Fair Finances: How tax and social spending can support the reduction of poverty and inequality in Myanmar
In recent years, Myanmar has been experiencing profound political, economic and social changes. Wide-ranging policy reforms that began in 2011 included a transition to greater civilian rule, more press freedoms and changes to foreign investment laws and currency exchange rates, amongst many others. These changes have helped to usher in a period of rapid economic growth and progress in poverty reduction. However, decades of military rule and economic mismanagement have left their mark. The country has one of the lowest tax takes in the world and underinvests in health, education and social protection. In order to achieve its vision for sustainable development, the government needs to collect more revenue and increase spending on measures to tackle poverty and inequality.
In the midst of the COVID-19 pandemic, the need for strengthened access to essential social services and the presence of a robust safety net has sharpened as households deal with the immediate shocks and long-term economic consequences associated with the virus. Early analysis indicates that informal sector workers, including farmers and migrant workers, are some of the groups suffering the most severe economic impacts due to the COVID-19 crisis, a trend that is set to further deepen existing inequalities as income levels drop further for some of the poorest in the country. Now more than ever, there is an opportunity to look towards public financial management policy tools, including taxation and budgeting, as core to supporting more equitable COVID-19 recovery efforts, including via the government’s COVID-19 Economic Relief Plan, and a fairer, more resilient economy going forward.
As outlined in this brief, tax revenue from businesses and individuals is extremely low in Myanmar. Government revenues depend mostly on taxes from large companies and transfers from state-owned economic enterprises (SEE), which are variable and in decline, with limited accountability. While important reforms have been initiated, more needs to be done, including in terms of modernizing tax collection to increase efficiency and enforcement capacity and limit current widespread tax dodging. Overly generous incentives reduce payments from large investors while tax amnesties fail to show clear benefits and risk rewarding non-compliance. Importantly, together with needed reforms to the tax system, any revenue collected by the government in Myanmar must also then be spent in ways that further support health, education and social protection, with spending rates on these essential services low compared to other countries in the region and globally.
In positive steps, planning and budgeting processes are being driven by more “bottom up” approaches and are becoming more transparent. However, Myanmar needs to collect taxes effectively, ensure that the wealthiest pay their fair share, and spend money in a way that delivers tangible benefits to all communities; achieving all this will require far-reaching reforms.
The government needs to ramp up efforts to modernize tax administration while limiting opportunities for corporate tax dodging. It needs to rethink the use of incentives and amnesties, consider ways to make tax policy more progressive, and strengthen oversight of SEEs. Critically, the government needs to create a tax paying culture by involving the public in decision-making on how revenues the government does collect are spent and demonstrating a clear link between taxation and better delivery of public services. Such a transition to fairer taxation and increased spending on essential services is critical to tackling inequality, including gender inequality, and ensuring that “no one is left behind”.
This briefing is based on a review of selected literature on tax issues in Myanmar and internationally, and 11 expert interviews conducted in late 2019, including with tax advisors to government and companies and representatives of think tanks and civil society organisations working on tax issues. Section 1 describes the importance of taxation for efforts to end poverty and tackle inequality, especially between men and women. Section 2 provides an overview of tax collection in Myanmar and provides a high-level description of how government spending decisions are made. Section 3 sets out the key reasons why the Myanmar government’s tax take is so low. Section 4 provides recommendations for how to overcome these obstacles. A bibliography is provided at the end of this policy brief.