ii THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR iii ACKNOWLEDGMENTS This paper was prepared by Dr. Jared Bissinger. The author is grateful for comments and suggestions on earlier drafts from Lynn Salinger, Bruce Bolnick, and other participants in the Economic Reform and Growth Dynamics THE PRIVATE SECTOR Study workshop held at the PSDA office in Yangon, Myanmar on January 13-14, 2016. AND THE GOVERNANCE OF BUSINESS IN MYANMAR
DISCLAIMER PHOTO CREDITS This document is made possible by the support of the American people through the United States Agency for The team would like to thank the following for the photos provided. International Development (USAID). Its contents are the sole responsibility of the author or authors and do not - Jeffrey Barth, Paula Bronstein, Tom Cheatham, Markus Kostner, Simone D. Mc Courtie, Nyi Zaw Moe necessarily reflect the views of USAID or the United States government. - Asian Development Bank - World Bank II THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR III ECONOMIC REFORM AND GROWTH DYNAMICS DISCUSSION PAPER SERIES LIST OF ACRONYMS In 2015, as Myanmar prepared for new elections, the United States Agency DAO Development Affairs Organization for International Development (USAID) commissioned a set of discussion DICA Directorate of Investment and Company Administration papers to review Myanmar’s economic status, benchmark its performance FY Fiscal year relative to other countries, and identify priority policy reforms, investments, GAD General Administration Department and institutional innovations to re-establish the country on a new, GDP Gross domestic product inclusive growth path. This effort has been led by Nathan Associates under ICA Investment Climate Assessment the Private Sector Development Activity (PSDA) and the Association IMF International Monetary Fund of Southeast Asian Nations (ASEAN) Connectivity through Trade and IRD Internal Revenue Department Investment project Economic Reform through ASEAN Integration program. JV Joint venture MCDC Mandalay City Development Committee Nathan Associates has a long history of providing economic analysis of MEB Myanmar Economic Bank the Myanmar economy. Originally headed by the economist Robert R. MEC Myanmar Economic Corporation Nathan, who helped develop the United States’ first national accounts in MGE Myanmar Gems Enterprise the U.S. Department of Commerce, Nathan Associates was founded in MoHT Ministry of Hotels and Tourism 1946 to provide applied economic analysis services to clients in the United MNPED Ministry of National Planning and Economic Development States and around the globe and started working in Burma in 1951 at the MOGE Myanmar Oil and Gas Enterprise request of the U Nu government. The latter sought “advice with respect MSIC Myanmar Standard Industrial Classification to various important aspects of the country’s economy and engineering MSME Micro, small, and medium enterprise problems and assistance in solving practical operating difficulties.” Nathan NLD National League for Democracy Associates worked in Burma until 1959 with two U.S. engineering firms to OECD Organization for Economic Cooperation and Development deliver this advice, initially with funding from the U.S. Technical Cooperation PSDA Private Sector Development Activity Administration (a predecessor to USAID) and later with direct support RC Revolutionary Council from the Burmese government. SEE State-owned economic enterprise In 1953, Nathan Associates, along with the firms of Knappen Tippetts SLORC State Law and Order Restoration Council Abbett McCarthy Engineers and Pierce Management, delivered to the U SME Small and medium enterprise Nu government an 8-year economic and social development program. The SPDC State Peace and Development Council comprehensive plan, “Economic and Engineering Development of Burma,” S/R State/Region laid out a strategy of economic and administrative policies to stimulate TDAC Township Development Affairs Committee growth in agriculture and irrigation, transportation, telecommunications, UMEHL Union of Myanmar Economic Holdings Limited power, and industry, along with an analysis of the country’s macroeconomic UMFCCI Republic of the Union of Myanmar Federation of Chambers of conditions. Unfortunately, what the report called a “golden opportunity” Commerce and Industry for rapid growth was lost, as many of the recommendations were set aside UNDP United Nations Development Program due to political developments in the late 1950s and early 1960s. UNESCAP United Nations Economic and Social Commission for Asia and the Pacific The present set of discussion papers is designed to revive the initiative UNFPA United Nations Population Fund begun more than 60 years ago, providing a careful analysis of conditions USAID United States Agency for International Development in Myanmar and recommendations on how the country can accelerate its USDP Union Solidarity and Development Party integration into the global economy and deliver growth and prosperity to YCDC Yangon City Development Committee all of the people of the country.
Lynn Salinger, Principal Associate at Nathan Associates, has led the design and implementation of the discussion paper series in collaboration with Steve Parker, Chief of Party of the Private Sector Development Activity, and Tim Buehrer, Chief of Party of the ASEAN Connectivity through Trade and Investment Project. Daniel Swift has supervised the effort from the U.S. Agency for International Development Mission to Burma.
IV THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR V CONTENTS ILLUSTRATIONS Acknowledgment...... II Figures List of Acronyms...... V Figure 1: UMFCCI Membership, by Sector, 2015...... 23 1. Introduction...... 3 Figure 2: Myanmar Government Structure...... 31 2. History of Economic Governance and the Private Sector in Burma...... 7 Figure 3: Governance of the Private Sector...... 36 3. Profile of the Private Sector and Other Key Economic Actors...... 13 Definitions and Context of Data...... 14 Tables The Private Sector...... 15 Table 1: Proposed Definition of Small and Medium Enterprises (Draft, 2015)....15 Private Sector Associations...... 22 Table 2: Current Classifications of Small, Medium, and Large Enterprises.... 15 State-Owned and State-Linked Enterprises...... 24 Table 3: Distribution of Businesses by Size and Registration (2013)...... 16 4. The Structure of Myanmar’s Government...... 29 Table 4: Businesses Registered with DICA by Ownership Type (2013)...... 16 Definitions of Administrative Decentralization...... 30 Table 5: Distribution of Manufacturing Enterprises, by Sector and Size, 2013...... 17 Overview of Government Structure in Myanmar...... 31 Table 6: Distribution of Manufacturing Businesses, by Location and Size, 2015...... 18 Distribution of Public Revenue...... 40 Table 7: Geographical Distribution of Firms, 2014...... 19 5. Economic Governance and the Business Enabling Environment...... 43 Table 8: Number of Recorded Operating Firms and Employees of Operating Economic Governance at the Local Level...... 44 Firms per 1,000 people, by State/Region, 2014...... 20 6. Potential Areas for Further Work...... 51 Table 9: Types of DAO-Registered Enterprises, 2015...... 21 Researching Government Budgets at the S/R and Local Levels...... 51 Table 10: Tourism Sector Enterprises, 2014...... 22 Aggregating and Analyzing Local- and Union-Level Business Operating License Data....52 Table 11: Sources of Myanmar Government Revenue...... 25 Survey Research...... 53 Table 12: List of State-Owned Economic Enterprises and Parent Ministries, 2015...... 26 Understanding Non-Tax and SEE Revenue Sources...... 53 Table 13: Government Ministries in Myanmar, 2015...... 32 Documenting Administrative Barriers in Agriculture, Livestock, and Fisheries.....54 Table 14: State/Region Sources of Revenue...... 34 Documenting Additional Sources of Data...... 55 Table 15: General Administration Department Township Administrator Functions.....37 Investigating Union- and S/R-Level Tax Compliance in Myanmar’s Jade Industry...... 55 Table 16: Development Affairs Organizations Responsibilities...... 38 7. Recommendations...... 57 Table 17: Revenues Raised at Different Levels of Government...... 41 Quick Wins...... 57 Decentralization...... 59 Subnational Economic Reforms...... 59 Institutional Reform...... 60 Cross-Cutting Considerations...... 61 References...... 63 Annex I: Schedule Two of the Constitution of the Republic of the Union of Myanmar: Region and State Legislative List...... 67 Annex II: Schedule Five of the Constitution of the Republic of the Union of Myanmar: Taxes Collected by Region or States...... 70 Annex III: Departmental Structure of Tanintharyi Region Government ....72
VI THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR VII 1. INTRODUCTION
he governance of the private (S/Rs).2 Among the policy areas now sector by the state has under the authority of the S/Rs are played an immeasurable land and building taxes, and licensing roleT in shaping Burma/Myanmar’s for most businesses, as well as aspects economic development.1 The of agriculture, fisheries, forestry, and country’s history of economic mining governance. governance is tumultuous, though the introduction of a new government in The decentralization of select 2011 brought reforms and renewed economic authority is both practical optimism for Myanmar’s economy, and important and should affect the and particularly for the private way that the international community sector. Although Myanmar has made supports economic policy reform important steps in transforming its in Myanmar. This is especially true economic governance, the structure because many potential economic and functions of the state that have reforms that could provide easy been entrenched over a half-century or quick successes for the next of military rule cannot be easily government are at the S/R level. changed. The government and its The former military government economic institutions remain largely often did not consider areas of policy centralized and similar to those of decentralized to the S/R level to be previous regimes; however, Myanmar’s core interests. These areas tend to 2008 constitution decentralized have weaker and more localized vested some important policymaking and interests, so reforms are less likely to administrative authorities within that meet political resistance at the Union existing structure. Some issues can level. With 14 S/R-level governments, now be legislated and administered it is easier to find potential wholly at the level of states/regions partners to pilot economic reforms.
1 The word “state”, when written without reference to “region,” refers to the body politic that governs a country. “Burma” will be used here in an historical context, while “Myanmar” will be used to reference discussions of the present-day country. The latter was introduced in 1989.
2 According to Nixon et al. (2013, v), “States and regions are constitutionally equivalent. States cover areas with large ethnic minority populations and are located along Myanmar’s borders. Regions encompass majority ‘Burman’ areas.”
2 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 3 Lastly, because many of the direct on subnational levels of government engagements of micro and small that engage with the private sector. enterprise are in sectors over which Section 5 focuses on the ways in the S/R governments have authority, which these subnational government economic reforms at the subnational actors shape the business enabling level are essential for improving the environment and reviews how this local business enabling environment has changed over the last five years. and making inclusive the tangible The paper reviews potential areas benefits of economic reform. for further research in Section 6, highlighting two key needs: a proper The paper starts with a review of the aggregation of data from S/R-level evolution of the country’s institutions private sector licenses, and a more of economic governance over the last thorough understanding of indirect century and changes in the private and S/R-level taxation. It concludes sector over this time (Section 2). in Section 7 with recommendations Section 3 provides a profile of the for policy reforms at the state/region country’s existing private sector, based and local levels, where significant on limited available information. opportunities for economic reforms Section 4 examines the structure of could yield tangible and inclusive Myanmar’s government with a focus benefits.3
3 This paper draws on a number of previous research papers completed by The Asia Foundation on decentralization in Myanmar. The author of the present paper has also written two papers in the Asia Foundation series, including Subnational Governments and Business in Myanmar (2014) and Local Economic Governance (2016). Those papers are based on primary fieldwork and have a more narrow focus, while this paper provides a broader overview of subnational levels of government and greater focus on regulation of the private sector. The recommendations contained in this report are more high-level and THIS PAGE IS INTENTIONALLY LEFT BLANK general, while The Asia Foundation reports contain more narrow recommendations to a select group of actors, in part to inform future programming.
4 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 5 2. HISTORY OF ECONOMIC GOVERNANCE AND THE PRIVATE SECTOR IN BURMA
hough nearly seven decades insights into the existing institutional have passed since the end arrangement and business sector.5 of British colonial rule inT Burma in 1948, the influence British colonial rule was the first of this era on Myanmar’s present- period in which wide-reaching day economy remains notable. formal economic institutions were Subsequent eras, including the developed in Burma. British colonial socialist era and the rule of the rule entered Burma in phases, starting SLORC/SPDC,4 have similarly left in the 1820s, though the Burmese a notable legacy. Much of this effect kings continued to rule upper is due to the repeated changes in Myanmar until 1885. The British the country’s economic institutions, introduced a number of important which have shifted often in response economic institutions including to changes in Burma’s political “the formal institutions and rule of leadership over the last century. New law, the regulations, the civil service, governments have often retained the infrastructure and the financial some of the institutions (or the veneer system” (Bissinger 2015, 71). The of these institutions) of previous British also introduced a range of governments while changing others, formal legislation, some of which is resulting in a system of economic still in force in present-day Myanmar. governance with colonial, socialist, Other colonial laws, such as the Municipal Act and military-era characteristics. , were drawn upon The constant institutional changes, heavily in the drafting of subsequent combined with other internal and municipal legislation. Although the external incentives, have had a colonial institutions helped develop notable effect in shaping Burma/ the formal private sector, they Myanmar’s private sector. A review “penetrated the lives of the majority of the evolution of the country’s of Burmese only to a limited degree, private sector and institutions of and often mixed with traditional, economic governance provides useful informal economic institutions”
4 The State Peace and Development Council (SPDC) (1988–2011) was known from 1988 to 1997 as the State Law and Order Restoration Council (SLORC).
5 “Economic governance” is a broad-ranging term that refers to the system of institutions and procedures that shape economic decision-making and outcomes. It encompasses some aspects not addressed here, such as macroeconomic management, and others that are addressed, such as the structure of formal state institutions that hold economic decision-making power (administration, courts, legislatures, etc.). Because the focus of this paper is on the private sector and subnational governments, the term economic governance is often used here in to describe direct state-private sector engagement.
6 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 7 (Bissinger 2015, 71). Ethnic Burmese British and Indian civil servants who production, a significant part of the evident from nearly the outset, the played a small role in the colonial had overseen the country’s economic economy, was not nationalized in the government largely stuck with the economy and government throughout institutions left (Furnivall 1957). same way as in other socialist states, system for over a decade. The early most of the British era, and instead Changes to economic institutions also with the private sector contributing 1970s saw some reforms, including were largely involved in rice created problems, for example the the vast majority of agricultural value- the legalization of some types of cultivation.6 The colonial government nationalization of agricultural lands, added during the socialist era (Tin private manufacturing (Kyaw Myint did little to promote indigenous which undermined the colonial era Maung Maung Than 2007, 150). 1978, 218).8 In 1977 the government industries (Tin Maung Maung Than property ownership system. passed the Rights of Private Enterprise 2007, 13). Instead, Burma was an The new economic system Law, yet reforms generally did export market for British and, to a In 1962 a coup brought the socialist- encountered challenges from the not create the atmosphere of lesser degree, Indian manufactured oriented Revolutionary Council outset. The system was “instituted confidence needed to encourage goods, both of which enjoyed tariff- (RC) government to power. The RC in haste, without trained personnel private investment (Bandyopadhyaya free access into Burma. The few abandoned markets and embraced the and adequate planning” and 1987, 53). A bad rice harvest and industries that thrived in colonial planned economy, while criminalizing amounted to an “unplanned socialist demonetization in 1987 weakened an Burma were linked to processing rice private enterprise (Bissinger 2015, economy” (Silverstein 1967, 121; already stalled economy, which was or natural resources, and generally 99). Instead of being encouraged Tun Wai 1962, 4). It was controlled a key driver of the 1988 protests and were foreign-owned. The exclusion by the RC, private investment and and administered by the military the resignation of the country’s ruler, of ethnic Burmans from much of the productive activity were punished, government, not competent civil General Ne Win. economy fed nationalism and anti- either through nationalization or servants, of whom 2,000 were capitalist sentiment. The perception imprisonment. The new government forced to retire in the first years In his place, a new government called of the colonial economy as unfair specifically cited the existing of the RC government (Steinberg the State Law and Order Restoration and discriminatory was part of the governance structure as a “stumbling 1981, 164). Instead, the military Council (SLORC) came to power motivation for the post-colonial block which needed to be removed” government tasked “self-admitted and began to move the country away dismantling of much of the market- in order to build a socialist economy unskilled military managers” with from socialism. Within a year, the Law of supporting institutional framework of (Revolutionary Council 1962, 2). The running SEEs and the new economic SLORC revoked the 1965 Establishment of Socialist Economic the British era. hostility of the RC towards business system (Mya Maung 1991, 118). drove another outflow of human These decisions were driven by the System (Myat Thein, 2004, 124). It In 1948 Burma was granted capital, this time from the private mindset of military leaders that legalized private imports and exports, independence and the new sector (Allen 1965, 6). “loyalty was more important than passed a new law to encourage parliamentary government competence” (Khin Maung Kyi et al. foreign investment, and liberalized sought to redefine the country’s The RC government shifted away 2000, 152). Because of the potential some price controls. However, the economic agenda, focusing on from its former role as regulator of consequences, private economic government also passed the State- nationalization, “Burmanization,” economic activity, and towards a activity was driven underground owned Economic Enterprise Law in and industrialization (Walinsky 1962, new role as the coordinator of the and large-scale private production 1989, which reserved a wide range of 491). Yet the newly independent economy. It developed widespread became hugely difficult. The economic sectors exclusively for the government faced numerous monitoring and reporting systems, incentive structure under the socialist state (Government of the Republic challenges in implementing its while sector-specific economic government encouraged smuggling, of the Union of Myanmar 1989). agenda, including infrastructure ministries were tasked with corruption, and the development The law allowed the government damaged in World War II that managing economic activity in those of connections with government. to “form joint ventures in any of had yet to be repaired and ethnic sectors. The government hastened The most rewarding activity in the the restricted sectors” or allow “any insurgencies that drained resources the development of state-owned socialist system was not production other person or any other economic and attention from economic economic enterprises (SEEs), started but illegal trade (Kyaw Yin Hlaing organization” to operate the activity development (Bissinger 2015, 91). A under the parliamentary government, 2002, 87). under unspecified conditions. This significant outflow of human capital with a focus on medium and law allowed the state to control the took place at the beginning of the large businesses in heavy industry, Although the problems with development of private production in parliamentary era, as most of the manufacturing, and services (IMF the socialist economy had been 1995).7 Notably, agricultural
8 The government categorized eighty types of industries into four groups, each with different levels 6 For further reading on this topic, see Adas (2011). of restrictions. The least restricted group required only domestic raw materials from local private entrepreneurs. These industries were freely allowed. The most restricted industries were those that used 7 Note that in Myanmar, state-owned enterprises are referred to as state-owned economic enterprises, mainly foreign raw materials procured from the government, which were allowed only after government however, they are one and the same. approval.
