Back

Chapter - 16
Myanmar

1.    Introduction

1.1.    Receipts of all government departments other than State Economic Enterprises were audited by the Auditor General since pre independence days but the receipts of State Economic Enterprises were not subject to audit prior to 1955. Up to 1973 the audit objective in respect of these receipts was to examine that all receipts which had been collected had correctly been brought to account and credited to the Union Consolidated Fund. In 1974 the scope of government audit in Myanmar was expanded into a comprehensive one by promulgation of Peoples' Inspectors Law. Accordingly, the criteria of Economy, Efficiency and Effectiveness are included in Myanmar's audit scope in addition to that of Financial and Compliance.

1.2.    The Auditor General Law, which was enacted by the State Law and Order Restoration Council in 1988, prescribes the duties for the Auditor General in Section 3. The duties of the Auditor General are as follows:

1. conducting inspections to determine whether or not the activities of the State Law and Order Restoration Council, the Government, Ministries and Government Departments prove beneficial to the interests of the public, and submitting reports thereon to the authorities concerned;
2. examining whether the receipts as provided in the Budget Estimates have been realised in full;
3. examining whether the funds provided for expenditure in the Budget Estimates are utilised effectively;
4. prescribing the accounting systems for the Government, Ministries and Government Departments, and examining whether the systems so prescribed are followed;

1.3.    As far as revenue audit is concerned, the basic requirement in audit is to see that:

1. the collection of revenue has been made in accordance with the provisions of the respective laws and the rules made under those laws;
2. the revenue has been collected in full as provided in Budget Estimates;
3. the revenue has been properly accounted for and credited without delay to the State Fund;
4. There is no indication of wastage and inefficiencies in the process of collection.

2.    Government Revenue And Tax Structure

2.1.    Generally, government revenue consists of current and capital receipts. The current receipts are normally made up of tax revenue and non-tax revenue. The focus in this paper is placed on tax revenue.

2.2.    The State Law and Order Restoration Council annually enacts the Budget Law, which is the State Budget of the union as a whole, for fiscal year covering 1 April to 31 March. The State Budget is classified into three parts, namely:

Part I : Budget of the State Administrative Organisations,

Part II : Budget of the State Economic Enterprises, and

Part III : Budget of the Town and City Development Committees.

2.3.    Under the Budget of the State Administrative Organisations, government current receipts are made up of Revenue from Taxes, Receipts from State Economic Enterprises (SEE) and Other Receipts. These revenue estimates are financial targets to be achieved and implemented by respective tax administering departments. The composition of current receipts compared with gross domestic product is shown in the Table I :

Table - I
Current Receipts [Kyat in billion]

Sources : Review of Financial, Economic and Social Conditions for 1995-96

*    Exchange rate for different currencies vis-a-vis the US $ as on 31st March, 1997 are indicated in Appendix 1

2.4.    On average, 51.6 percent of total current receipts is represented by Tax Revenue. Receipts from SEE are contributions to the State from their profits after deducting income tax. Other Receipts include foreign aid and grants for current expenditure, interest and recovery of loans, and current receipts of Ministries and Departments.

2.5.    The primary motivation for taxation is to finance public administration and the public provision of economic and social services. Secondary motivations are the redistribution of income and the correction of market imperfections. In Myanmar the ratio of tax revenue to GDP is in the range of 3.2% to 5.0%. Agriculture is the mainstay of the Myanmar economy and this is characterised by the high proportion of the agri-sector's production represented in yearly GDP. Generally, 39% of GDP is production from the agri-sector. There are no taxes levied on the income and production from the agri-sector in the Myanmar Taxation System in order to encourage the development of the sector.

2.6.    Established tax-bases in respect of the agri-sector are utilisation of land (Land Revenue), and that of water provided by irrigation systems (Water Tax and Embankment Tax). Aggregation of these taxes collected from the agri-sector represents only 0.4 percent of the total tax revenue. This can be seen in the overview structure of Myanmar Tax Revenue. This is the main reason for the low level of tax revenue in comparison with GDP. Myanmar's tax structure comprises 15 different heads of taxes and duties under the 4 major groups as shown below in Table II :

Table - II
Tax Revenue Structure and Tax Administering Departments

*    Based on 1996-97 BE.

