayin, Chin, Mon and Rhakine states – and in five different regions – Sagaing, Bago, Magwe, Mandalay Region and Ayeyarwaddy regions.
Zone 2 includes 122 different townships and districts – Kachin, Mon and Shan states and Sagaing, Tanintharyi, Bago, Magwe, Mandalay, Yangon, Ayeyarwady regions and Nay Pyi Taw.
Zone 3, a tax-free income zone for three years, covers 46 other townships in Mandalay and Yangon regions.
Only tax-exempted businesses will enjoy tax holidays if they are in the specified areas, he added.
Restrictions and regulated industries
As new policies have been confirmed, the government will re-issue a list of restricted businesses as per Myanmar’s investment law section 42. Businesses will be categorised into state-run businesses, Myanmar-foreign joint venture businesses, foreign-owned businesses, and businesses owned by Myanmar nationals. The MIC is trying to release a detailed list of businesses this month, the director general explained.
A statement highlighting the 15 sectors – which are not available to foreign investors – was published in February. These sectors include periodical journal publications, freshwater fishing and related services, animal husbandries, food manufacturing and distributing industries, animal regulation and care centres, pet care centres, timber industries in government-owned forest areas, medium-sized mining, testing and producing in mines, oil drilling, visa stickers, foreigner stay permits printing and distributing businesses, minimarkets and convenience stores and more.
Furthermore, services such as fisheries and shrimp farms, veterinary services, and producing fishnets have to be done under joint ventures with locals or domestic companies. However, those businesses must be done under the procedures and restrictions which the Department of Fisheries has issued.
Additionally, retail-related services – which most foreign investors were attracted to – such as City Mart and convenience stores will be prohibited. But there are permissions to conduct joint ventures with either Myanmar nationals or locally-owned firms.
By permission of the Ministries, it was announced that (1) the permitted industries and services such as telecommunications-related industries are permitted to operate under the permission of the Ministry of Information and Communications; (2) 23 agricultural and livestock-related industries are to be permitted under the Ministry of Agriculture, Livestock and Irrigation; (3) 56 services related to communication and transport-related are permitted by the Ministry of Transport and Communications.
Similarly, it was announced that, (1) gems, pearl, minerals, wildlife, and forestry-related matters – a total of 14 services – are permitted by the Ministry of Natural Resources and Environmental Conservation; (2) power and fuel-related services are permitted by the Ministry of Electricity and Energy; (3) a total of four services relating to vaccine production and pharmaceuticals are permitted by the Ministry of Industry; (4) 13 services related to the hospital construction and pharmaceutical productions are to be supervised by the Ministry of Health; and (5) nine services relating to infrastructure are to be permitted by the Ministry of Construction.
“Once we have announced the intricate details of these matters, investors can know which sectors to look for [to participate and invest] that will grant benefits …The country’s tax can be analysed properly,” said U Aung Naing Oo.
Foreign investment target achieved for this fiscal year
The current fiscal year has witnesses more than US$6.87 billion of foreign investments flowing into the country. A total of US$262 million invested into the Thilawa SEZ was also granted. Therefore, the government’s earmarked foreign investment target of more than US$6 billion has been reached and an extra US$872 million has been achieved.
For Myanmar citizens, investment industries were allowed for US$764 million and K1572 billion.
The telecom services and the communications sector have brought in the most foreign and international investments and the real estate and housing sector has attracted the most investments from domestic investors.
Source: http://www.mmtimes.com/index.php/business/25450-fiscal-year-2017-18-will-dawn-with-new-economic-policies-and-priorities.html