8 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 9 many sectors, in essence allowing it market (including some areas which • The Myanmar Citizens Investment drop in costs, growth in coverage, to pick winners in key sectors. It also were largely unregulated and others Law (2013) and improvements in quality. Other facilitated the transition of sector- that were heavily distorted) and state developments have also helped Minimum Wages Law specific ministries from socialist-era control. • (2013) improve the business environment, coordinating and operating entities The Telecommunications Law including the removal of many Myanmar “approved” a new • to their SLORC/SPDC-era role as (2013) foreign sanctions, improvements in licensers and revenue collectors from constitution in 2008 through a the electricity supply, and an increase the private sector. Price controls, referendum that was widely regarded • Union taxation laws (2014, 2015)9 in credit available to the private which played an integral role in the as fixed. The constitution created the sector. Besides the active legislative agenda, a socialist-era economy, were removed offices of president and two vice- number of other changes in economic in some places but retained in others. presidents, as well as a parliament. Interviews with micro and While there have been overall administration have had important For example, rice prices were not It put the vast majority of ministries improvements in the governance small businesses and those impacts. These include: liberalized until 2003, while official under nominally civilian control, of the private sector, changes and decentralized various powers have not benefitted all businesses prices of SEE products, including • A significant liberalization of the to the S/R level of government located outside the biggest equally. Interviews with micro and vehicles, petroleum, and mobile trading regime, including removal (which is discussed in significantly small businesses and those located telephones, were controlled by the cities suggest that economic of the export-first policy;10 government for the entire SLORC/ more detail below). It also reserved outside the biggest cities suggest SPDC era (Kubo 2012, 5). strong powers for the military, over governance has not changed • Exchange rate harmonization; that economic governance has which the newly-created civilian not changed as significantly for Although markets were supposed administration has only been able to as significantly for these • Liberalization of key these businesses.11 The structure to be central to economic exchange exert limited control. Among the key economic sectors, including and administration of economic businesses. in Burma, the SLORC/SPDC powers that remain with the military telecommunications; governance in these areas is largely regime did little to rebuild market is the right to appoint 25 percent • Increased tax collections; and similar to the previous regime. institutions. Burma scholar of parliamentarians and three key Changes in the tax system illustrate Khin Maung Kyi notes that “the ministers: the minister of defense, • Removal of some internal this differentiation; while there have institutional basis of a market minister of home affairs, and minister restrictions on transportation of been improvements in tax collection economy, which the parliamentary of border affairs. goods. and tax administration amongst larger government had tried to build up, businesses, micro and small businesses These legislative and administrative had been destroyed by a quarter Despite the autonomy of the military largely still negotiate their tax While Myanmar has begun changes have contributed to a century of misrule under the socialist and the dominance of former military President Thein Sein’s payments with township level officials general improvement in the business government. And the present regime officials in the government elected (Bissinger 2016). There is also much to take steps to rebuild the environment for the private sector. [the SLORC/SPDC] has not done in 2010, President Thein Sein’s administration embarked on continuity in the business licensing For example, liberalization of the anything to repair the damage” administration embarked on a series capacity of government systems of the previous and current a series of generally positive telecommunications sector (starting (Khin Maung Kyi et al. 2000, of generally positive political and regimes. While Myanmar has begun economic reforms. Among the most institutions, this process will from 2012) and passage of the 190). The military, still in charge political and economic to take steps to rebuild the capacity of telecommunications law (2013) of the government bureaucracy, visible signals of the reform agenda government institutions, this process be lengthy. have led to significant investment continued to reward loyalty and has been the raft of legislation passed reforms. Among the most will be lengthy. in the sector, resulting in a large incentivize relationship building. The by Myanmar’s parliament. Key visible signals of the reform institutional framework, which gave economic legislation passed between 2011 and 2015 includes: widespread powers to the government agenda has been the raft to determine economic winners, • The Myanmar Special Economic failed to promote competition in Zone Law (2011) of legislation passed by many sectors and reward productive activity. Though the SLORC/ • Farmland Law (2012) Myanmar’s parliament. SPDC did expand the scope for • The Myanmar Foreign Investment 9 private enterprise and allow a market For texts of laws, rules, and regulations that have been passed during the new government, see Polastri, Law (2012) Wint, & Partners Legal and Tax Advisors, “Laws and Regulations,” available at: http://pwplegal.com/en/pages/ economy to function in some parts normal_layout/PUBLICATIONS-AND-PRESS-RELEASES/Laws-and-Regulations. of the economy, the unwillingness • Vacant, Virgin, and Fallow Lands 10 The “export-first” policy during the SLORC/SPDC era required that businesses wanting to import to liberalize other key economic Management Law (2012) goods had to show an equal amount of foreign exchange earnings from exports before they could receive permission to import goods. sectors resulted in a system with both 11 Various interviews by the author from 2013 to 2015.
10 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 11 3. PROFILE OF THE PRIVATE SECTOR AND OTHER KEY ECONOMIC ACTORS
yanmar’s present-day Myanmar’s people—employing business community 52.4 percent of the population 10 M is hard to profile years and older in 2014 (Ministry of authoritatively because important Immigration and Population 2016). information is either not available Myanmar’s existing private sector is or not appropriately aggregated.12 characterized by an underdeveloped Economic data suggest, however, that manufacturing sector, which is Economic data suggest, the private sector is responsible for heavily concentrated in the country’s at least three-quarters of Myanmar’s two largest cities, Yangon and however, that the private economic activity. Gross receipts from Mandalay. Manufacturing businesses SEEs were equivalent to 13.8 percent tend to be small, with an average size sector is responsible for of the gross domestic product (GDP) of 15 employees (United Nations in the 2014/15 fiscal year (FY), and Development Program (UNDP) at least three-quarters Union government revenue (mainly 2014, 22).14 Value-added tends to of Myanmar’s economic from tax receipts) was equivalent to be low, as evidenced by Burma’s 12.6 percent (International Monetary largest export manufacture— activity. Fund (IMF) 2015, 28).13 This section garments. In the garments sector, profiles Myanmar’s existing private almost all factories operate as sector using available data, then contract manufacturers on a cut- briefly reviews two other important make-pack basis, where margins are types of economic actors: private comparatively low because apparel sector associations and SEEs. buyers provide the inputs, usually from abroad.15 There are virtually no Agriculture remains the primary domestic value chains for textiles or economic activity for many of trims, an unsurprising characteristic
12 It is difficult to provide quantitative estimates of formal and informal business in Myanmar; thus the relative shares of SEEs’ or the military’s involvement in the economy are also difficult to gauge. Two recent papers seek to provide some estimates, see Rieffel (2015) and the Global Financial Integrity report by Kar and Spanjers (2015); however, each has shortcomings in methodologies that limit the usefulness of their findings.
13 Note that government and SEE revenue data do not include revenues for other military-linked businesses, which would not be recorded in the budget in the same format as SEE revenues.
14 Manufacturing business are defined by the study as falling under the Myanmar Standard Industrial Classification (MSIC) sectors 10-33. The MSIC system bears a close resemblance to the International Standard Industrial Classification system.
15 “Cut-make-pack” is also referred to in the industry as “cut-make-trim” or CMT.
12 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 13 of an early-stage garment At the subnational level, township- TABLE 1: PROPOSED DEFINITION OF SMALL AND MEDIUM ENTERPRISES manufacturing sector in a country level Development Affairs Number of Capital Turnover that still has significant political and Organizations (DAOs) provide Categories Employees (Kyats in Million) (Kyats in Million) economic risks. The services sector the largest number of licenses to Manufacturing sector Up to 50 Up to 500 is the most difficult to profile, partly businesses. DAO-licensed businesses Labor-intensive Up to 300 Up to 500 because the government does not are not required to register with manufacturing sector have strong data as there is no sector- DICA or any other government Small Wholesale business Up to 30 Up to 100 specific ministry tasked with licensing authority. Because there is no Retail business Up to 30 Up to 50 these businesses. Union-level parent ministry for the Servicing business Up to 30 Up to 100 DAOs, data on these licenses are not Other businesses Up to 30 Up to 50 A number of large, multisectoral compiled at the national level and Manufacturing sector From 51 up to 300 From 500 up to 1,000 conglomerates, owned by influential no national figures on DAO-licensed Labor-intensive From 301 up to 600 From 500 up to 1,000 elites often referred to as the businesses are available. Instead, these manufacturing sector cronies, operate across a large Wholesale business From 31 up to 60 From 100 up to 300 township-level data are collected on It is difficult to obtain Medium number of sectors. Most built their an annual basis and aggregated at the Retail business From 31 up to 60 From 50 up to 100 conglomerates not around specific S/R-level. For all these reasons, it is an accurate picture of Servicing business From 51 up to 100 From 100 up to 200 competitive advantages in production difficult to obtain an accurate picture Other businesses From 31 up to 60 From 50 up to 100 or services, but instead their ability of the country’s private sector using the country’s private Note: Proposed definitions from the draft SME Law. to obtain permission from the former government registration and licensing Source: Government of the Republic of The Union of Myanmar, http://www.smedevelopmentcenter.gov.mm/?q=en/def_sme sector using government government. Numerous SEEs and data. Data in the Private Sector military-linked companies also play section below therefore only represent registration and licensing an important role in the economy. the subset of the private sector for DEFINITIONS AND which a data-collecting administrative data. CONTEXT OF DATA unit has authority. Using available data to profile the It is also important to clarify some private sector in Myanmar requires a Myanmar government definitions of detailed explanation of the context of private sector businesses. A new small the data, which this section reviews. and medium enterprise (SME) law TABLE 2: CURRENT CLASSIFICATIONS OF SMALL, MEDIUM, AND LARGE Although registration and licensing includes a complex definition of small are generally distinct processes, in and medium enterprises, detailed Category Small Medium Large Myanmar these terms are sometimes in Table 1. However, officials in the 16 conflated. At the Union level, Ministry of Industry noted that as Power used (in horsepower) 3 to 25 25 to 50 50 + company registrations are obtained of July 2015, this definition was not Number of workers 10 to 50 51 to 100 100 + from the Directorate of Investment yet employed because government Capital outlay (million kyat) 0 to 1 1 to 5 5 + and Company Administration officials on the ground had yet to Production value per year (million kyat) 0 to 2.5 2.5 to 10 10 + (DICA), under the Ministry of receive implementing instructions.17 Note: Classifications are taken from the 1990 Private Industrial Enterprise Law. Since the implementing instructions have not yet been issued, it is unclear how businesses that meet some criteria for one size and some criteria for another size are classified. National Planning and Economic Because of this, the government still Development. Some sector-specific Source: Ministry of Industry, Central Department of Small and Medium Enterprises Development, uses an outdated definition of SMEs http://www.smedevelopmentcenter.gov.mm/?q=en/def_sme. ministries, such as the Ministry of from the 1990 Private Industrial Industry, also register businesses. Enterprise Law, noted in Table 2. This These registrations do not often cover definition is tailored for industrial most micro and small businesses enterprises. in services, retail, and some other economic sectors.
16 This opinion is based on the work of the author, as well as personal communication with UNDP staff working with the Central Statistical Organization on the collection of business data.
17 Interview with the Department of Industrial Supervision and Inspection, Taunggyi, conducted for The Asia Foundation.
14 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 15 THE PRIVATE SECTOR Office of the President, stated that The other oft-cited government data businesses. The majority of these Despite the limitations described there were nearly 127,000 registered Myanmar has over 40,000 on business registrations are from the businesses, around 64 percent, are above, government data—compiled formal businesses as well as 620,000 Ministry of Industry, which registers food and beverage manufacturers. by Union and subnational offices, informal enterprises (Table 3). The registered manufacturing the majority of manufacturing The full breakdown of manufacturing but not integrated or consistent, underlying data for this estimate were businesses. Recent data from that businesses by sector and size is shown and not always regularly updated— not disclosed, but it is likely that businesses. ministry show that Myanmar has in Table 5. are the most comprehensive the figures for small, medium, and over 40,000 registered manufacturing source of information on private large enterprises draw from Union- enterprises in Myanmar. Across all level ministry data, while figures for of government, the only estimate of informal enterprises are from local- TABLE 5: DISTRIBUTION OF MANUFACTURING ENTERPRISES, BY SECTOR AND SIZE, 2013 the total number of private sector level DAOs.18 Sector Small Medium Large Total Shares enterprises, released in 2013 by the Food and beverages 20,976 4,110 2,369 27,455 63.5% TABLE 3: DISTRIBUTION OF BUSINESSES BY SIZE AND REGISTRATION (2013) Construction materials 2,117 650 510 3,277 7.6% Metal and mineral 1,204 381 315 1,900 4.4% Number of Percentage of Percentage of Type of Enterprise Enterprises Formal Enterprises All Enterprises Clothing 1,001 380 341 1,722 4.0% Personal goods 330 410 375 1,115 2.6% Large enterprises 721 0.6% 0.1% Industrial raw materials 282 240 169 691 1.6% Small and medium enterprises 126,237 99.4% 16.9% Printing and publishing 183 117 60 360 0.8% Total registered enterprises 126,958 100% 17.0% Household products 97 79 144 320 0.7% Informal enterprises 620,000 n/a 83.0% Transport vehicles 33 40 194 267 0.6% Source: Nay Pyi Taw News (2013), “U Thein Sein delivers an address at Small and Medium Enterprises Development Central Industrial tools and equipment 66 49 15 130 0.3% Committee Meeting at Presidential Palace,” January 14, 2013. In OECD, Multi-dimensional Review of Myanmar: Volume 1. Initial Assessment,104. Agricultural machinery 37 25 9 71 0.2% Electrical equipment 12 15 43 70 0.2% Others 4,799 791 264 5,854 13.5% As noted earlier, DICA is the central associations are also included. As Total 31,137 7,287 4,808 43,232 100% office for business registrations. The of 2013, 33,056 businesses and 57 Shares 72.0% 16.9% 11.1% 100% - vast majority of DICA registrations associations were registered with Source: Ministry of Industry, SME Development Center, PowerPoint Presentation, August 26, 2013. are Myanmar enterprises, however, DICA (Table 4). some joint ventures and business
TABLE 4: BUSINESSES REGISTERED WITH DICA BY OWNERSHIP TYPE (2013)
Number of Type of Enterprise Enterprises
Myanmar enterprises 30,135 Foreign enterprises 1,686 Partnerships 1,072 Joint ventures (SEE and Myanmar enterprise) 54 Joint ventures (SEE and foreign enterprise) 17 Joint ventures (Myanmar enterprise and foreign enterprise) 92 Private sector associations 57
Source: OECD, Multi-dimensional Review of Myanmar: Volume 1. Initial Assessment,106.