2.7.    Taxes can be classified under three categories namely Direct taxes, Indirect taxes and Trade taxes. Table III indicates the analysis of the Myanmar tax structure.

Table - III
Analysis of the Myanmar Tax Structure

*    Based on 1996-97 BE.

2.8.    It would be seen from the above that the Myanmar tax structure is made up of 30.2 percent as direct tax, 51.4 percent as indirect tax and 18.4 percent as trade tax. As shown in Tables II and III, 5 major taxes and duties which represent in aggregate 76 percent of the total tax revenue are administered by the Internal Revenue Department (IRD). A further 18 percent of the total tax revenue, which represents customs duties and licence fees on imported goods, is administered by the Customs Department (CD). IRD and CD are major tax authorities under the Ministry of Finance and Revenue.

3.    Income Tax:

3.1.    Income tax is levied by the Income Tax Law 1974 on the following heads of income:

1. Profession;
2. Business;
3. Property;
4. Income from other sources.

3.2.    The Income Tax Law is applied to the following types of taxpayers and classes of income:

1. State Economic Enterprises;
2. Companies;
3. Co-operative societies;
4. Foreigners and foreign organisations engaged under special permission in State sponsored enterprises;
5. Resident foreigners;
6. Non-resident foreigners;
7. Partnership or Joint ventures;
8. Income from salaries;
9. Income earned abroad by non-resident citizens.

3.3.    In the computation of net profit of a business, all expenditure incurred for the purpose of earning that profit and the depreciation allowance in respect of capital assets are allowable as deductions. Income under the heads 'Profession', 'Property' and 'Other sources' is also computed in the same way but no depreciation allowance is deductible in respect of 'Property'. The amount donated to any approved institution or fund established for religious or charitable purpose is also deductible but it shall not exceed twenty five percent of the total income.

3.4.    In the computation of taxable income for individuals, the following personal allowances are deductible from the total income:

1. Basic allowance (20 percent of the total income subject to a maximum of Kyat 6000);
2. Wife allowance (having no taxable income of her own) Kyat 2500;
3. Children allowance (from Kyat 500 to 1000 for each child by classified age);
4. Life insurance allowance (sums actually paid as premium).

3.5.    The net income or net profit remaining after deduction of permissible expenditure and allowances from the gross income is taxed at the rates prescribed by the law. The rates vary depending on the types of taxpayers or classes of income.

3.6.    The procedure pertaining to advance payment of tax, filing of returns, computation of income, method of assessment, payment of taxes, filing of appeals, etc. is prescribed by Income Tax Rules.

4.    Profit Tax :

4.1.    Profit Tax is also a tax on income. Those having taxable income but not covered by the Income Tax Law are subject to tax under the Profit Tax Law 1976. The types of taxpayers and classes of income subject to Profit Tax are:

1. Individuals who are resident citizens not being salary earners;
2. Associations of persons, not being companies, such as partnerships formed wholly with citizens;
3. Capital gains received by such taxpayers;
4. Income arising within Myanmar to non-resident citizens.

4.2.    The classes of income exempt from tax under the Profit Tax Law and the procedure pertaining to advance payment of tax, filing of returns, computation of income, method of assessment, payment of taxes, filing of appeals, etc. are almost the same as prescribed for the Income Tax.

4.3.    The minimum income liable to the profit tax is Kyat 10,000. The amounts of tax due (rates) are fixed on the levels of income.

5.    Commercial Tax :

5.1.    The Commercial Tax Law was promulgated in 1990, replacing the Commodities and Services Tax Law. Commercial Tax is a turnover tax levied on goods and services from the all sectors viz.: public, co­ operative and private. Certain items of goods, mostly basic foods and raw materials, are exempt from the tax. Types of services liable to tax include transport of passengers, entertainment, trade and operation of hotels, lodgings, restaurants, cafes and food stalls etc.

5.2.    The tax is levied according to the Schedules appended to the Commercial Tax Law. The rates of tax vary depending on the nature of goods and services. Schedule I lists the items of goods exempt from tax. Schedules II to V cover goods liable to tax with rates ranging from 5 to 25 percent. Schedule VI represents specific types of goods such as cigarettes, liquor, beer, motor spirit, etc. carrying tax rates above 25 percent. Except for trade, the tax is imposed as an ad valorem single-stage tax, that is at the point of sale of manufacturer for domestically produced goods and at the point of import (collected together with customs duty) for imported goods.

