MYANMAR EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE (MEITI) SCOPING STUDY REPORT FORESTRY SECTOR Pre-Final RECONCILIATION
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MYANMAR EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE (MEITI) SCOPING STUDY REPORT FORESTRY SECTOR Pre-Final RECONCILIATION FOR THE YEARS ENDED 31 MARCH 2015 AND 31 MARCH 2016 February 2018 This Report has been prepared at the request of the Myanmar EITI Multi-Stakeholder Group (MSG) charged with the implementation of the Extractive Industries Transparency Initiative in Myanmar. The views expressed in the report are those of the Independent Administrator and in no way reflect the official opinion of the MSG. This Report has been prepared exclusively for use by the MSG members and must not be used by other parties, nor for any purposes other than those for which it is intended. Scoping Study Report for the periods April 2014 - March 2015 and April 2015 - March 2016 (Pre-Final) EITI Myanmar – Forestry Sector TABLE OF CONTENTS INTRODUCTION .................................................................................................................................9 Extractive Industries Transparency Initiative ..................................................................................9 EITI in Myanmar ..............................................................................................................................9 1. EXECUTIVE SUMMARY ....................................................................................................... 11 1.1. Objective of the Mission .................................................................................................... 11 1.2. Scope of Work .................................................................................................................. 11 1.3. Approach and Methodology .............................................................................................. 11 1.4. Limitation to Scoping Work ............................................................................................... 12 1.5. Findings ............................................................................................................................. 12 1.6. Revenue generated from the forestry sector .................................................................... 13 1.7. Key Conclusions ............................................................................................................... 15 2. OBJECTIVE, APPROACH AND METHODOLOGY ............................................................. 21 2.1. Objective ........................................................................................................................... 21 2.2. Approach ........................................................................................................................... 21 2.3. Methodology...................................................................................................................... 22 3. CONTEXTUAL INFORMATION ............................................................................................ 26 3.1. Forestry Sector in Myanmar .............................................................................................. 26 3.2. Legal Framework .............................................................................................................. 45 3.3. Fiscal Regime ................................................................................................................... 61 3.4. Budget Process ................................................................................................................. 65 3.5. Revenues Collection ......................................................................................................... 65 3.6. Timber Flow Chart ............................................................................................................ 67 3.7. Beneficial Ownership ........................................................................................................ 69 3.8. Auditing and Accounting ................................................................................................... 71 4. MATERIALITY ANALYSIS .................................................................................................... 73 4.1. Introduction ....................................................................................................................... 73 4.2. Analysis of Payments to Government Agencies ............................................................... 73 4.3. Selection of Payment Flows.............................................................................................. 85 4.4. Selection of Forestry Companies ...................................................................................... 87 4.5. Selection of Government Agencies .................................................................................. 87 4.6. Fiscal Year ........................................................................................................................ 88 4.7. Materiality Deviation .......................................................................................................... 88 4.8. Level of Disaggregation .................................................................................................... 89 4.9. Reliability and Certification of Data to be Reported .......................................................... 90 4.10. Other Considerations ........................................................................................................ 90 5. RECOMMENDATIONS .......................................................................................................... 92 5.1. Timber Trade and Traceability .......................................................................................... 92 5.2. Regulatory Framework and Law Enforcement ................................................................. 92 Moore Stephens LLP |P a g e 2 Scoping Study Report for the periods April 2014 - March 2015 and April 2015 - March 2016 (Pre-Final) EITI Myanmar – Forestry Sector 5.3. Reliability of the Data Reported ........................................................................................ 93 5.4. Budget Comprehensiveness and Transparency............................................................... 93 5.5. Enactment of EITI Reporting Regulations ........................................................................ 94 5.6. Lack of Unique Taxpayer Identification Number ............................................................... 94 5.7. Lack of Distinction Between Forestry and Non-Forestry Revenues ................................. 94 5.8. Reporting System for Employment data ........................................................................... 95 5.9. Accuracy of Production Data ............................................................................................ 95 5.10. Accuracy of Exports Data ................................................................................................. 95 5.11. Award of contracts ............................................................................................................ 96 5.12. Unclear NTFP Licencing Process ..................................................................................... 96 5.13. Completeness of the Data Reported on License Register ............................................... 96 5.14. Resource Revenue Sharing System for Forestry Revenues ............................................ 97 5.15. Governance of MTE .......................................................................................................... 97 ANNEXES ........................................................................................................................................ 98 Annex 1: Detail of Production during FY 2014/15 ................................................................. 99 Annex 2: Comparison of Hardwood Produced during FY 2014/15 with the AAC ............... 102 Annex 3: Comparison of teak produced during FY 2014/15 with the AAC ......................... 105 Annex 4: Detail of Production during FY 2015/16 ............................................................... 107 Annex 5: Comparison of Hardwood Produced during FY 2015/16 with the AAC ............... 110 Annex 6: Comparison of Teak Produced during FY 2015/16 with the AAC ........................ 113 Annex 7: Details of Exports by Product and Destination during FY 2014/15 ...................... 115 Annex 8: Details of Exports by Product and Destination during FY 2015/16 ...................... 116 Annex 9: SEE’s Profit and Loss Statement ......................................................................... 117 Annex 10: Taxes Collected by Region or States .............................................................. 118 Annex 11: Revenues levied on Hardwood in State/Region Funds during FYs 2014/15 and 2015/16 119 Annex 12: Royalties Collected on Timber during FY 2014/15 .......................................... 120 Annex 13: Royalties Collected on Timber during FY 2015/16 .......................................... 121 Annex 14: List of Forestry Companies Below the Materiality Threshold .......................... 122 Annex 15: Reporting Templates and Supporting Schedule .............................................. 123 Annex 16: Persons Contacted or Involved ........................................................................ 135 Moore Stephens LLP |P a g e 3 Scoping Study Report for the periods April 2014 - March 2015 and April 2015 - March 2016 (Pre-Final) EITI Myanmar – Forestry Sector LIST OF TABLES Table 1: Timeline of