18 It is also possible that this estimate could be taken from tax records available through the Internal Revenue Department (IRD).
16 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 17 Data on the geographical distribution The UNDP conducted a partial in the government database were not suggests that the private sector may of businesses registered with the business census in 2013-2014 While businesses are The survey suggests either operating (UNDP 2014, 4).19 Second, be less present in Myanmar’s ethnic Ministry of Industry show that while to provide more comprehensive the Business Census evidences the minority areas, as it shows that none businesses are distributed throughout information on the structure of distributed throughout that the private sector is less dominance of Yangon, and to a lesser of the country’s states has more than the country, an outsized proportion Myanmar’s private sector (UNDP degree Mandalay, in the country’s 4 percent of either sales or workers, of large manufacturers are based in 2014). The business census combined the country, an outsized present in Myanmar’s ethnic industrial economy. Although Yangon with most having either 0 percent or Yangon and, to a lesser degree, in data from DICA and the Ministry proportion of large minority areas (i.e., states) accounted for only 25 percent of 1 percent of either. These same figures Mandalay (Table 6). Remote areas, of Industry, which overlap with the registered businesses, it accounted could also indicate lower registration such as Rakhine and Chin States, data above though are not directly manufacturers are based or lower registration rates for 55 percent of employment and rates by businesses in states. have very few large manufacturing comparable. The exercise included 57 percent of sales. The survey also businesses. field verification of businesses in just in Yangon and, to a lesser by businesses in states. degree, in Mandalay.
TABLE 7: GEOGRAPHICAL DISTRIBUTION OF FIRMS, 2014 TABLE 6: DISTRIBUTION OF MANUFACTURING BUSINESSES, BY LOCATION AND SIZE, 2015 Number of Number of Sales (in States/Regions operating Workers operating Workers Sales 100,000 K) States/Regions Small Medium Large Total Shares firms firms
Kachin 1,132 138 46 1,316 2.9% Kachin 915 7,101 228,276 3% 2% 1% Kayah 102 280 16 398 0.9% Kayah 360 1,595 28,136 1% 0% 0% Kayin 760 77 100 937 2.1% Kayin 729 6,977 124,422 2% 2% 1% Chin 663 7 4 674 1.5% Chin 139 426 21,117 1% 0% 0% Sagaing 3,046 825 300 4,171 9.3% Sagaing 2,504 21,114 977,442 8% 5% 4% Tanintharyi 1,130 107 150 1,387 3.1% Tanintharyi 832 4,711 175,159 3% 1% 1% Bago 3,433 894 310 4,637 10.6% Bago 2,073 19,761 1,013,501 7% 4% 4% Magway 2,458 327 166 2,951 6.6% Magway 923 5,725 496,935 3% 1% 2% Mandalay 3,978 2,376 1,181 7,535 16.8% Mandalay 6,698 78,878 4,114,445 22% 17% 16% Mon 1,903 260 133 2,296 5.1% Mon 1,369 6,618 586,124 4% 1% 2% Rakhine 1,879 114 61 2,054 4.6% Rakhine 409 3,246 53,770 1% 1% 0% Yangon 1,994 1,831 2,437 6,262 14.0% Yangon 7,843 257,420 14,628,397 25% 55% 57% Shan 2,939 465 216 3,620 8.1% Shan 2,022 19,474 543,515 7% 4% 2% Ayeyawady 4,774 616 522 5,912 13.2% Ayeyawady 3,593 24,788 2,601,425 12% 5% 10% Nay Pyi Taw 347 154 98 599 1.3% Nay Pyi Taw 683 7,440 301,899 2% 2% 1% Total 30,538 8,471 5,740 44,749 100% Total 31,092 465,274 25,894,563 100% 100% 100%
Shares 68.2% 18.9% 12.3% 100% Source: UNDP 2014
Note: The totals in this table do not correspond to those on the previous page. Data presented in this table are available from the SME Development Center website, a more up-to-date version of which was available at the time of writing. Five data are from a more detailed presentation from the SME Development Center in 2013. Source: http://www.smedevelopmentcenter.gov.mm/
over half of Myanmar’s townships and businesses; this confirms significant additional data collection on their attrition amongst the private sector, operations. a not surprising finding. For example, in Chin State, 139 businesses The results provide additional insights were verified, compared with 674 into the government data above registered businesses. In total, the (Table 7). In some states the number UNDP Business Census showed of operating businesses was far 19 This confirms that government business registrations are not updated regularly. This, however, should that some 30 percent of businesses not be the case with local-level business licenses granted by DAOs, which are subject to annual field visits smaller than the number of registered during which license renewal fees must be paid.
18 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 19 Table 8 combines data from the relative underdevelopment in other categories of license fees), and the the degree of detail available in data UNDP Business Census and parts of Myanmar. Especially notable Because there is no Union- location (by township). An example already being collected (and which Myanmar’s 2014 Population and is that the number of manufacturing of the specific categories of licenses is have been collected for decades). Housing Census to provide further workers per 1,000 people is level parent ministry for noted in Table 9, which demonstrates evidence of the concentration of significantly higher in Yangon (34.97) registered manufacturing businesses and Mandalay (12.79) than anywhere DAOs, data on business TABLE 9: TYPES OF DAO-REGISTERED ENTERPRISES, 2015 in Yangon and Mandalay, and the else in Myanmar. licenses are not compiled Dangerous Goods Businesses Restaurants TABLE 8: NUMBER OF RECORDED OPERATING FIRMS AND EMPLOYEES at the national level. Yet OF OPERATING FIRMS PER 1,000 PEOPLE, BY STATE/REGION, 2014 • Rice, flour, beans, and other crops • Bakeries trade data collected by the DAOs • Soft drinks Number of • Tobacco-related products Number of • ice factories and soft drink Employees at States/Regions Operating Firms provide relatively detailed • Food products training producers Operating Firms per 1,000 People per 1,000 People • Workshops (industrial and small) • Tea shop/coffee shop and related information about business • Tire-related work • Rice/noodle (fried/boiled) Kachin 0.56 4.32 • Sewing machine and cushion work • Vermicelli/Monhinkhar/Shan Kayah 1.26 5.56 activities. noodle and related • Electric/battery work Kayin 0.48 4.64 • Big restaurants • Firewood, charcoal, bamboo, cane, Chin 0.29 0.89 and cut wood • Betel nut sellers Sagaing 0.47 3.96 • Cotton dying work • Fried snacks Tanintharyi 0.59 3.34 • Beauty parlor • Condensed milk sellers Bago 0.43 4.06 • Printing press • Sunflower seeds and sweet Magway 0.24 1.46 snacks • Bicycle repair, umbrella repair, and Mandalay 1.09 12.79 shoe repair • Fermented foodstuffs Mon 0.67 3.22 DAO data are linked to • Plastic work Rakhine 0.19 1.55 • Mills (sawmill, grinding mill, oil mill, licensing, a revenue source, and rice mill) Yangon 1.07 34.97 • Sand and brick storage and work Shan 0.35 3.34 giving the government a • Photo, movie, and recording work Ayeyawady 0.58 4.01 Nay Pyi Taw 0.59 6.41 strong incentive to ensure Source: Bissinger 2016 Sources: For numbers of operating firms and employees, UNDP 2014, 10; for population data, Ministry of Immigration and its databases are up-to- Population and United Nations Population Fund (UNFPA) Myanmar, “Union Report,” available at: http://countryoffice.unfpa. org/myanmar/2014/01/21/8918/census_printed_materials/. Note that “number of operating firms” is drawn from the UNDP Business Census, which combined an incomplete selection of business registration databases. These figures are not date; thus, the majority A wide range of sectoral ministries both registered and non-registered representative of the total number of operating firms/businesses per 1,000 people or the number of employees at operating firms/businesses. also provide business licenses. For businesses and entrepreneurs. In of Myanmar businesses example, while the Ministry of 2014, MoHT reported 1,623 tour Agriculture is primarily focused on companies and 1,106 hotels, as well are licensed. Most micro Collected at the subnational level, premises. Based on these databases, agriculture and irrigation, it also as nearly 5,000 licensed tour guides DAO data are linked to licensing, businesses pay commercial tax to the and small businesses, such has licensing responsibilities for the (Table 10). Some of these specific a revenue source, giving the Internal Revenue Department (IRD). thousands of shops nationwide that types of licensed businesses, such as government a strong incentive to Although these characteristics suggest as shops, restaurants, sell pesticides and fertilizers (Bissinger the tour companies, are registered ensure its databases are up-to-date; they are formal businesses, they do While other ministries also 2016). with DICA and therefore are included thus, the majority of Myanmar not register their business name in and roadside and market in the UNDP Business Census. businesses are licensed.20 Most micro any type of national register. license businesses, it is not Some ministries, such as the Ministry vendors, register with and Other types of businesses, such as and small businesses, such as shops, of Hotels and Tourism (MoHT), transportation businesses and hotels, Data collected by the DAOs are possible to tabulate business restaurants, and roadside and market receive licenses from the both license and register businesses are sometimes registered with DICA. relatively detailed, and include the vendors, register with and receive (Organization for Economic Tour guides are generally not DICA- specific type of business activity, a licenses from all sector- licenses from the DAOs. These DAOs. Cooperation and Development registered. While other ministries also proxy for the business size (different are normally displayed inside the specific ministries without (OECD) 2013, 107). The MoHT license businesses, it is not possible provides licenses to businesses in the to tabulate business licenses from further data. sector, such as travel agents. Available all sector-specific ministries without 20 This is echoed by data collected in the World Bank Enterprise Survey and shown in the Investment MoHT data suggest that they license Climate Assessment (World Bank 2015, 11). further data.
20 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 21 TABLE 10: TOURISM SECTOR ENTERPRISES, 2014 FIGURE 1: UMFCCI MEMBERSHIP, BY SECTOR, 2015
Categories Numbers
Foreign investment hotels 46 Tourism transportation companies 310 Licensed hotels 1,106
Licensed tour companies 1,623 Trading Licensed tour guides 4,846 34% 37% Manufacturing Total 7,931 Service Source: Ministry of Hotels and Tourism, http://www.myanmartourism.org/images/tourism-statistics/2014.pdf. Production
Other 6% 10% A final challenge in profiling PRIVATE SECTOR 13% Myanmar’s private sector is that ASSOCIATIONS A final challenge in profiling businesses in the same sector often Myanmar’s private sector encompasses register and/or receive licenses from a wide range of associations. The apex Myanmar’s private sector different authorities depending organization is the Republic of the is that businesses in the on their location. Manufacturing Union of Myanmar Federation of Private sector associations tend to Because membership is effectively businesses in industrial zones Chambers of Commerce and Industry same sector often register Private sector associations have relatively strong links with required in many sectors and due to are required to register with the (UMFCCI), which has 47 affiliated government. The strong links began built-in conflicts of interest, private Ministry of Industry. However, sectoral associations, 16 affiliated and/or receive licenses tend to have relatively with their founding, often done at sector associations have a mixed they are not required to have an S/R chambers, and 9 affiliated from different authorities strong links with the behest of, or in close cooperation record of representing the interests operating license from a DAO or border trade chambers (UMFCCI with, government ministries. These of the members. Few associations municipal government, though 2015). UMFCCI also includes direct depending on their location. government. links also exist at the regional have established mechanisms in licenses for particular aspects of business members from a broad level; S/R business associations which the association gathers their manufacturing process may be range of sectors. However, likely often have connections to the information from members in order required.21 Manufacturing businesses because of the organization’s historical relevant government departments. to form policy positions. They are in municipal areas must obtain responsibility to grant country- Associations can play a role in also generally weak in collecting their license from the DAO. Some of-origin certificates, there is a influencing policy, through both market information and other data. DAO-licensed manufacturers register concentration of trading businesses.23 official and personal channels of Therefore, when the leadership with the Ministry of Industry, while In 2014-15, UMFCCI had 10,544 communication between associations of associations makes policy others do not. Very limited data on members, with trading businesses and government. Some of the representations, they are often not manufacturing businesses suggest representing over one-third of the associations present official, written based on a thorough understanding of that less than half of the municipally- membership. policy positions to the government, the association’s membership. Some based manufacturers register with the Private sector associations however, informal communication is associations do hold consultation Ministry of Industry and nearly 60 common. Myanmar’s associations are meetings with members on various 22 percent do not register with DICA. have a mixed record of led by private sector businesspeople topics, however, such meetings tend who operate their businesses at to be held infrequently. representing the interests of the same time that they serve (voluntarily) in the leadership of Many private sector associations the members. an association. This often presents have restrictions that limit their a conflict of interest, because some ability to represent the sector as associations retain the right to grant a whole, notably restrictions on trade-related and other approvals the participation of foreign and joint venture (JV) businesses in 21 that businesses need to operate. Various interviews by the author with industrial zone representatives have noted that the zones do not the association’s leadership. For license businesses. In select sectors, such as tourism, example, the Myanmar Garment 22 Building Markets (2014, 15) and author’s calculations. ministries require proof of association membership in order to renew their Manufacturers Association does 23 Exporters must belong to UMFCCI in order to obtain country-of-origin certificates, which are necessary not include representatives from for seaborne trade. Overland trade does not require the same certificates from UMFCCI. operating licenses.
22 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 23 foreign or JV factories in leadership, 1, 2015. This was an immediate and TABLE 11: SOURCES OF MYANMAR GOVERNMENT REVENUE despite the fact that the foreign significant change for businesses. FY15/16 (Billion kyat) FY11/12 FY12/13 FY13/14 FY14/15 and JV businesses are a significant The associations had advocated (projected) and rapidly growing share of the for a gradual transition to the new SEE receipts after transfers to 2,376 6,560 6,738 8,372 7,027 sector. These businesses sometimes minimum wage, which did not Union government form associations outside of the happen. Tax revenues 1,678 3,375 4,262 5,160 6,309 UMFCCI umbrella, as is evidenced Other nontax revenue While there is some civil society 180 422 881 2,402 1,503 by the numerous foreign chambers of Transfers from SEEs to Union commerce in Myanmar. Businesses engagement on economic issues, government 988 774 746 322 698 it tends to focus on issues such as also form informal groupings, as is Grants 0 26 146 305 382 natural resources, transparency, social the case for foreign manufacturers in Total 5,222 11,156 12,772 16,563 15,919 impacts, and the environment. Civil the garment sector. Note that the significant increase in revenues from fiscal year (FY) 2011/12 to FY2012/13 does not reflect a dramatic change in revenue sources, society capacity to formulate and but instead the harmonization of exchange rates from April 1, 2012. Because the government no longer used the official exchange rate for accounting The close links between most advocate independent policy positions purposes from FY2012/13, government accounts show significant change between these fiscal years. Source: IMF 2015, 29. business associations and government on economic issues is very limited. are sometimes accompanied by STATE-OWNED AND STATE- suspicions of cronyism. However, in LINKED ENTERPRISES most instances such suspicions are unfounded as associations do not Although private enterprise in dictate policies or the policy agenda Myanmar has been growing to government. The 2015 setting of significantly since the country’s economic transition in the late 1980s, the minimum wage illustrates the No precise figure exists for the total Rieffel shows that some SEEs have limited policy-setting influence that state- and military-owned enterprises continue to play important roles in Some SEEs have been number of SEEs in Myanmar, though been privatized or transformed into associations can wield. Garment one report suggested that at least departments, leaving 30 active SEEs manufacturers advocated a minimum Myanmar’s economy. Myanmar’s SEEs have historically been an privatized or transformed 44 SEEs operated in 2015 (Rieffel at the end of 2015 (Table 12). Within wage of 2,500 kyat per day, while the 2015). A 2013 report by the OECD the general category of SEEs, different labor unions pushed for 4,000. In important revenue source for the into departments, leaving government, collecting much of the noted that there were 638 industrial enterprises have different structures, the minimum wage-setting process, SEEs (OECD 2013, 106). Further responsibilities, and revenue sources. the government largely sided with country’s natural resource revenue. 30 active SEEs at the end of Gross revenues from SEEs are analysis of the most recent list by labor union groups, setting the wage 2015. at 3,600 kyat per day. After extensive significantly larger than tax revenues, discussions among stakeholders, though net revenues are much lower including representatives from (Table 11). However, the figure of net labor organizations, employers, revenues from SEEs is an aggregated government, and other interested measure that is not very useful, given parties, the new minimum wage was the various types of SEEs and the announced on August 28, 2015 for important role of some of them in implementation starting September natural resource revenue collection.
