Myanmar finished another financial reporting period on 31 March 2022 – this time a short six-month transition period as Myanmar reverts to a 1 April to 31 March full financial year. As companies finalise their accounting and tax affairs for the end of the reporting period, let’s take a quick look back at some of the Internal Revenue Department (IRD) changes to tax registration, reporting, calculations and payments over the past six-month transitional reporting period.
Changes to tax registration and filing forms. On 17 February 2022, the IRD prescribed 13 new forms relating to various income tax, commercial tax and specific goods tax purposes, including forms for registering as a taxpayer and updating registered details, and new formats for certain tax certificates. The new forms were prescribed under Notification No. 42/2022 issued under the Tax Administration Law 2019 and became effective immediately. The new forms replace various previous forms issued and prescribed under various separate income tax, commercial tax and special goods tax laws and regulations. Notification No. 42/2022 and copies of the new forms are available on the IRD’s website (www.ird.gov.mm).
Quarterly advance corporate income tax payments. Notification No. 389/2021 relating to quarterly payments of corporate income tax was released by the IRD on 16 November 2021, but is stated to apply with effect from the calendar quarter commencing 1 October 2021. Section 16A of the Income Tax Law 1974 (as amended) requires that corporate income tax be paid in quarterly instalments following the end of each calendar quarter. In practice in the past, the IRD has not strictly enforced quarterly advance income tax payments provided taxpayers make an annual advance income tax payment before the end of the relevant financial year.
However, Notification No. 389/2021 seems intended to make corporate income tax actually payable and assessable on a quarterly basis. The Notification states that if the corporate income tax payment made by a taxpayer at the end of a quarter does not amount to at least 80% of the assessed corporate income tax liability attributed to that quarter, then the taxpayer will be subject to a fine from the IRD. The fine will be an amount equal to 10% of the amount by which the tax actually paid for the quarter fell short of an amount equal to 80% of assessed tax payable for the quarter.
The IRD will determine the assessed corporate income tax payable per each quarter by dividing the assessed annual corporate income tax liability by four. (In the case of the current six-month transitional period, the corporate income tax assessed for the period will be divided by two to obtain the quarterly liability).
The potential problem with this approach is that it appears to take an annual assessment and retrospectively apply it as a uniform quarterly liability. In order for a company to be sure of avoiding a fine for a shortfall in its corporate income tax payment in Q1 of a financial year, it will need to be able to assess at the end of Q1 what amount is 80% of one-quarter of its annual corporate income tax liability. For a company that has ‘lumpy’ or uneven revenue across the financial year, it will presumably be very difficult, if not impossible, to accurately make this assessment. Also, companies with unexpectedly high and rapid growth that have, for example, third and fourth quarter performances that are much better than their first quarter could effectively be penalized for their success.
It remains to be seen whether the IRD will strictly enforce this new approach to quarterly corporate income tax payments. The tax assessments performed for the period ending 31 March 2022 should shed more light on this issue.
Notification No. 389/2021 also provides further instructions and examples on how to calculate the advance income tax payable per quarter and for how fines will be calculated and applied. The Notification is also available on the IRD’s website.
Tax assessment procedure for six-month transitional financial reporting period. The fact that most tax rates and assessments apply on an annual basis requires adjustment to tax calculations to accommodate a six-month transitional financial reporting period. As with the previous six-month transitional period that occurred from 1 April 2019 to 30 September 2019, the Ministry of Planning and Finance (MoPF) has provided guidance on procedures for the assessment of special goods tax, commercial tax, personal income tax and corporate income tax for the six-month period, which is set out in MoPF Notification No. 510/2021 (dated 1 October 2021). The MoPF and IRD have also published and distributed a joint information letter and a tax pamphlet further explaining the procedures set out in Notification No. 510/2021.
In brief summary:
Specific Goods Tax – the liability threshold for Specific Goods Tax is relevant total sales receipts of MMK20 million or more during the financial year. Companies must multiply their relevant sales receipts by two times to assess whether they will be subject to Specific Goods Tax during the transitional period.
Commercial Tax – the liability threshold for Commercial Tax is relevant revenue of MMK50 million or more during the financial year. Companies must multiply their relevant revenue by two times to assess whether they will be subject to Commercial Tax during the transitional period.
Personal Income Tax – the actual total base salary for the transitional period – not including bonuses and one-off payments – must be multiplied by two to provide an assumed annualized total base salary for the period. Bonuses and one-off payments are then added to this assumed total base salary (without the need to multiply these amounts) and reliefs and allowances are deducted from the resulting total. Personal Income Tax on the resulting assessable income for the transitional period is then calculated at the marginal Personal Income Tax rates stipulated in the Union Tax Law 2021. The Personal Income Tax amount calculated is then divided by two to reduce the amount back to a six-month figure (which should then have been deducted and remitted in equal monthly instalments during the transitional period).
The Personal Income Tax exemption threshold of MM 4,800,000 still applies and is assessed against the assumed annualized total base salary (after two times multiplication), inclusive of bonuses and one-off payments, but after deduction of reliefs and allowances.
Corporate Income Tax – this tax, now at the recently reduced rate of 22%, is calculated on the total actual income after deduction of actual expenses and depreciation (there is no need for any multiplication for Corporate Income Tax). Depreciation is allowed only based on the actual six-month period.
Notification No. 510/2021 and the related explanatory documents also contain procedures dealing with such issues as taxation of non-resident citizens and resident foreigners. The Notification and explanatory documents are available on the IRD’s website.
Annual Tax Filing Due Date. Annual tax filings for the transitional period are due to be made within three months after the end of the period – that is, by no later than 30 June 2022.