5.3.    The tax paid by a manufacturer for import of raw materials for use in the manufacturing of his products could be credited against the tax payable on sale of his finished products. Where the partly finished goods are locally purchased from another manufacturer, the tax paid by that manufacturer on the sale of such goods could be credited by the purchaser against the tax payable on sale of his finished products.

5.4.    The principles and methods relating to filing of returns, payment of taxes, exemptions, reliefs, tax incentives, filing of appeals, etc. are provided by the law.

6.    Measures for Tax Avoidance Syndrome

6.1.    The measures so far taken by means of inter departmental coordination with the intention of revealing the hidden income and the avoidance of taxes are:

1. Information Exchange: It is the scheme for providing information to tax authorities from other government departments in connection with the transfer of capital assets, the contracts awarded by the government concerns to the private contractors for provision of goods/services, the companies newly formed under the Myanmar Company Act, etc.; and
2. Voluntary Declaration of Income and Value of Properties: It is the occasional program undertaken by the government. A notification is issued to the public for voluntary declarations of untaxed resources of income during a specific duration of time.

7.    Custom Duties :

7.1.    In Myanmar, customs duties and licence fees on imported goods are administered by the Customs Department (CD), which is one of the major tax authorities under the Ministry of Finance and Revenue. The laws relating to customs in Myanmar are the Sea Customs Act 1878 and the Land Customs Act 1924. These Acts were overlaid with amendments from time to time up to 1960. In 1992 the State Law and Order Restoration Council enacted the Tariff Act, which repeals the Tariff Act of 1953. Ever since the adoption of a more liberalised economic system based on a market-oriented economy in 1988-89, the Customs Department has made reforms in its administrative procedures to ensure greater facilitation on external trade of the country.

7.2.    The system of Customs Tariff in Myanmar is based on the following principles:-

1. To impose lower tariff rates on essential consumer goods, raw materials and capital goods.
2. To impose higher tariff rates on luxury items.
3. To protect not yet developed domestic industries against unfair foreign competitions.
4. To fulfil the national revenue.

8.    Tariff Structure

8.1.    Myanmar has adopted the Harmonised System for tariff and statistical nomenclature since 1 April 1992 and became a contracting party to the H.S Convention on 21 November 1994. This convention came into force with effect from 1 January 1995 in Myanmar.

9.    Valuation

9.1.    At present, goods are generally assessed on CIF value. The Real Value as defined in clause (b) of Section 30 of the Sea Customs Act has been construed to mean the cost at which goods of the like kind and quality could be delivered at the time and place of importation. The assessable value of goods therefore normally includes CIF value and the landing charges at the port of importation.

9.2.    Myanmar being a member of the GATT and also a member of the World Trade Organisation, the customs valuation method prescribed by GATT would be inevitably applied in due course in Myanmar customs administration. Myanmar at present is in the preparatory stage to adopt such a basis of valuation.

10.    Overview Structure of Accountability and Audit

10.1.    Under the Auditor General Law 1988, the Auditor General is empowered to inspect whether or not the activities of the State Law and Order Restoration Council, the Government, Ministries and Government Departments prove beneficial to the interests of the public, to examine whether the receipts as provided in the Budget Estimates have been realised in full, and to examine whether the funds provided for expenditure in the Budget Estimates are utilised effectively. These powers are distributed among the Office of the Auditor General and its regional audit offices to be exercised on behalf of the Auditor General.

10.2.    Organisationally, the Office of the Auditor General is made up of seven Audit Divisions, Administrative Division and Training Division. Each Audit Division, headed by a Director, is assigned with audit engagements to be carried out for specific Ministries and Departments. The Ministry of Finance and Revenue, Internal Revenue Department, Custom Department and other departments organised under the ministry are within the audit circle of the Audit Division (1). The Audit Offices, regional branches of the Office of the Auditor General, are organised at different levels, namely State / Division Audit Office, District Audit Office and Township Audit Office. Similarly, almost all government departments have their branch offices at all regional levels. All regional branches structured under the control of the Internal Revenue Department and Customs Department are to be audited by the respective Audit Office. Audit of tax revenue is carried out by each Audit Office at the regional level and by the Audit Division (1) at headquarters level.