24 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 25 TABLE 12: LIST OF STATE-OWNED ECONOMIC ENTERPRISES AND PARENT MINISTRIES, 2015 Myanmar’s most lucrative SEEs are Some SEEs have been devolved 24 Ministry Enterprise MOGE serves as both those involved in natural resource to S/R budgets, including the extraction. The Myanmar Oil and Myanmar Motion Picture Enterprise Agriculture and Irrigation Myanmar Agricultural Development Bank a regulatory body that Gas Enterprise (MOGE) under the and the Myanmar Salt & Marine Communications and Information Technology Myanmar Posts and Telecommunications Ministry of Energy earns the most Chemical Enterprise.25 However, the Electricity Supply Enterprise collects taxes on oil and gas revenue, according to the FY2013/14 revenues of these SEEs are relatively Electrical Power Hydro Power Generation Enterprise budget. MOGE serves as both a small. Myanmar Electric Power Enterprise production as well as the regulatory body that collects taxes Yangon Electricity Supply Board government’s shareholder on oil and gas production as well Besides the SEEs, Myanmar’s Energy Myanmar Oil and Gas Enterprise as the government’s shareholder in military owns two quasi-private Myanmar Petrochemical Enterprise in these enterprises, making these enterprises, making it the most multisector conglomerates, the Union Myanmar Petroleum Products Enterprise of Myanmar Economic Holdings it the most profitable SEE. profitable SEE. According to the Environmental Conservation and Forestry Myanmar Timber Enterprise budget data for FY2014/15, MOGE Limited (UMEHL) and the Myanmar Myanmar Economic Bank Economic Corporation (MEC). According to the budget alone was responsible for nearly 43 Myanmar Foreign Trade Bank Unlike SEEs, these businesses Finance percent of the country’s total SEE Myanmar Investment and Commercial Bank Special data for FY2014/15, MOGE revenue. are registered under the Myanmar Insurance Company Act of 1950, which governs No. (1) Heavy Industries Enterprise alone was responsible for A number of other resource-focused enterprises in which the state holds No. (2) Heavy Industries Enterprise SEEs operate in a similar fashion to shares. Despite public shareholding, nearly 43 percent of the No. (3) Heavy Industries Enterprise MOGE, issuing licenses, collecting the legal framework for these Industry Pharmaceutical and Foodstuffs Industries country’s total SEE revenue. taxes, and holding equity shares. businesses more closely resembles News and Periodicals Enterprise Among these enterprises are the private companies than SEEs. Information Printing and Publishing Enterprise Myanmar Mining Enterprises and the UMEHL and MEC operate across a Myanmar Gems Enterprise Myanmar Gems Enterprise (MGE). range of industrial and other sectors. Myanmar Pearl Enterprise Notably, these enterprises have very They are relatively opaque businesses Mining No. (1) Mining Enterprise limited or no direct operations, and often operate outside of the No. (2) Mining Enterprise but instead are tasked with a quasi- formal scope of the law. For example, Myanmar Railways regulatory role and natural resource despite being unlicensed by Myanmar Rail Transportation Road Transport rent collection. Posts and Telecommunications, Inland Water Transport MEC operates a nationwide mobile Other SEEs, such as the Myanmar Myanmar Airways* phone network. Because the Ministry Transport Electric Power Enterprise and the Myanmar Port Authority of Defense holds shares in both Myanmar Timber Enterprise, have Myanmar Shipyards businesses, it should theoretically operational responsibilities and receive a dividend from the operations Note: * Myanmar Airways was corporatized in 2014, although it remains under the Ministry of Transportation. Note that engage directly in economic activity. budget data published in the Union Government Gazette also classified income and expenses for the Ministry of Construction, of both enterprises. However, it the Ministry of Cooperatives, and the Central Bank under the title of SEE revenue. The Ministry of Construction SEE, Public The varying responsibilities and is unlikely that these revenues are Works, was transformed into four departments in 2015, while the Ministry of Cooperatives no longer lists any active SEEs on its operations of the SEEs suggest the website. accounted for in the government’s Source: Ministry websites need for more detailed analysis before budgeted funds for the military. developing reform recommendations.
24 According to Nixon et al., “Beginning with the 2012/13 fiscal year, regions and states have had separate budgets from the Union, though the Union budget continues to include significant transfers to these local budgets.” (2013, 38)
25This information is taken from S/R FY2013/14 budgets, which show income and expenditures affiliated with a number of SEEs. Two—Public Works and Mining—have since been privatized. This may not be a comprehensive list of SEEs.
26 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 27 4. THE STRUCTURE OF MYANMAR’S GOVERNMENT
resent-day Myanmar is Despite the decentralization of governed by an administration some legislative, administrative, P whose structure is largely the and revenue-raising authorities to same as under previous governments. the S/R level of government, the It is a hierarchical bureaucracy, administrative structure of Myanmar’s in which military officers (both government has not changed current and retired) hold many significantly and remains largely of the senior positions in the civil unitary. While S/R governments service.26 It maintains a strong focus do have administrative bodies that on controlling and monitoring help to fulfill their constitutionally the economy, a characteristic with mandated authorities, these bodies its roots in the socialist, planned are not independent. Instead, all economy. At the local level, the key but one government department engagements between business and at the S/R level are also part of government are generally licensing or a vertically integrated Union revenue collection (Bissinger 2016). ministry. S/R governments do not Many of the state’s market-supporting have independent or autonomous institutions, such as the judiciary, administrative bodies to fulfill their remain weak and partial. The capacity constitutionally mandated authorities. of the state to act as a regulator or Myanmar’s decentralization is to assure public services, such as the not characterized by structural development and maintenance of transformation and the creation infrastructure, is limited.27 These of independent S/R bureaucracies, characteristics underlie many of the but instead by the constitutional challenges of reform in Myanmar, deconcentration of select powers as bureaucratic inertia and vested to the S/R level of the unitary interests shape Myanmar’s managed administration (Bissinger 2016). transition. Only one government department,
26 Note that under the Thein Sein-led, Union Solidarity and Development Party (USDP) government (2011–2016), former military officers also occupied many of the minister and deputy minister positions. It is highly likely that the government led by the National League for Democracy (NLD) (2016–2021) will bring in new ministers, fewer of whom will have military backgrounds. However, it is less clear how the NLD will handle the significant share of high-level civil servants with military backgrounds.
27 Within the government system, there is significant variation in the source of funds for infrastructure development. Many funds come from the Union government, especially for larger infrastructure projects. In urban areas, township-level DAOs provide some infrastructure, often through a cost-sharing program in which individuals who will use the infrastructure contribute funds to buy materials, while the DAOs provide machinery and labor. In rural areas, some Union funds are provided for roads through the Department for Rural Development. For small infrastructure at the village level there is often no government assistance.
28 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 29 the Development Affairs, does not transfer responsibility for decision- in areas where S/R governments represent new funds flowing to new have a parent ministry at the Union making and administration The decentralization The increase of funds for have legislative and revenue- administrative structures. Instead, level, though this department is of public functions to semi- raising authority. No subnational it represents the transfer of some still subject to the same civil service autonomous organizations not of selected economic S/R governments does not administrative units in Myanmar administrative authority and related rules of the Union government.28 wholly controlled by the central show characteristics of being partially funding to a lower level of a pre- powers has created new Despite the lack of administrative government, but ultimately represent new funds flowing or fully devolved. existing bureaucracy. autonomy, the decentralization of accountable to it … Usually these scope for local level policy to new administrative OVERVIEW OF selected economic powers has created organizations have a great deal Thus Myanmar’s fiscal GOVERNMENT STRUCTURE new scope for local-level policy of discretion in decision-making. experimentation and has structures. Instead, it decentralization is, in large part, IN MYANMAR experimentation and has opened new They may be exempt from an accounting exercise. Funds that scope for engagement on economic constraints on regular civil service opened new scope for represents the transfer Myanmar’s government is hierarchical used to be allocated from the Union reforms with a range of government personnel and may be able to and centralized, characteristics that government directly to subnational engagement on economic of some administrative departments at the S/R level. charge users directly for services. trace their roots back as far as the administrative units are now allocated colonial British administration first to the S/R government and reforms with a range of authority and related DEFINITIONS OF • Devolution [is w]hen governments (Furnivall 1960, 6). then on to the same subnational ADMINISTRATIVE … transfer authority for government departments at funding to a lower level of a administrative units. These units DECENTRALIZATION decision-making, finance, and As shown in Figure 2, the country have largely the same capacity, staff, Before examining the structure of management to quasi-autonomous the S/R level. pre-existing bureaucracy. includes 14 states/regions and the and mandate, and do almost exactly Myanmar’s government further, it units of local government with Union Territory of Nay Pyi Taw, what they did before Myanmar’s is useful to clarify different types of corporate status. Devolution each of which is subdivided into “decentralization.” There has been no administrative decentralization. The usually transfers responsibilities districts and then into townships. The change in the ultimate authority over World Bank cites three different types for services to municipalities township is the lowest unit in which these departments, which remains at of decentralization: deconcentration, that elect their own mayors a wide range of administrative bodies the Union level. Myanmar’s fiscal delegation, and devolution (World and councils, raise their own of government are present. The lowest administrative unit in the country— This understanding of Myanmar’s Bank 2016). It defines them as revenues, and have independent decentralization is, in follows: authority to make investment the village tract in rural areas and the decentralization process is supported decisions. In a devolved system, large part, an accounting ward in urban areas—is led by an • Deconcentration --which is often local governments have clear and indirectly elected village head who considered to be the weakest exercise: increased funds is supported by a government staff FIGURE 2: MYANMAR legally recognized geographical GOVERNMENT STRUCTURE form of decentralization and is from the General Administration boundaries over which they for S/R governments do used most frequently in unitary exercise authority and within Department (GAD), part of the Union states—[it] redistributes decision- Ministry of Home Affairs (Arnold et which they perform public not represent increased making authority and financial functions. It is this type of al. 2015, 33). and management responsibilities The administrative budget allocations, but administrative decentralization A proper understanding of Myanmar’s States/Regions (14) among different levels of the that underlies most political + Nay Pyi Taw Union departments at the S/R level rather the transfer of some decentralization process is essential central government. It can merely decentralization. (World Bank Territory (1) shift responsibilities from central for engaging with S/R and local 2016) have some characteristics of government officials in the capital administrative authority and levels of government. In Myanmar, decentralization is best characterized city to those working in regions, In Myanmar, the administrative deconcentration and other related funding to a lower Districts (74) provinces, or districts, or it can departments at the S/R level as a mix of deconcentration and create strong field administration have some characteristics of characteristics of delegation. level within a pre-existing delegation. It has not led to the or local administrative capacity deconcentration and other creation of new administrative units under the supervision of central characteristics of delegation. For bureaucracy. There has been of government (Nixon et al. 2013, Townships (330) government ministries. example, S/R level government 25). Some reports, notably the no change in the ultimate entities can charge users directly 2015 IMF Article IV report, have • Delegation is a more extensive warned of the risks associated with for services and have significant authority over these Wards (3,183)/ form of decentralization. Through discretion over decision-making Myanmar’s apparently rapid fiscal Village Tracts (13,602) delegation central governments departments, which remains decentralization, based on significant growth of S/R budgets in the last Source: Myanmar Information Management Unit, “Myanmar Administrative Structure,” http://www.themimu.info/sites/ 28 three years. However, the increase of The Union government can exert control over DAOs through other means. Most notably, the S/R at the Union level. themimu.info/files/documents/Myanmar_Administrative_ Department of Development Affairs comes under the S/R minister for development affairs, who is funds for S/R governments does not Structure_Aug_2015.pdf appointed by the chief minister, who is also a Union appointee.
30 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 31 by a review of S/R budgets that shows of concessions for these resources as Within each of the ministries are S/R chief minister, a cabinet of significant funds going to formerly well. The Union government also has a range of departments, SEEs, and appointed sectoral S/R ministers, Union-funded administrative units authority over the country’s two most directorates, many of which also and S/R judicial institutions (Nixon and continued reliance by S/R significant taxes—the commercial tax have administrative offices at the et al. 2013, v). The Constitution governments on transfers from and the income tax (Bissinger and subnational level.32 The economic specifically assigns a range of the Union government to balance Linn Maung Maung 2014).30 responsibilities of ministries can legislative powers to the states/ their budgets (Dickenson-Jones et generally be categorized into the regions, as specified in Schedule al. 2015).29 This should alleviate At the Union level, the responsibility following types: Two of the Myanmar Constitution, concerns about capacity at the S/R for economic governance is as well as a list of the S/R revenue level that may accompany newly- shared between a partially elected • Ministries with cross-cutting authorities, as specified in Schedule parliament, an administration headed authority: such as the Ministries formed administrative units, though Some ministries have cross- Five (Table 14) (Constitution of the by the president (who is elected by of Commerce, Finance, National generally capacity constraints remain. The Union has the sole right Republic of the Union of Myanmar, parliament), and a wide range of both cutting economic authority, Planning and Economic 2008, 188-194). These schedules Union-Level Government broad and sector-specific ministries Development; to collect revenue from all are largely, though not entirely, (Table 13). Each ministry is led by a others have sector-specific The Union government has been, and • Ministries with sector-specific overlapping. The full texts of these minister appointed by the president, lucrative natural resources. remains, the paramount economic authority, while others have authority: such as the Ministries schedules are included in Annex I and except in the cases of the Ministries Annex II of this report. authority in Myanmar. This authority It also has authority over of Agriculture and Irrigation, of Border Affairs, Home Affairs, and only tangential economic is outlined in the Constitution, Defense, which are led by military- Industry, Mining, Environmental Although not explicitly stated in which gives the Union government 31 the country’s two most Conservation and Forestry, Hotels appointed ministers. The Thein Sein authority. the Constitution, the areas in which the right to oversee, make laws, and and Tourism, and Livestock, government has a large number of significant taxes—the the S/R-level governments have collect revenue from most economic ministries and cabinet-level officials Fisheries, and Rural Development; legislative authority and the right activity. The Union has the sole and (36) compared with other countries commercial tax and the to raise revenue have also been right to collect revenue from all in the Association of Southeast Asian • Ministries with tangential administratively decentralized. lucrative natural resources and has Nations, which have a median of 22 income tax. Because the decentralization of complete control over the granting economic authority, generally over minister-level officials. sector-specific licensing: such as administrative authority is only Ministries of Health, Education. implied in the Constitution, there is not an authoritative list of these State/Region-Level of Governments TABLE 13: GOVERNMENT MINISTRIES IN MYANMAR, 2015 administrative powers. However, The areas in which the in practice this is a significant shift Under the 2008 Constitution, from the previous system. This means S/R-level governments have Myanmar’s S/R governments have that S/R governments have the final • Ministry of Agriculture and • Ministry of Environmental • Ministry of Livestock, Fisheries, and a range of new political leaders and Irrigation Conservation and Forestry Rural Development decision-making authority in these legislative authority and the institutions as well as some economic • Ministry of Border Affairs • Ministry of Finance • Ministry of Mines areas. For example, the final authority powers directly under their control. • Ministry of Commerce • Ministry of Foreign Affairs • Ministry of National Planning and right to raise revenue have for granting a license for a business Economic Development The new institutions and leadership • Ministry of Communications and • Ministry of Health to harvest bamboo, a forest product Information Technology • Ministry of Rail Transport also been administratively of S/R governments include a • Ministry of Home Affairs listed in Schedules Two and Five of • Ministry of Construction • Ministry of Religious Affairs partially-elected S/R parliament • Ministry of Hotels and Tourism the Constitution, lies solely with the • Ministry of Cooperatives • Ministry of Science and Technology decentralized. (a quarter of the seats are reserved • Ministry of Immigration and Population S/R government. • Ministry of Culture • Ministry of Social Welfare, Relief, and for the military), an appointed • Ministry of Industry Resettlement • Ministry of Defense • Ministry of Information • Ministry of Sports • Ministry of Education • Ministry of Labor, Employment, and • Ministry of Transport • Ministry of Electric Power Social Security • Ministry of Energy
29 It is not clear if there is any correlation between decentralization and increased importance of revenues raised directly by S/R and local governments.
30 Note that the commercial tax is not the same as the corporate income tax.
31 There are six ministers in the President’s Office; they do not oversee a specific ministry but instead work 32 For example, offices from a total of 78 Union departments are represented in Tanintharyi Region, as with the President’s Office on a range of administrative matters. noted in Annex III.
32 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 33 TABLE 14: STATE/REGION SOURCES OF REVENUE Ministers from the states and regions they cannot carry over a financial play an integral role in the Union surplus from one year to the next, government, “including ‘submitting and they are not wholly exempt from • Land tax revenue • Taxes on vehicles and inland waterway • Registration fees reports to union ministries,’ Union civil service regulations. DAOs vessels • Excise tax revenue • Tax on entrainments ‘monitoring,’ ‘coordinating are further discussed in the Local • Rental fees from S/R properties • Water tax and embankment tax on • Salt taxes plans mandated by the central Levels of Government section. S/R dams/reservoirs • Revenues from S/R service enterprises • Transfers of revenue from the Union government,’ and ‘assisting the union • Tax on electricity from S/R facilities • interest from S/R loans Fund Account33 Local Levels of Government government’” (Bissinger and Linn • Toll fees from S/R roads and bridges • Fines imposed by courts • Development Affairs Organization revenue Maung Maung 2014, 15). When the Beneath states/regions are district • Royalties from fisheries activities in • Taxes on extraction of forest products freshwater and territorial waters under S/R authority • Unclaimed cash and property Union government communicates and township levels of government. • Other a policy change to the local level, The former is largely an intermediary it is done through the hierarchy to level of administration, aggregating Note: All revenues listed above are retained by the S/R government, except for the revenues collected by Development Affairs the S/R governments, which then Organizations (DAOs), which are largely retained by the DAO in the township where they are collected. Some DAOs participate in data and other information from the a small revenue-sharing program, where funds from larger DAOs are transferred to smaller DAOs within the same state/region. communicate it to the district and/or townships, coordinating between township level. different levels of government, and The dual role of subnational facilitating communication up and administrative units makes it down the hierarchy. At the district difficult to neatly categorize level there is little direct engagement Although some powers have been township offices, receive funding Myanmar’s decentralization. In their with the private sector and also little delegated to S/R-level governments from both Union and S/R budgets administration of S/R constitutional authority to make decisions. and new leadership positions and and collect revenue on behalf of both authorities, S/R governments have Townships, on the other hand, institutions have been created, states/regions and the Union. The many attributes of delegation. are the level of government S/R administrative units are not level of government responsibility for However, in their implementation with which individuals and independent or autonomous, but an economic activity is determined by of authorities assigned to the Union the private sector have the vast rather remain an integral part of Schedule Three of the Constitution. level under the Constitution, majority of direct engagements. the Union hierarchy. The S/R S/R governments more closely Townships are the lowest level bureaucracy is one and the same Ministers at the state/region level resemble a deconcentrated level of of government in which a wide with the Union bureaucracy. The provide a good example of the dual Ministers at the state/region administration. Only one of the more range of government departments powers afforded to S/R governments roles of S/R governments. They level provide a good example than 90 S/R government departments have staff; most townships have in the Constitution are exercised by report both to the chief minister of an S/R government as well as to does not report to any Union-level officers from approximately 30 the same administrative units that of the dual roles of S/R ministry: Development Affairs, different departments. At this level also exercise authority on behalf of their parent ministry in Nay Pyi Taw. which operates at the township level of government, two departments the Union government. Officials at Each S/R minister is responsible for governments. They report through DAOs. Township-level play integral roles in local economic the local level administrative office, a range of departments at the S/R both to the chief minister of DAOs are therefore responsible governance generally, but also such as the local Department of level, as noted in Schedule Three only to the S/R level of government. specifically in the governance of Forestry, report to both the district of the Constitution. Whether the an S/R government as well This is because all of their areas of the private sector: the General and S/R levels, where some matters S/R minister reports to the Union authority have been decentralized Administration Department (GAD) are decided and others are passed ministry or the S/R chief minister as to their parent ministry in to the S/R level in the Constitution. and the Development Affairs on to the Union. From a public depends on the level of government Because of this, there is no need for Organizations. Although GAD finance perspective, many local-level that has been vested with authority Nay Pyi Taw. a Union-level ministry. Although and DAOs regularly work together, administrative units, for example, according to the Constitution. DAOs are the most decentralized the GAD is the more powerful administrative body in Myanmar, local authority and plays a key role they are best described as a delegated in granting permissions and in unit of government. They lack many interdepartmental coordination, characteristics of a devolved level of whereas DAOs are largely service- government. Notably, they lack local oriented organizations, as described accountability through elections, they later in this section. cannot borrow as a body corporate, 33 All Union-level taxes and revenues are deposited into the Union Fund Account, from which, among other things, transfers to S/Rs are made.
34 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 35 FIGURE 3: GOVERNANCE OF THE PRIVATE SECTOR General Administration meetings of all other township-
UNION Led by a township Department level officers (Kyi Pyar Chit Saw Ministries and Arnold 2014, 32). While the administrator, the The GAD is the township-level office GAD collects some revenues at the E.g., Agriculture Finance Livestock Home Affairs of the Ministry of Home Affairs. township level, largely on behalf of government representative 34 Led by a township administrator, other departments, it depends on STATES/REGIONS the government representative with Chief Minister with powers most closely allocations from the Ministry of S/R Ministers* powers most closely akin to those Home Affairs for its funding. The akin to those of a mayor, the of a mayor, it is the most powerful GAD was the subject of a detailed E.g., Agriculture Finance Livestock Development Affairs** Home Affairs local government entity. Township report by The Asia Foundation, which GAD is the most powerful administrators are appointed officials, DISTRICTS argued that townships “function Home Affairs selected by higher levels of the GAD. local government entity. around the executive authority of Township administrators have overall GAD township administrators” (Kyi TOWNSHIPS responsibility for the township and Township Administrator Pyar Chit Saw and Arnold 2014, 32). General Administration the power to coordinate and convene They fulfill the following functions: Township-level Ministry Department Offices TABLE 15: GENERAL ADMINISTRATION DEPARTMENT TOWNSHIP ADMINISTRATOR FUNCTIONS O Township Development T I Affairs Committees GAD Township Administrator Functions H R E D DAO Executive Officer • Land administration (for residential, industrial, and commercial use, including R Development Affairs land for roads, schools, and special economic zones), as well as land dispute Organizations resolution; • Excise administration (applicable to liquor, beer, yeast, and wine); PRIVATE SECTOR • Collection of four kinds of tax (land, excise, mineral, and irrigation); • Structural settlement of villages and towns (e.g., identifying and managing * S/R Ministers have responsibility for various departments at the S/R level, though these departments are not organized into Ministries as they are at the Union level. district and township borders); ** Development Affairs is not represented at the Union level. • Rural development; • Formation and registration of organizations and associations (including registration of locally active domestic and international social welfare nongovernmental organizations); • Conferring honorific titles and medals; While there is interdepartmental township ministry office to another. • Returning to Myanmar citizens properties previously owned by foreigners; coordination at the township level, The only exception to this is that the While there is inter • Provision of recommendation letters that are a prerequisite for obtaining some the primary line of reporting for each GAD does collect some taxes, such kinds of licenses and permission, including land transfers, construction permits, and operating licenses;35 and township level office is to the district- as the land tax, on behalf of other departmental coordination • Playing a role in the mediation and resolution of local-level disputes between or or S/R-level office of its ministry. parts of government. However, this is at the township level, the among businesses. The lines of reporting are vertical done because of practical constraints, to higher levels of government, and because most other departments primary line of reporting for Sources: Kyi Pyar Chit Saw and Arnold 2014, 18; Bissinger and Linn Maung Maung 2014, 11. not horizontal within the township. lack the manpower to collect the tax Revenues are not shared between themselves. Coordination between each township level office is offices of different ministries at different ministry representatives the township level. Even the most occurs for some decision-making, for to the district- or S/R-level powerful government official example, the valuation of urban land. office of its ministry. at the township level, the GAD These values are determined by a administrator, would not have the board consisting of six township-level authority to redirect revenue from one government servants.
34 Similarly, in rural areas the GAD is represented by an appointed village tract administrator.
35 This permission is often a prerequisite for businesses to undertake other types of engagement with other local economic authorities (Bissinger 2016, 22).
36 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 37 Development Affairs Organizations providers, DAOs are very similar DAOs are unique because they raise members: four from the general to municipal governments in other DAOs are unique because the vast majority of their revenue public, including two elders, a private DAOs are the other important actor countries. DAOs have a wide range locally and receive only a small sector representative, and a civil in the local governance of the private of service provision responsibilities, they raise the vast majority portion of their funding as a transfer society representative. Usually these sector. In their role as local service including: of their revenue locally ... from the IRD, Myanmar’s primary representatives are indirectly elected. tax collection authority (Arnold The TDAC also has three appointed Taxes tend to account for et al. 2015, 27). Unlike local level representatives from government: TABLE 16: DEVELOPMENT AFFAIRS ORGANIZATIONS RESPONSIBILITIES governments in many parts of the the DAO executive officer, the GAD less than 10 percent of DAO Responsibilities developed world that obtain most deputy township administrator, of their revenue from taxes on and the Department of Rural DAO revenue, while auction SERVICE PROVISION ECONOMIC RESPONSIBILITIES buildings and land,36 DAOs are Development deputy township officer
• Town planning • Providing operating licenses to licenses can account for heavily dependent on fees, especially (Arnold et al. 2015, 34). restaurants, small shops, local those that come from auction • Water supply Township-level offices of Union guesthouses and other businesses; between 35 and 70 percent. licenses, discussed later in this paper • Sanitation ministries • Providing licenses to businesses that in the case study on slaughterhouses • Sewage disposal sell “dangerous goods;” (Bissinger 2016). Taxes tend to • Disaster preparedness • Collecting fees from roadside stalls; Many of the Union-level ministries account for less than 10 percent of • Street lighting • Licensing slaughterhouses, ferries, with authority over economic sectors DAO revenue, while auction licenses • Roads and bridges pawn shops, and other concessions; also have officials at the township can account for between 35 and 70 • Vagrant persons on streets • Licensing privately run markets; level. These officials are generally percent of revenue (Bissinger 2016). • Animal control • issuing construction permits; responsible for implementing laws The majority of remaining DAO • Parks, swimming pools, public baths, • Collecting taxes on buildings and and policies from both the Union and recreation centers vehicles in urban areas; revenue also comes from fees. and the S/R governments. They also • Road rules, street naming, and • Collecting fees for trash collection, play an important role in monitoring addresses sewage, street lighting, and other Township Development Affairs urban services; and and ensuring compliance with • Cemeteries and crematoriums Committees • issuing licenses for billboards in licenses granted at these levels. A • Removal of cemeteries urban areas. While DAOs report to the S/R-level nonexhaustive list of economic- • Public buildings under the charge of DAOs Development Affairs Organization related departments that have • Demolition of squatter buildings office, they also work with and township-level officials includes: are partially overseen by Township • Construction permissions for • Department of Forestry; private buildings Development Affairs Committees • Other development works in the (TDACs). TDACs are local • Department of Fisheries; public interest bodies that have “some decision- • Other duties as needed making power over the direction • Department of Livestock; Sources: Service responsibilities from (Arnold et al 2015, viii); economic responsibilities from (Arnold et al. 2015, 3; Bissinger 2016) and functioning of DAO Offices” • Department of Rural (Arnold et al. 2015, 36); however, Development; in practice, the DAO executive officer, who is the secretary of the • Department of Agricultural Land TDAC, has final authority over the Management and Statistics; DAO office. TDACs have seven
36 Local authorities in many or most low-income countries have weak capacities to tax land and buildings. In economic terms, property transfer taxes can be highly distortionary. Land taxes tend to be most efficient, discouraging land-holding for speculative purposes. Taxes on buildings are more distortionary. Depending on the tax rates, they also invite informal side payments.
In Myanmar, the building tax is collected widely and has been for nearly 100 years. While there are shortcomings in the administration, the major challenge noted in interviews is the public resistance to paying tax. Property transfer taxes are also a major form of revenue, though these are collected by the Union government. The land tax also has a long history, but is politically charged and faces greater implementation challenges
38 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 39 • Internal Revenue Department; S/R-level government, there is also TABLE 17: REVENUES RAISED AT DIFFERENT LEVELS OF GOVERNMENT evidence that the revenue system • Trade Promotion and Consumer Revenue (in % of Revenue % of Total Public remains highly centralized. S/R-level million kyat) in S/R Budget Revenue Affairs Department; and revenues have been explored in depth Township revenues 88,169 7.6 0.6 • Myanmar Economic Bank.37 by The Asia Foundation (Dickenson- State/Region revenues 69,569 6.0 0.5 Jones et al. 2015). However, a closer YCDC/MCDC revenues 140,535 12.1 1.0 It is with these officials that examination of the locally raised It is with these officials that Union transfers to S/R Budget Department 581,029 50.0 4.2 the majority of businesses and revenues of subnational governments Public works 282,848 24.3 2.1 individuals have most of their shows there has been little the majority of businesses Total S/R revenue 1,162,151 100.0 8.4 day-to-day engagement. Although decentralization of fiscal authority Union revenue 12,626,000 - 91.6 these departments are ultimately and individuals have from the Union to subnational Total revenue 13,788,150 - 100.0 responsible to a Union parent government. ministry, they also have some degree most of their day-to-day Notes: Figures draw on S/R- and Union-level budgets for FY2013/14. While every effort has been made to appropriately categorize the data, some errors may remain. of delegated authority, roughly While S/R budgets have been engagement. “Township revenues” refers to revenues that are raised in the same township in which they are spent. This categorization includes only revenues collected corresponding to the S/R legislative growing, Table 17 shows that local and spent by Development Affairs Organizations. and revenue raising powers in revenues of states/regions and local “State/Region revenues” refers to all other revenues raised by S/R governments, excluding the categories explicitly mentioned herein. “YCDC/MCDC revenues” refers to all revenues raised by the YCDC and MCDC. Although these revenues are similar to the category “Township revenues” Myanmar’s Constitution. These levels of government remain very they are listed separately in the S/R budgets and are listed separately here because they are multi-township revenues. powers, as well as service provision small. Notably, S/R governments “Union transfers to S/R Budget Department” refers to the Union transfers received by states/regions. responsibilities of DAOs, comprise raise only 0.5 percent of Myanmar’s “Public works” revenues are not linked to any specific S/R government revenue-raising authority, and are more likely a transfer from the Union. the entirety of the decentralized total public revenues. Township-level Sources: Author calculations based on dataset from Dickenson-Jones et al. (2015). The FY2013/14 Union revenue figure is from IMF 2015. authorities and service provision revenues amount to 0.6 percent of responsibilities of subnational levels total public revenues, with revenues Altogether ... subnational raised by the Mandalay and Yangon of government in Myanmar. An important driver of the low a 50 percent tax on wine.38 For City Development Committees revenues raised locally subnational revenues is the continued FY2016/17, alcohol is subject to DISTRIBUTION OF PUBLIC (MCDC and YCDC respectively) account for only 2.1 percent lack of separation between Union and additional taxes under the 2016 REVENUE accounting for another 1.0 percent. subnational revenues. For example, Special Goods Tax Law, which created While Myanmar’s process of Altogether, however, subnational of total public revenue raised while collection of excise taxes is a range of different tax rates for these decentralization has increased the revenues raised locally account for specifically mentioned under the commodities, including higher taxes legislative, administrative, and only 2.1 percent of total public in Myanmar. Constitution as a revenue-raising on imported products.39 Similarly, revenue-raising authority of the revenue raised in Myanmar. power of the S/R governments, the cigarettes are covered by higher majority of revenue from alcohol taxes under both laws. Both the and cigarette sales goes to the Union commercial tax and special goods tax level. This is because the Union are set by the Union government and government charges other taxes on collected by the IRD. The S/R level cigarettes, liquor, beer, and wine. of government collects excise revenue Through the end of FY2015/16, from the licensing of producers and Myanmar assessed higher commercial vendors of alcohol, though not a tax rates on alcohol, including a 60 on the volumes sold. percent tax on liquor and beer and
38 For more information on Myanmar’s taxation laws, see Rodl & Partner, “Myanmar’s New Tax Law of the Union 2015,” http://www.roedl.com/locations/asiapacific/myanmar_legal_consulting_tax_consulting_ 37 The Myanmar Economic Bank (MEB) is somewhat different than other state banks, as it largely functions accounting_services/myanmar_tax_law_2015.html. as the treasury of the country. The MEB is the central institution that holds funds for all government ministries, for both the national and S/R governments. It is also the institution to which taxes are actually 39 For more information on Myanmar’s Special Goods Tax, see VDB Loi, “Special Goods Tax Law Provides paid. For example, a business will negotiate its tax liability with the IRD, but instead of then paying the Boost for Local Cigarette, Wine, and Alcohol Producers,” Client Briefing Note, February 2016. http://www. IRD directly, it receives a voucher and goes to the MEB to pay its taxes. The receipt from the MEB is then vdb-loi.com/wp-content/uploads/2016/02/CBN_VDB-Loi_Special-Goods-Tax-Law-provides-boost-for- brought back to the IRD as proof of payment. local-cigarette-and-alcohol-producers-1.pdf.