10.3.    The overview structure of accountability and audit in respect of tax revenue can be represented by the mode of horizontal relationship between the Internal Revenue Department and the Office of the Auditor General, and the vertical relationship established among the hierarchy of each department. Each of the offices at any level is accountable to a higher one and this obligation is consummated by the submission of accounts and/or reports to the higher one in prescribed ways. In fact, this is the vertical relationship and the process of reporting eventually to the State Law and Order Restoration Council, the State legislature itself and, on behalf of the public, through the Ministry concerned. In this reporting process audit plays its complementary role in order to strengthen the accountability to the State legislature and the public as well. The horizontal relationship reflects the audit of tax revenue conducted by Audit Offices. The overview structure is presented in Appendix-1.

11.    Functions in Tax Revenue Audit

11.1.    An important function in tax revenue audit is studying the rules, regulations, notifications and orders issued under the specific tax law. Audit has to see that such rules, regulations and orders are issued by competent authorities as prescribed by the law. A thorough understanding on the procedures and methods prescribed in tax laws and rules is essential for the auditor in tax audit so as to be able to see that these are properly followed by the tax officer in discharge of his duties in assessing, collecting and accounting of taxes. The list mentioned below highlights the knowledge and skill to be attained by the auditors in their preparation stage of tax revenue audit:

1. the scope and nature of the tax;
2. respective laws and rules by which the tax is levied;
3. types of assessee and classes of tax bases;
4. the form and nature of returns and/ or documents to be filed by the assessee;
5. methods to be followed in maintaining the assessee register and the assessment records;
6. time frame prescribed for:

• filing of returns;
• paying for advance tax;
• issuing assessment orders / demands notices;
• collection and payment into the State Revenue Account;
• applying for appeal, etc;

7. types / extent / rate of expenses, concessions, reliefs, etc. to be allowed in accordance with certain prescribed conditions;
8. tax rates to be applied;
9. method of tax calculation to be followed;
10. types and extent of fine / penalty to be enforced in the event of certain default;
11. books, files and documents to be maintained at the tax office;
12. document flows in the process of assessing, collecting and accounting.

11.2.    Prior to the audit and in the course of auditing, as well, audit places its focus on the adequacy and effectiveness of internal control mechanism to be maintained by the tax office concerned. Reasonable assurance is expected not only for the compliance with respective legal and procedural framework but also for the efficiency in respect of activities performed by the tax office under audit.

12.    Audit of Income tax and Profit tax

12.1.    In addition to the books of accounts, the documents inspected by the audit of Income Tax and Profit Tax are the Assessee Register and Assessment Files. The Assessee Register reveals the volume of assessment to be performed by the Tax Officer for each assessment year. The names, addresses and the facts relating to the yearly assessment for all assessees are recorded in Assessee Register. Alteration in this Register, especially removal from the Register, is subject to the approval of a higher tax authority. Audit checks the register to determine the progress and degree of coverage of the assessment during the audited period, to ensure that the assessment for the year had been made without any delay and omission on all assessees.

12.2.    The return filed by the assessee, the particulars from the accounts or statements of the assessee taken by the tax officer at the time of making the assessment, evidence furnished by the assessee and other relevant documents such as Bank Advice for the tax payment into the State Revenue Account are filed in the Assessment File of each assessee. All these documents are available to audit for scrutiny to be made on the assessment and collection done by the tax officer. With reference to the prescribed procedures and rates, the deductions allowed and the exemptions, rebates and relieves granted, the amount assessed and the amount refunded, if any, can be recomputed and checked by the auditor for assurance of correctness and compliance with the rules.

12.3.    The tax officer has the general power to make an assessment with his best judgement if he thinks the returns filed are unreliable or incomplete or incorrect. In such cases, audit does not consider it the main part of its duties to review the judgement exercised or decision taken by the tax officer entrusted with such power. But in view of improving the effectiveness and equality of tax assessment procedures, audit is generally required to see whether there is a bona fide exercise of judgement based on relevant facts and data. Furthermore, audit places its focus on important issues such as:-

• whether the taxes assessed are promptly collected and deposited into State Fund Accounts;
• whether receipts of tax revenue and payments of refunds are correctly accounted for (under correct heads, with correct amount, in correct presentation);
• whether there is any under assessment or inefficiency or mistake in assessing, collecting and accounting process.