40 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 41 5. ECONOMIC GOVERNANCE AND THE BUSINESS ENABLING ENVIRONMENT
yanmar’s business come at an interest rate of 13 percent Longer-term financing enabling environment plus fees. Longer-term financing is generally ranked products are not available on the products are not available M below that of most regional and commercial market because they are on the commercial market international competitors. According illegal. There is also a lack of short- to the World Bank’s Investment term finance products for businesses, because they are illegal. Climate Assessment (ICA), “... the such as lines of credit. Access to land top constraints are all access to inputs, is the second-most cited challenge, There is also a lack of short- and include ...” (in order of frequency due to high costs in the urban areas of citation) access to finance, access surveyed. Notably, large firms in the term finance products for to land, access to electricity, and survey do not find access to land a businesses, such as lines of access to skilled workers (World Bank challenge, likely because they are 2015).40 better capitalized than micro, small, credit. and medium enterprises (World In each of these areas, governance Bank 2015, 15). In the agricultural issues play an important role in the economy, land costs are significantly challenges experienced by the private lower, but security of tenure poses sector. The most oft-cited challenge, the greater challenge. The third access to finance, is driven by a range most-cited constraint is access to of factors including the lack of credit electricity, which is directly linked to history for most businesses, especially the government because Myanmar’s small and medium enterprises electricity generation and distribution (SMEs); the inability of most SMEs systems are state-dominated. The to produce a serious business plan; fourth-most cited constraint, access to the high closure rate of SMEs which skilled workers, is connected directly makes them high fiduciary risks; to shortcomings in Myanmar’s and the strict regulatory regime over education system. banks.41 Among other state-mandated restrictions, loans are limited in term Notably, the World Bank ICA finds to one year, must be collateralized that direct engagement with the (generally at around three times the government is not often cited by forced sales value of the asset), and
40 See also Biggs and Shah (2016) assessment of Myanmar’s industrial sector, including disaggregated analysis of the ICA data; also, Soans and Abe (2015).
41 For greater insights into banking sector challenges in Myanmar, see Turnell (2016).
42 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 43 private sector businesses as a key interactions. However, limited them circumvent widespread poor under the previous government. For constraint. For example, according qualitative interviews suggest that compliance. It is also driven by other example, some businesses find that to the assessment, despite the fact there may be important differences factors, notably the inability of DAOs the TDACs add bureaucracy and slow that corruption rates are among the in the government authorities with and other government administrative down decision making, especially highest in the region, it is not one of which engagement happens and the units to carry over revenue from because of the need for consensus in the most oft-cited constraints among characteristics of that engagement. one year to the next, incentivizing order to reach a decision. businesses in Myanmar (with the As noted above, the key government government units to front-load notable exception of large enterprises, departments that engage with the revenue collection. In areas where Engagements between the private for which it is the fourth-most cited private sector at the local level are Engagements between businesses do pay taxes, though, sector and government at the constraint) (World Bank 2015, 15). the GAD, DAO, IRD, and various the government retains significant local level are often less formal, the private sector and Instead, the major challenges for the sector-specific ministries. These authority. Although the government and limited anecdotes suggest that implementation of economic private sector come from the ways departments—with the notable government at the local level notes that it has changed to a “self- in which the government shapes exception of the DAOs—implement assessment system” for income and governance at the local level is not the economic environment. Other on behalf of both the Union and the are often less formal, and commercial tax payers, this appears always in accordance with the law. assessments find that corruption is an states/regions. to be more of a formality; township There are numerous areas where this important issue, though. A survey by limited anecdotes suggest tax officers still have authority to may be the case, including: Both businesses and government 42 the OECD and the United Nations determine the amount of tax owed. • Implementation of commercial at the local level generally describe Both businesses and that implementation of Economic and Social Commission If businesses are unhappy with the tax. Businesses complain that for Asia and the Pacific (UNESCAP) their mutual engagement as focused economic governance at the tax officer’s assessment, owners can around two areas: licensing and government at the local tax officials do not implement found that corruption was the negotiate (though at this step of the the tax according to the rules revenue collection. Many businesses local level is not always in constraint most likely to be cited as a level generally describe process, bribery is common). (Bissinger and Linn Maung “very severe obstacle” (Soans and Abe do not normally consider local-level business licensing a major constraint accordance with the law. Businesses hold differing opinions Maung 2014, 25). Government 2015b). Large businesses and those their mutual engagement officials argue that business are working in natural resource sectors (Bissinger and Linn Maung Maung regarding how Myanmar’s reforms as focused around two regularly not truthful about their both cited corruption as a significant 2014, 27). After the initial license have changed local economic 43 taxes (Bissinger 2016). Therefore, challenge (World Bank 2015; Soans is obtained, renewals can often be governance. Among some completed by DAO field staff. The areas: licensing and revenue businesses, there is a sentiment that government officials estimate tax and Abe 2015b). due by gathering evidence about license cost varies based on business collection. “the engagement between business The UNESCAP and OECD size and type, though it rarely exceeds and government has improved since a business through field research, assessment revealed other interesting 300,000 kyat (US$234; Bissinger reforms started,” with businesses and reach a final amount of tax differences in business environment and Linn Maung Maung 2014, 20; noting that government is now “more due through negotiation with perceptions by sector. The trading Bissinger 2016). Obtaining a local open” and it is now easier to meet the business owner. This is not sector, for example, cited political operating license from the DAO with government staff (Bissinger and always negative for businesses. instability as the most significant is much simpler than Myanmar’s Linn Maung Maung 2014, 27). For One business interviewed by the challenge. Other service sector business registration process, which example, the creation of TDACs gives author noted that the IRD gave its businesses, which likely consists of the World Bank’s Doing Business businesses an avenue to “advocate for business a tax break because it had mostly urban SMEs, cited access to survey cites as the most difficult in changes in services and infrastructure recently started. Another group space (land and buildings) as the the world (World Bank 2014). provision” (Bissinger and Linn Maung of vendors noted that when they greatest challenge. Skilled labor was Maung 2014, 27). Other businesses thought their tax was too high, cited as one of the top three obstacles Revenue collection is the other find that there has been little change they were able to negotiate a new in all sectors except manufacturing major area of engagement between in day-to-day business-government rate with the IRD that resulted in (Soans and Abe 2015b). businesses and government. However, interactions at the local level, a 60 percent decrease in tax paid the structure—very common in compared with those encountered (Bissinger 2016). ECONOMIC GOVERNANCE low-income countries—is currently AT THE LOCAL LEVEL skewed heavily towards up-front Although the first point of payments and fees for permission, 42 This statement comes from an interview by the author with an S/R-level IRD official, however it has not engagement for most private which are easier to administer than been corroborated by other officials and is put in quotes because the description of the system suggests sector businesses is township or most other forms of taxation; it is that it is not a self-assessment system, whatever government officials may call it. other subnational government also subject to abuse by local officials. 43 Based on findings from nearly 100 qualitative interviews and site visits with private sector businesses, administrators, there are little In addition, this structure is key for government officials, and other economic actors conducted by the author for The Asia Foundation and other organizations. These interviews were conducted across 10 townships in 6 different states and regions systematic data available on these local levels of government as it helps from 2013 to 2015.
44 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 45 • Implementation of labor laws. infrastructure development. For In some townships, slaughterhouses Another condition of the Although Myanmar has numerous example, for an urban road, the can be the most significant source slaughterhouse license is an express laws that govern labor relations, government often contributes 25 of revenue for local DAOs. The prohibition against transporting many township labor offices fail percent of the road’s cost and people structure of slaughterhouse licenses slaughtered meat for sale in another to enforce aspects of this legal living along the road contribute the varies between townships, however. In township, meaning that consumers framework. For example, in order remainder (Arnold 2015, 26). some areas they give the licensee not in one township cannot benefit from to carry out a strike, labor unions only the right to slaughter animals lower prices in nearby townships.48 Case Studies of Local Economic must provide written notice to but also the exclusive, monopoly right Some DAOs set the number of Governance the factory and wait a set number to wholesale slaughtered meat (pork, animals that must be slaughtered of days. However, factories in After 50 years of socialist and military beef, and mutton) in a geographically each day. Despite the rigidity of Yangon note that strikes are rule, economic governance is in predefined area. other conditions in the license, almost never carried out in need of reform in many areas. Some requirements relating to the health accordance with the law, with the Slaughterhouse licensing in Myanmar and safety of meats seem to receive reforms, such as in the governance traces its roots back over a century, Township Labor Office preferring of natural resources, could have a low priority. Although the bylaws to facilitate negotiations between to colonial-era municipal laws from have express provisions about a significant and widespread The parties instead of engaging in law the 1800s. The last of these acts, protecting meats from mosquitoes impact. Because of vested political Municipal Act enforcement. of 1898, stayed in force and flies and keeping meats properly and economic interests, however, for 95 years, until it was replaced these reforms may be politically refrigerated, these food safety Another common implementation during the SLORC era. The 1898 requirements are often ignored. problem is corruption, which has challenging. In other areas, such Act restricted the slaughter of “four- been cited in numerous qualitative as bureaucratic restrictions in local footed animals” to slaughterhouses The present-day slaughterhouse and quantitative studies as an agricultural value chains, reforms run by the municipality, though some system is the result of a long important challenge for Myanmar’s may have a smaller impact but would exceptions exist. Municipalities were evolution of policies. The colonial- private sector.44 encounter far less resistance. In some also charged with creating bylaws to era Municipal Act of 1898 first gave of these areas, there is significant govern the slaughter of these animals municipal governments the authority There are a number of other near-term potential for quick wins (Government of India 1898).46 to oversee slaughterhouses and the important informal characteristics that could have a marginal but authority has stayed at that level of local economic governance. tangible benefit for a wide swath of Licenses are awarded by auction since. Yet during the socialist and Negotiation is a common aspect at the country’s population. or other method, according to the military eras, the government lacked the local level. For example, in some township DAO bylaws. In order to This section highlights two case legitimacy, which contributed to townships governments rarely issue prevent monopoly pricing, DAOs fix poor tax compliance and incentivized fines or penalties for certain activities, studies. One looks at the regulation the price of meat on an annual basis.47 of slaughterhouses, the other at the the government to turn to other such as the late payment of taxes. Some DAOs have increased meat means of raising revenue. Creating This is evidenced by some township regulation of poultry product trade. prices annually by 10 percent per year The cumulative effect of numerous slaughterhouse monopolies generated DAO budgets that show little or in recent years, thus creating artificial significant economic rents, part of no income from fines and penalties small regulations in agriculture, inflation, while others have held prices livestock, and fisheries is that, at least which could be captured by DAOs despite having delinquent taxpayers constant. According to interviews through license fees. Because these (Bissinger 2016). Instead, the DAO theoretically, incomes are depressed conducted by the author, prices for for many of Myanmar’s poorest revenues are often large and extracted negotiates with these businesses in an meat are not based on market signals, indirectly from consumers to attempt to get them to pay their taxes. people and inefficiencies are created but instead on official perceptions of in the economy. businesses to government, they have Informal dispute resolution with the the relative prosperity of the township. largely continued under the current government or between businesses Slaughterhouses 45 The prices of meat are often higher government. at the local level is often facilitated in wealthier townships and lower in by government officials, namely the Slaughterhouses are not typically areas poorer townships. GAD (Bissinger 2016). Lastly, in of major economic distortions, yet in many places in Myanmar there are some states and regions in Myanmar they can be a key driver of distorted arrangements between government 46 For additional information on the historical evolution of municipal legislation in Myanmar, see Arnold, Ye and communities to share costs for and regressive local revenue systems. Thu Aung, Kempel, and Kyi Pyar Chit Saw (2015).
47 No hard data are available here. Such price-fixing presumably depresses prices for livestock and raises 44 See for example Soans and Abe (2015b). rents to monopoly slaughterhouse operators. A more in-depth case study could help to shed light.
45 This case study summarizes information presented in Bissinger (2016). 48 It is unclear how, or to what extent, such prohibitions are enforced.
46 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 47 While the current slaughterhouse about all farms from which the eggs system needs some reforms, the come.51 Registration costs for the decentralization of DAO powers latter form are low: for 0 to 200 to S/R governments has led to chickens, the fee is 50 kyat (about a positive development: local US$0.04, assuming an exchange level policy experimentation by rate of 1,250 kyat per U.S. dollar) officials who see problems with the per year, while for 10,000 chickens slaughterhouse system. In Shan State, or more, the rate is 1,000 kyat for example, the monopoly system of (US$0.78) per year. The same system slaughterhouse license and fixed prices also applies to trade in live chickens. was removed, leading to an increase This creates red tape, which could in the price of live animals, while cause delays in the shipment process. also allowing entrepreneurs to create However, it could also be beneficial In Shan State, for example, vertically integrated businesses. Given in creating traceability and helping to the monopoly system of the country’s long-centralized system, ensure proper health and sanitation. this local level experimentation is a To realize these benefits, the system slaughterhouse license very promising development and one must be used as a complement to of the most important positive steps proper health and safety inspections, and fixed prices was resulting from decentralization. not a replacement. removed, leading to an Internal Trade of Eggs 49 While nominally these fees appear quite low, it would be useful increase in the price of Under previous governments, there to undertake more in-depth live animals, while also were numerous requirements and investigation to understand the some restrictions on the production impacts these regulations have on allowing entrepreneurs to and transportation of agricultural and incentives, profitability, food quality, livestock products, many of which traceability, and prices. Modern food create vertically integrated still remain in force. These laws and value chains require traceability in rules may present disincentives to the order to ensure that sources of risks businesses ... local level production of goods and artificial to animal and human health can be experimentation is a very barriers and increased costs to their traced back to the original supplier movement between local markets or farms. However, it is not known to promising development and between rural and urban markets. what extent such considerations are one of the most important The licensing regime over eggs is a woven into the fees and movement restrictions on egg trade in Myanmar, good example. In order to ship eggs positive steps resulting from between states/regions, a business or whether the fees and restrictions must complete paperwork and pay instead are driven by market control decentralization. a fee of 25 pya per egg.50 To obtain motivations. the form, traders must include details
49 This case study summarizes information presented in Bissinger (2016).
50 The form is the so-called PC-3 form. As of December 2015, 100 pya (1 kyat) are equal to about US$0.0008; thus 25 pya are equal to about USD $0.0002. The fee for a wholesale tray of 36 eggs would be about US$0.0072. THIS PAGE IS INTENTIONALLY LEFT BLANK 51 These include the PC-5 (farm history) and PC-7 (registration) forms from each of those farms. The forms are required of all poultry farmers, obtained from the Department of Livestock.
48 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 49 6. POTENTIAL AREAS FOR FURTHER WORK RESEARCHING There are also other important GOVERNMENT BUDGETS AT outstanding questions that would THE S/R AND LOCAL LEVELS be good to explore, such as: Why is hile some overview the land tax one of the biggest revenue research has been sources for some S/R governments when W conducted on public rates are so low? Is there variability revenues and expenditures at the in land tax rates, depending on land S/R and local levels of government, usage? If so, what are the economic many unanswered questions remain. consequences? The lack of information is especially acute on expenditures. Available Another potential area for future data on S/R and local government research is differentiating between budgets typically split expenditure S/R- and Union-level budgets. In into ordinary (recurrent) and capital recent years, the Union government expenditures only. Obtaining has shifted some expenditure data with significantly greater lines from the Union to S/R disaggregation is an essential first step. budgets. However, it is not clear Moreover, we know little about the whether some or all of these shifts services these expenditures are meant were accompanied by changes in to finance. If local public financial decision-making authority. This is systems are to balance, let alone grow, essential if one is to further probe their budgets, they must deliver the present understanding that the services of value to taxpayers and rate/ new, significantly larger S/R budgets fee payers. are simply an accounting exercise, by seeking to identify evidence of Another important step is linking meaningful transfers of authority. revenues and expenditures, specifically Research could focus on the question: to address the following question: What are the criteria for assigning Are there particular mechanisms that, expenditures to the S/R or the Union while designed to collect revenue, cost government, and are budgeting more to implement than they gain decentralizations mirrored by changes in in funds? This may be the case for decision-making authority? particular taxes, such as the land tax (in some states) or for a range of fees Given the many infrastructure needs (such as those on production and facing the country, understanding transportation of eggs), however, how local governments finance there is not sufficient information to capital expenditures is another make any conclusions. This leads to a important area for further research. related question:What can be done to According to the 2016 Public raise the efficiency of tax collection, both Debt Management Law, both S/R from a public finance point of view (i.e., governments and development to justify the costs of the tax programs committees (DAOs) can borrow in terms of revenues yielded) as well as money with the “prior sanction of from an economic point of view (i.e., to the Government and adoption of ensure that incentives to produce goods the Pyidaungsu Hluttaw” (or Union and services are not unduly depressed)? Parliament) (Government of the
50 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 51 Republic of the Union of Myanmar process. Properly aggregating those Development is a reasonable Union- a significant number of enterprise 2016, 6). This new law suggests that data would provide a more accurate level ministry to lead this activity. surveys have already been conducted subnational levels of government assessment of the distribution (by size, in Myanmar in the last four years; cannot borrow on their own account, sector, and location) of enterprises Note that during the aggregation of additional surveys should be designed but instead must obtain approval and entrepreneurs in Myanmar.52 operating license data, it is essential to expand the existing knowledge from the Union level. Schedule Two to document and attempt to account base.54 Aggregated registration data of Myanmar’s Constitution, which The most important data not yet for businesses that have multiple could facilitate surveys on value- covers the legislative powers of the properly aggregated are from DAOs The most important data licenses. This is important for two added by economic activity, for in each of Myanmar’s 14 states/ reasons. First, eliminating businesses S/R level of government, similarly not yet properly aggregated example—an exercise that has not yet does not contain any provisions for regions. Aggregating these data is with more than one registration been undertaken. essential to ascertain a comprehensive would yield a more accurate picture subnational governments to borrow are from DAOs in each of UNDERSTANDING NON- on their own account. However, understanding of the nationwide of the distribution of private sector TAX AND SEE REVENUE there are many outstanding questions distribution of businesses. These Myanmar’s 14 states/regions. enterprises. Second, documenting SOURCES about subnational public finance data should then be combined with duplicate licenses can highlight areas that merit further investigation: Union-level data, including both in which there is potential to simplify The narrow base of Myanmar’s tax company registration data from the country’s licensing regime. In revenue collection is regularly cited as Have subnational levels of government Many ministries and previously engaged in debt financing DICA and ministry-level registrations many sectors, businesses need to a key constraint to the government’s of projects through the issuance of debt from the wide range of ministries departments ... raise the obtain more than one type of license. fiscal space. The IMF, for example, with Union permission? May local engaged in business licensing. Because For example, a shop that sells both argues that public finances are governments borrow from state or of the pervasive use of business majority of their revenues alcohol- and natural gas-fueled stoves “dependent on SEEs and natural licensing, the mapping exercise should requires a minimum of three licenses. resource revenue” (IMF 2014, 11). private banks? A useful place to start through licenses fees paid by this research would be to document cover all ministries. It cannot be The data aggregation process may be While this assertion is true for direct, examples of subnational borrowing assumed that a specific ministry has able to highlight areas with higher Union-level taxation, it does not 53 businesses. and investigate the associated process. no role in business licensing. This bureaucratic barriers that could be take account of widespread indirect aggregation of data would provide, removed. and subnational taxation. Many AGGREGATING AND by far, the most accurate picture ministries and departments, including ANALYZING LOCAL- AND of Myanmar’s existing enterprises. Following on from the above, it the Ministry of Construction, the UNION-LEVEL BUSINESS It has not been done to date largely may be advisable to collect more Ministry of Livestock, Fisheries OPERATING LICENSE DATA because of misunderstandings by the detailed information on licenses and Rural Development, and the and registrations. This information One of the greatest challenges for international community about how Many ministries and Department of Development Affairs, government and development businesses in Myanmar are licensed. should include the fees charged raise the majority of their revenues partners has been accurately departments raise the (including variation by location through license fees paid by businesses, ascertaining the size and distribution Because many local businesses Unexploited avenues offer and business characteristic), the the costs of which are then passed on register with the DAOs, which have majority of their revenues quality of the services received (if of private sector activity in Myanmar. relatively reliable data by businesses to consumers in the form While this is often blamed on lack no Union-level parent ministry, it any), the frequency of renewal, and of higher prices or fees, which in effect is essential for a part of the Union through license fees paid whether the license is competitive of data, unexploited avenues offer that could help better results in indirect and often regressive government to take ownership of or noncompetitive. This process relatively reliable data that could help by businesses, the costs of taxation of consumers. Moreover, better understand the distribution this activity. Given the important understand the distribution could also identify unnecessary or business license holders often enjoy of private sector activity. Data are role of DICA in multisectoral which are then passed on to duplicate licenses or registrations and monopoly rights and use fees as a rent of private sector activity. collected by a wide range of ministries business registration, the Ministry make recommendations about their collection tool. As government works consumers in the form of during the business registration of National Planning and Economic elimination or combination. to expand the tax base, it is essential higher prices or fees, which SURVEY RESEARCH that it and its development partners 52 This method would not provide hugely detailed data on the distribution of value-added by economic The proper aggregation of the attain an accurate understanding of activity. Most of Myanmar’s microenterprises likely do not keep proper accounts that would contain data on value-added (though given the nature of their businesses, their value-added may be rather small). For in effect results in indirect enterprise data, as noted above, the pervasiveness and depth of indirect businesses that do keep records, commercial and income taxes are often submitted to the township IRD would form the most accurate and/or local-level taxation, as well office. However, businesses are often not truthful about profit and taxes are often negotiated based on and often regressive taxation considerations other than value-added. Generally, businesses are more likely to negotiate taxes when sampling frame available from which as their impacts on businesses and they are smaller, less formal, and not registered with DICA as a company. Note also that this type of data consumers. collection may present logistical challenges, though there is not enough detail on the existing data and their of consumers. to conduct enterprise surveys and format to make a determination. For more information, see Bissinger and Linn Maung Maung (2014). a wide range of research. However,
53 Even ministries that would seem unlikely to license businesses often have the mandate to license 54 Existing surveys include: UNDP Business Census (2013–2014), World Bank Enterprise Survey (2014), sector-specific businesses. For example, the Ministry of Agriculture has a mandate to license shops that sell UNESCAP/OECD Business Survey (Soans and Abe 2015), and the EU-ASEAN Business Sentiment Survey fertilizer. (2015).
52 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 53 Key research questions that could be Myanmar Gems Enterprise (MGE), for about potential reforms in these value the country. Collecting and analyzing investigated include: example, does not operate jade mines chains. This research should take a such historical data series could provide directly, but instead takes a 40 percent broad focus, and investigate policies, valuable insights about changes in • Who bears the direct and indirect share of the profit from a kyo thu laws, regulations, and administrative economic activity, price, food security, burden of non-tax revenue collection? (profit sharing) mine concessions. In practices that intervene in markets etc. over time. Is the existing system distorted or the 2014 Jade and Gems Emporium in for factors of production, inputs, and regressive, and if so how? INVESTIGATING UNION- AND Nay Pyi Taw, MGE did not sell a single products. For instance, this could S/R-LEVEL TAX COMPLIANCE wholly-owned lot of jade. Other SEEs include administratively created • What is/are the source(s) of non-tax IN MYANMAR’S JADE have some operations in economic monopolies in markets for goods and revenue collected by various Union INDUSTRY and S/R-level ministries? sectors where private businesses now services or transportation restrictions dominate. In oil and gas, for example, on the movement of goods such as Jade mining is one of Myanmar’s The second question is also directly MOGE is the stand-alone operator of meat. This work should cover a broad largest industries, estimated at nearly connected to an important question six onshore oil and gas blocks. These range of departments, including but US$31 billion in 2014 (Global Witness about SEEs. Myanmar’s budget blocks are all marginal, yielding a not limited to: 2015). Jade is theoretically subject to a currently shows that a significant combined 1,849 barrels of oil per day. number of Union-level taxes, as well as amount of the country’s revenue That is just over 10 percent of the A significant amount of the • Ministry of Agriculture and potentially one S/R-level tax on refining comes through non-tax SEE revenue. country’s total production and only Irrigation; or polishing activities. Jade and gems However, there is insufficient evidence 24 percent of the country’s onshore country’s revenue comes refining is a significant, labor-intensive • Ministry of Livestock, Fisheries, sector of the Myanmar economy, to determine whether these funds have oil production (MOGE 2014, 12). through non-tax SEE and Rural Development; been raised through the operations of The vast majority of MOGE’s revenue Although Myanmar is including basic cutting and polishing as well as manufacturing of jewelry. SEEs, or through a licensing system in comes from its ownership stake in revenue. However, there often described as a data- • Ministry of Commerce; and which SEEs act as inactive shareholders Myanmar’s foreign-operated offshore Polished/worked gemstones were the • Department of Development instead. oil and gas concessions. Similarly, the is insufficient evidence to poor environment, many country’s largest reported export in Affairs. Myanmar Timber Enterprise relies 2014, worth US$5.2 billion according Understanding more about how determine whether these sources of potentially to Myanmar data for FY2014/15 and mostly on private concessions for its This research should cover restrictions SEEs currently generate revenues is US$11.1 billion according to Chinese revenues, though it also operates some on a wide range of activity, including an important prerequisite for reform funds have been raised useful information are 55 timber concessions and sawmills. In data for 2014. These figures evidence of those SEEs. Many shareholder but not limited to production, areas such as electric power generation, through the operations of that a significant amount of worked jade SEEs operate as natural resource rent underutilized. transportation, transacting, and which are not as lucrative as the still crosses the border legally. This is collection tools and hence do not need licensing. extractive industries, SEEs are much SEEs, or through a licensing notable because the authority to tax the to be privatized, since they currently more likely to be active operators. DOCUMENTING cutting and polishing of gemstones lies function much like a public sector system in which SEEs act Despite the lack of commercial ADDITIONAL SOURCES OF with the S/R, indicating that this activity regulatory and revenue collector and operations at many SEEs, profitable as inactive shareholders DATA could be a potentially significant source not like an enterprise. It is important to SEEs are allowed to retain 55 percent The authority to tax the Although Myanmar is often described as of revenue for some of Myanmar’s map this at a disaggregated level, with of their net revenues, a practice that instead. a data-poor environment, many sources states/regions. However, there is little full consideration of the fact that each cutting and polishing of is “not easily explained in light of the of potentially useful information are information available on the jade SEE is different. Some may require relatively limited commercial roles they gemstones lies with the S/R, underutilized. Myanmar’s government processing business or the tax revenues different types of reforms for different play” (Heller and Delesgues 2016, 1). has a strong history of record-keeping, derived from it. Recent research by aspects of the SEE. For example, the indicating that this activity however, at lower levels of government Global Witness largely focused on Myanmar Oil and Gas Enterprise DOCUMENTING such records often exist only in the lucrative extractive aspects of the (MOGE) may benefit from having ADMINISTRATIVE could be a potentially hard copy. Investigating potentially jade business. Further research should some aspects privatized, but others kept BARRIERS IN AGRICULTURE, underexploited data sources may investigate the downstream jade business significant source of revenue in the public sphere. LIVESTOCK, AND FISHERIES yield new and valuable economic to assess the value added during the Myanmar’s economic evolution over refining process and if/how the S/R The limited evidence available suggests for some of Myanmar’s information. For example, the Ministry the last half-century has led to the governments collect taxes on these that currently a mixture of both of Commerce collects township-level creation of many economic rules states/regions. activities. models—shareholder and operator— price data on key commodities from a that remain in place, despite reforms exists in Myanmar. Shareholding number of observation markets around elsewhere. Further research on barriers SEEs are common in extractive to primary sector economic activity 55 According to mirror trade statistics compiled from the UN Comtrade database, exports of “natural sectors, where private companies have or cultured pearls, precious or semiprecious stones, and precious metals” (classified under Harmonized that originate from previous eras a significant incentive to invest. The System Chapter 71) shot up to 52.3 percent of total export value in 2014, compared with 11.4 percent of could provide important information total export value in 2013. Reasons for the sharp rise are, as yet, unclear.
54 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 55 7. RECOMMENDATIONS
hile the election of the reforms. This process should National League for ensure that reforms are developed Democracy (NLD) and implemented with significant opensW up significant scope for lead time and proper clarity, and economic reform, the country faces are only finalized after meaningful a number of important challenges consultations with all relevant in changing an economy that has stakeholders. Communication been shaped by more than 50 years and consultation should play a of socialist and military rule. Many prominent role in this process. changes will not be easy and may take Improving the process of reform can decades. One core challenge for the itself be an important win for the NLD will be rebuilding trust between new government. government and society, a challenge Avoid over-emphasizing and that underlies economic reforms that • building up expectations range from improving tax compliance about quick economic wins. to reducing jade smuggling. Another core challenge will be negotiating a While quick wins can bring political environment in which the some benefits and provide an military, the Union Solidarity and important demonstration effect Development Party (USDP), and for the public, they can have only vested interests play an important a limited impact on Myanmar’s role. Many of the vested interests that core challenge of rebuilding trust dominated the old regime continue to between the state and society. wield considerable influence and have Of course, quick wins can help the ability to affect both political and rebuild this trust, but they can economic reform. Recommendations also undermine trust if not Potential for economic reforms must take this implemented properly. reforms should prioritize proper political reality into account. implementation over expedience. QUICK WINS Increase transparency by making The following are actions that • public additional information could be easily undertaken in on taxes, government-granted the first twelve months of a new business licenses, and other administration: dimensions of business • Develop, publicize, and regulation. This includes, but is consistently implement not limited to: processes of economic reform drafting, assessment, and o Publicizing contracts for all implementation. Under previous thirty-year road concessions governments, policy changes were granted by the Ministry often arbitrary and unpredictable. of Construction to private Myanmar’s new government companies. could benefit significantly from o Working with S/R developing a clear process that governments to publicize top it follows when implementing
56 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 57 taxpayer lists for the land instead of providing indirect revenue collection, and whether to decentralize additional tax in each S/R; these are benefits. excise revenues are also collected authority to the S/R or lower conceptually identical to the on other products.57 These reforms levels of government. This top commercial and income o The fee or license is managed should be considered in harmony decentralization would need taxpayers lists published by the by the S/R government. While with Union-level changes to corresponding legislation to give Ministry of Finance every year. S/R fee and licensing powers commercial and special goods S/R governments new authorities. are not clearly defined in the taxes. Of course, decentralization of o Working with DAOs in select Myanmar Constitution, they economic authorities should cities to develop and publicize generally mirror the areas in • Improve enforcement of license not be arbitrary; it should be top taxpayer lists for the which S/Rs have legislative conditions. At present, many supported by sound rationale and building tax. power (see Constitution, government departments in accompanied by the authority Schedule Two) and revenue- Myanmar play a role in enforcing Reform various aspects of the to collect resources needed for • raising power (Schedule Five). the terms and conditions of a S/R- and local-level business that implementation. Notably These fees and licenses could business license. Sometimes licensing system. A number of some ministries, including the be a useful area for focusing enforcement is inadequate; this Ministry of Hotels and Tourism, changes to the licensing system quick win efforts because the can sometimes lead to negative would be beneficial for Myanmar’s are already discussing additional subnational level may be able consequences for public health decentralization. private sector, however, only some to move more quickly on the and safety. Examples where of these should be approached reform than the Union level. improved enforcement are possible • Work with ministries at the S/R as potential quick wins. These include: level to improve their capacity to reforms involve the elimination of o The fee or license provides a manage decentralized economic small revenue sources or licenses, comparatively small revenue o Ensuring proper safety and authorities. The S/R level of such as: source for government. night-operating measures administration within many Targeting such fees and are taken by ferry licensees, government ministries has limited o All toll fees for roads and licenses would ensure that the as is stipulated in some ferry bridges managed by the S/R.56 experience in economic oversight immediate elimination would licenses and/or township DAO and decision-making. There is o Licenses for select non- not have a significant impact bylaws; and space for technical assistance motorized vehicles, including on the budget of the affected both to S/R level ministries to department. o Ensuring proper safety and trishaws and carts. sanitation of meat products, improve the licensing process and remove red tape, as well as to S/R In considering which fees and licenses • Examine and consider reforming including in slaughterhouses parliaments to create any needed may be eliminated and be perceived excise revenues. At present, and distribution channels, as legislation concerning these as quick wins, the following criteria excise revenues on alcohol and is stipulated in slaughterhouse activities. may be useful: tobacco in Myanmar are low. The licenses and/or township DAO authority to set excise tax rates bylaws. SUBNATIONAL ECONOMIC o The fee or license has an and collect this tax revenue lies REFORMS existing base of payers that DECENTRALIZATION with S/R governments. Because of • Increase emphasis on local and is broad, and revenues from • Work with the Union this, S/R-levels reforms of excise verifiable forms of taxation the fee or license tend to be government to identify taxes are the most reasonable with progressive, not regressive, regressive. Removal of fees that additional economic authorities quick win that can generate impact, with a particular focus fit this criterion would have to be decentralized. Because additional revenue. They also on land and buildings taxes. greater proportional benefits economic governance authority provide an important social Tax compliance in Myanmar is for the poor. remains relatively concentrated at benefit in the form of positive generally poor, and commercial effects on public health. Further the Union level of government, o Elimination of the fee would and income taxes are often not research is needed to understand there is significant scope result in direct additional funds the current structure of excise available to former fee payers,
57 Note that while in many circumstances it may be easy to obtain tax and revenue information on excise and other “sin” taxes, in Myanmar it is more difficult because excise tax is managed at the S/R level. This would require collecting information on 14 different S/R excise tax laws in order to have comprehensive 56 These tolls are not generally used to cover maintenance costs. License terms are only one year. The data for the country’s excise tax regime. There are also other taxes on alcohol, notably the Union- tolls collected help the investor to recoup the investment, rather than to fund maintenance. Typically, road administered commercial tax, which has rates of 120 percent for cigarettes and 60 percent for beer and maintenance is managed under a separate contract, which may or may not be with the construction liquor (Government of the Republic of the Union of Myanmar 2015b). In 2016, these taxes were moved contractor. under a new piece of Union legislation, the Special Goods Tax Law.