12.4.    Audit studies the efficiency in the process of assessing and collecting income tax and profit tax by working through the following steps:

1. selecting some cases (randomly selected by certain percentage of total cases);
2. putting the dates of progress for each case on the chart in the following sequence;

• prescribed date on which return is to be filed by assessee
• the date on which return was filed by assessee
• the date on which assessment was done
• the date on which demand notice was issued
• the date on which assessed tax was collected
• the date on which collected tax was credited to the State Fund;

3. asking for the reasons in respect of abnormal delay between one point and the next point;
4. asking for the measures duly taken in respect of these;
5. reviewing the adequacy of measures taken, by counter balancing the extent of such delays and measure taken; and
6. suggesting appropriate measures to be taken as preventive actions in future.

12.5.    Generally income tax and profit tax are assessed on an annual basis; others like customs duties and excise duties are assessed on the basis of each transaction. In connection with the commercial tax, the tax on entertainment and imported goods are assessed on a transaction basis; other taxes are assessed on quarterly basis. Basically, the scope and method of approach in audit of commercial tax and custom duty are similar to those in audit of income tax and profit tax.

13.    Audit Of Customs Receipts

13.1.    The objectives of audit of customs receipts are to

1. ascertain that all moneys are duly assessed, collected, credited into State Funds Account and accounted under appropriate heads; and
2. see whether the policies laid down therefor by the government are effectively and efficiently carried out by the customs administration activities.

13.2.    Normally audit makes intensive study of internal control mechanisms installed in the Customs Department in order to obtain understandings such as

1. whether the regulations and procedures are adequate for effective internal control;
2. whether such regulations and procedures are framed in accordance with laws and policies enacted by the government;
3. whether such regulations and procedures are followed at all activities of the administering the customs laws.

13.3.    Audit can obtain the necessary information on the above items (i) and (ii) in its audit planning phase through a thorough study of the established legal framework, the organisational structure and the operational system of the'department. The fact marked as (iii) can be discovered by test checks performed in the examining phase of the audit.

13.4.    In its examining phase, audit has to make a general review of all transactions and a detailed check of a certain percentage of them. In doing so the Original Bill of Entry, Original Shipping Bill, Bond Register, Baggage Declaration and other import/export documents are checked to see the correctness of the classification and valuation of goods, the rate of duty, the computation etc. These checks are followed by checking the amount of duty assessed by the customs officer, collected from the assessee and credited into State Funds Account.

14.    Report On The Results Of Revenue Audit

14.1.    As mentioned above, audit of tax revenue is carried out by Audit Offices at all regional levels and by Audit Division (1) at headquarters level. Audit reports in connection with these audit engagements are issued to the auditee organisations by the Audit Office concerned. A copy of each audit report is sent to the Office of the Auditor General (O AG) and to the headquarters of the auditee organisation. Significant findings and recommendations contained in these reports and the feedback received thereupon from auditee organisation are subject to the OAG's post audit monitoring procedure. This procedure includes steps to watch :-

1. how far these recommendations have been implemented by the auditee organisation concerned; and
2. whether these implementations are sufficient and acceptable.

14.2.    OAG submits its performance report, 2-monthly, to the State Law and Order Restoration Council, the state legislature. Significant audit findings and evaluation on the measures taken for these findings by auditee organisations are included in this report. Furthermore, appropriation audit is carried out annually by OAG to submit the report on implementation of the State Budget to the State Law and Order Restoration Council. Budget estimates, actual achievements, causes of the deviation and appropriate recommendations are included in this report.

15.    Training For Tax Audit

15.1.    Tax audit training courses are included in the regular training programmes conducted by the OAG Training School for its staff at different levels. In addition to these training programmes OAG issues audit guides from time to time in order to provide the technical guidance for its audit staff. Audit guides specifically prepared for each auditee organisation, i.e. Guides on the Audit of the Tax Office; Guides on the Audit of the Customs Department etc. are distributed to all Audit Offices to strengthen their audit capabilities.