58 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 59 implemented according to the o Agriculture (additional research enterprises, the implementation economic authorities. This law relevant laws and procedures. is needed to determine exactly of these taxes is not transparent also gives SEEs the right to grant Increasing taxes on land and what would be the key areas of or applied according to the licenses to private sector businesses buildings has many benefits reform). law. Administrative efforts to for economic activities that are including: increase tax revenues from micro normally only open to SEEs, but Reforms should focus on and small enterprises must be which the SEE has chosen not to o The asset values of land and restructuring the rules and regulations accompanied by improvements undertake. It forms an important buildings are more easily that govern licenses in order to in the implementation of these part of the underlying legal verified than business profits, ensure maximum competition and taxes at the township level. Many framework for Myanmar’s business which makes it easier to disincentivize rent-seeking. micro and small enterprises licensing system in many key efficiently collect taxes on Use licensing reform as an already pay a range of other sectors, and lacks any well-defined them; • opportunity to demonstrate fees and taxes to various levels or transparent regulations about o Land and buildings are commitment to a predictable of government, however these the licensing process. business environment. collections are relatively poorly immovable, which theoretically The new CROSS-CUTTING understood. Further research on makes enforcement easier government should undertake CONSIDERATIONS the total formal and informal tax (though other tax enforcement a review of licensing programs Economic reforms should and fee burden on micro, small, • challenges remain); and in order to target for removal always consider the geographical and medium enterprises should those that convey monopoly distribution of costs and o Land and buildings are a be undertaken before taxes on this powers and thus serve to tax benefits. common store of wealth in segment of the private sector are The geographical indirectly consumers, with limited distribution of costs and benefits Myanmar, where few other benefits in terms of safety or increased. stores of value exist, making from economic reforms, even maintenance of public facilities • Make tax rules and regulations Union-centered technical reforms, taxation of these assets or infrastructure, emphasizing relatively progressive. publicly available and highlight is an important consideration that they are doing so to give key forms that businesses can use when attempting to ensure that However, reforms to land and businesses and consumers in filing their taxes and subsequent reforms are inclusive and broad- building taxes should be taken predictability. negotiations with tax officers. based. For example, reforming cautiously, with proper consultation • Consider working with Many businesses have little or access to finance is important, and communication. These reforms subnational governments to no awareness of basic tax laws however, the reform process cannot happen quickly, as their extend budgeting periods and rules, and very few are aware should also address the variation success depends on gradual changes beyond one year. At present, that there are detailed guides in needs and circumstances across in society’s understanding of taxation. subnational government to the commercial and income Myanmar’s different states and tax. While this recommendation regions (for example, to make sure • Work with S/R governments to departments operate on a one- consider reforms to licensing year budget cycle, and are unable will not necessarily lead that bank lending is not unduly to improvements in tax burdensome for businesses in regimes in a number of areas to carry over retained revenue to implementation, it will equip secondary cities). in which S/R governments have the next year. This disincentivizes businesses with more knowledge economic authority, including but increased revenue collection and Economic reforms should always about the tax laws, which will in • not limited to: investment. consider the conflict-related turn make it easier for tax officers challenges that accompany their o Fisheries, especially concessions INSTITUTIONAL REFORM to encourage compliance. design and implementation. for fishing rights on inland • De-emphasize the push to • Consider reforms to the State- Conflict has been a constant in waterways; broaden the revenue base for the income and commercial owned Economic Enterprise Law peripheral parts of Myanmar, in o Forestry, especially bamboo taxes. Myanmar has increased and roll back the authorities it some cases spanning decades, and softwoods licenses; revenues raised through the gives to sector-specific ministries and is a key barrier to growth commercial and income taxes to grant concessions to private and development in these o Development Affairs significantly in the last few years. businesses. The State-owned areas. Economic motivations, Organizations, especially This is mostly due to increased Economic Enterprises Law is an while not the sole instigator slaughterhouses and, in some payments from larger businesses. important piece of legislation or sustainer of these conflicts, areas, ferries; and For many micro and small from the SLORC/SPDC era, play an important role in their which gives SEEs wide-ranging continuation. For both the
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64 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 65 ______and Masato Abe. 2015b. Bribery, Corruption and Bureaucratic Hassle: Evidence from Myanmar. Working Paper No. 152. Bangkok: United ANNEX I: SCHEDULE TWO OF Nations Economic and Social Commission for Asia and the Pacific. THE CONSTITUTION OF THE Steinberg, David I. 1981. Burma’s Road Toward Development: Growth and REPUBLIC OF THE UNION OF Ideology under Military Rule. Boulder, Colorado: Westview Press. MYANMAR: REGION AND STATE Tin Maung Maung Than. 2007. State Dominance in Myanmar: The Political LEGISLATIVE LIST Economy of Industrialization. Singapore: Institute of Southeast Asian Studies. This list details the legislative authorities afforded to states and regions as included in the English-language translation of the Constitution of the Republic of the Tun Wai. 1962. Burma’s Currency and Credit: Orient Longmans. Union of Myanmar, Schedule Two.58 Turnell, Sean. 2016. Banking and Finance in Myanmar: Present Realities, Future 1. Finance and Planning Sector Possibilities. Prepared for Nathan Associates’ Economic Reform & Growth Dynamics Sub-Activity in Myanmar. Arlington, Virginia: Nathan a) The Region or State budget; Associates Inc., February. b) The Region or State fund; United Nations Development Program. 2014. Myanmar One Pager Business Census 2012–2014, First General Report. Yangon: UNDP Myanmar. c) Land revenue;
Union of Myanmar Federation of Chambers of Commerce and Industry, d) Excise duty (not including narcotic drugs and psychotropic substances); Affiliated Associations. http://www.umfcci.com.mm/membership/affiliated- e) Municipal taxes such as taxes on buildings and lands, water, street associations/ (accessed December 20, 2015). lightings and wheels; United Nations Population Fund. 2014. Union Report – List of Tables. http:// f) Services of the Region or State; countryoffice.unfpa.org/myanmar/2014/01/21/8918/census_printed_ materials/ (accessed December 20, 2015). g) Sale, lease and other means of execution of property of the Region or State; VDB Loi. 2016. Special Goods Tax Law Provides Boost for Local Cigarette, Wine, and Alcohol Producers. Client Briefing Note. http://www.vdb-loi.com/ h) Disbursement of loans in the country from the Region or State funds; wp-content/uploads/2016/02/CBN_VDB-Loi_Special-Goods-Tax-Law- provides-boost-for-local-cigarette-and-alcohol-producers-1.pdf. i) Investment in the country from the Region or State funds;
Walinsky, Louis Joseph. 1962. Economic Development in Burma, 1951–1960. j) Local plan; and New York: Twentieth Century Fund. k) Small loans business. World Bank. 2014. Doing Business 2015: Going Beyond Efficiency. Economy 2. Economic Sector Profile 2015 Myanmar. Washington, DC. a) Economic matters undertaken in the Region or State in accord with law ______. 2015. Myanmar Investment Climate Assessment. Report No. 93848- enacted by the Union; MM. Washington, January. b) Commercial matters undertaken in the Region or State in accord with ______. 2016. Administrative Decentralization. http://www1.worldbank.org/ law enacted by the Union; and publicsector/decentralization/admin.htm (accessed February 1, 2016). c) Co-operative matters undertaken in the Region or State in accord with law enacted by the Union.
58 The official English version of the 2008 Constitution is available from the Online Burma/Myanmar Library, www.burmalibrary.org, under “Law and Constitution” and “Constitutional and parliamentary processes.”
66 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 67 3. Agriculture and Livestock Breeding Sector 7. Social Sector
a) Agriculture; a) Matters on traditional medicine not contrary to traditional medicine policies prescribed by the Union; b) Protection against and control of plants and crop pests and diseases; b) Social welfare works within the Region or State; c) Systematic use of chemical fertilizers and systematic production and use of natural fertilizers; c) Preventive and precautionary measures against fire and natural disasters;
d) Agricultural loans and savings; d) Stevedoring;
e) Dams, embankments, lakes, drains, and irrigation works having the e) Having the right of management by the Region or State, the following: right to be managed by the Region or State; (i) Preservation of cultural heritage; f) Fresh water fisheries; and (ii) Museums and libraries. g) Livestock breeding and systematic herding in accord with the law enacted by the Union. f) Theatres, cinemas and video houses; and 4. Energy, Electricity, Mining and Forestry Sector g) Exhibitions such as photographs, paintings and sculptures. 8. Management Sector a) Medium and small scale electric power production and distribution that have the right to be managed by the Region or State not having any link a) Development matters; with national power grid, except large scale electric power production and distribution having the right to be managed by the Union; b) Town and housing development; and
b) Salt and salt products; c) Honorary certificates and awards.
c) Cutting and polishing of gemstones within the Region or State;
d) Village firewood plantations; and
e) Recreation centers, zoological gardens and botanical gardens. 5. Industrial Sector
a) Industries other than those prescribed to be undertaken by the Union level; and
b) Cottage industries. 6. Transport, Communication and Construction Sector
a) Ports, jetties and pontoons having the right to be managed by the Region or State;
b) Roads and bridges having the right to be managed by the Region or State; and
c) Systematic running of private vehicles within the Region or State.
68 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 69 ANNEX II: SCHEDULE FIVE OF THE CONSTITUTION OF THE REPUBLIC OF THE UNION OF MYANMAR: TAXES COLLECTED BY REGION OR STATES
This list details the taxation powers afforded to states and regions as included in the 12. Taxes collected on extraction of the following items from the forests in a English-language translation of the Constitution of the Republic of the Union of Region or a State: Myanmar, Schedule Five.59 a. Taxes collected on all other woods except teak and other restricted 1. Land revenue. hardwoods;
2. Excise revenue. b. Taxes collected on firewood, charcoal, rattan, bamboo, birdnests, cutch, thanetkha, turpentine, eaglewood, and honey-based products. 3. Water tax and embankment tax based on dams and reservoirs managed by the Region or State and tax on use of electricity generated by such 13. Registration fees. facilities managed by the Region or State. 14. Taxes on entrainments. 4. Toll fees from using roads and bridges managed by the Region or State. 15. Salt tax. 5. (a) Royalty collected on fresh water fisheries; (b) Royalty collected on marine fisheries within the permitted range of territorial water. 16. Revenue received from the Union Fund Account.
6. Taxes collected on vehicles on road transport and vessels on inland 17. Contributions by Development Affairs Organizations in a Region or waterway transport, in accord with law, in a Region or a State. State concerned.
7. Proceeds, rent fees and other profits from those properties owned by a 18. Unclaimed cash and property. Region or a State. 19. Treasure trove. 8. Fees, taxes and other revenues collected on services enterprises by a Region or a State.
9. Fines imposed by judicial courts in a Region or a State, including Region Taya Hluttaw or State Taya Hluttaw, and taxes collected on service provision and other revenues.60
10. Interests from disbursed by a Region or State.
11. Profits returned from investment of a Region or State.
59 The official English version of the 2008 Constitution is available from the Online Burma/Myanmar Library, www.burmalibrary.org, under “Law and Constitution” and “Constitutional and parliamentary processes.”
60 The term Taya Hluttaw refers to High Courts.
70 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 71 ANNEX III: DEPARTMENTAL STRUCTURE OF TANINTHARYI REGION GOVERNMENT61
Security and Agriculture Forestry Electricity Development Social Finance Planning Transport Border Affairs and Livestock and Mining and Industry Affairs Welfare Minister Minister Minister Minister Minister Minister Minister Minister Minister
Regional Court Budget Department of Forest Planning Department of Highways Myanmar Electric Development Dawei/Myeik Department Agricultural Land Department Department Power Enterprise Affairs University Management and Organization Statistics
Regional Attorney Auditor General’s Department of Environmental Department of Business License and Directorate Information and Dawei/Myeik General’s Office Office Agriculture Conservation Labor Transport Coordination of Industrial Public Relations Education College Department Department Supervision and Department Inspection
Myanmar Police Internal Revenue Department of Myanmar Timber Department of Road Transport Department of Myanmar Radio Department of Force Department Industrial Crops Enterprise Labor Relations Administration Religious Affairs and Television Education Development Department
Immigration Myanmar Department of No. (2) Mining Factories and Department of Civil Dawei/Myeik Directorate Department of and National Economic Bank Fisheries Enterprise General Labor Aviation Computer of Hotels and Health Registration Laws Inspection Science University Tourism Department Department
Bureau of Special Cooperative Agricultural Department Social Security Myanmar Airways Dawei/Myeik Department of Clinical Investigation Department Mechanization of Geological Board Technology Archaeology, Department Department Survey & Mineral University National Museum Exploration & Library
Correctional Pension Myanmar Sports and Myanmar Myanmar Port Authority Technical High Department Department Department Agricultural Physical Education Petroleum Department of Marine School of Traditional Development Department Products Administration Medicine Bank Enterprise
Regional Myanmar Irrigation Myanmar Pearl Central Statistical Directorate of Dawei/Myeik Development Insurance Department Production Organization Water Resources and Nursing Institute Supervisory Enterprise Improvement of River Office Systems
Fire Department Customs Livestock Department of Department of Human Relief and Department Breeding and Trade Promotion Settlements and Housing Resettlement Veterinary and Consumer Development Department Department Affairs
Special Branch Myanmar Water Resources Department of Social Welfare Microfinance Utilization Meteorology and Department Supervisory Department Hydrology Enterprise
#8 Crime Small-Scale Department Myanmar Posts and Combat Force Industries of Rural Telecommunications Department Development
Anti-Human Myanmar Railways Trafficking Police Force
61 Bissinger (2016, 47).
72 THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR THE PRIVATE SECTOR AND THE GOVERNANCE OF BUSINESS IN MYANMAR 73