As Myanmar reforms, there is much it can learn from India
Myanmar is poised to enter the global economy with its mineral resources, fertile soil and potential for attracting foreign investment. It is perhaps also the last inhabited exotic destination boasting hotel lobbies with on-the-counter displays of rubies, sapphires, emeralds and other precious stones, reminiscent of one of this subcontinent’s tales from a bygone era — of Indians exiting Burma without any saving other than sachets of precious stones. In the recent past, with maintenance of cordial relations, Myanmar supplied India with the variety of lentils that only they grow other than Indians, thereby keeping lentil prices below the stars.
Myanmar’s decades-old autarky protected and preserved a quiet religiosity. The pagoda I visited, climbing a flight of wide indoor stairs that seemed to rise five or six storeys, ended in a terrace under an open sky with intricate canopies under which sat scores of larger-than-life jade and marble Buddhas. Many of them were washed in gold that was visible everywhere including, of course, the steeples. The temple is said to possess 56 tonnes of gold, amply displayed on its deities and other adornments. Scores of Myanmarese meandered about, lighting incense and small lamps, the flickering glow imparting a sense of Shangri-La. The only other places so surreal that compare are possibly the uninhabited Okabango River Delta – with lotuses and flying white-plumed birds, and its contiguous Moremi National Forest with packs of animal species flocking around – or Tula, the long abandoned flat pyramid with whistling winds flowing through a maze of tall, stone-faced pillars as if beckoning extra-terrestrials and, most recently, perhaps the glistening neon colony in Avatar, Hollywood’s path-breaking 3-D creation.
Interestingly, the direct India-Yangon flight was from Kolkata, hidden as Myanmar remained all these years. I understand that Calcutta was the second busiest international airport in the 1950s; certainly it was Art Deco with style, impatiently as we now await its new international airport to become functional. The fact that some Indians did remain in Myanmar was revealed in co-passengers who seemed to emerge straight out of the rural Tamil Nadu of the 1960s, adorned in Kanjivaram saris and cubes and globes of gold hanging from heavily weighed-down earlobes. Others wore opaque glasses, as if modern eye surgery was yet to reach its shores. They were obvious local residents. But there were new explorers too. A friendly young man from Burrabazar declared that he was visiting Myanmar for the first time because he had heard that there were spices to be bought and traded.
I arrived in this milieu being fortunate in leading the first international mission on taxation to Myanmar*. There was nitty-gritty analysis to be done. We got about our business by first proceeding to Naypyidaw, the new capital in the interior, five hours from Yangon on a four-lane highway with one service area halfway through. Entering the capital, we passed through a broad boulevard with countless five-star hotels. Soon we passed a sprawling building with pointed towers exquisitely painted in varying colours. Its scale was large enough to give it the appearance of a collection of buildings. We learnt it was the new parliament. Each ministry, newly painted and polished, was housed in a hollow between adjoining hills, with officers riding scooters from one hill to another, to reach meetings on time. As we were ushered into our hotel rooms atop another hill, I felt it was a dream as each room, a bungalow in itself, looked out exclusively over a sloped valley, green with teakwood trees and covered in nestling clouds. I knew the objective of my trip was to impart technical assistance (TA) in taxation but felt that it should have been R&R.
Myanmar’s tax-to-GDP ratio is around three per cent. I recalled Guyana from years back, which had a number over 30 per cent, revealing the problem with the measurement of GDP in nascent economies. Even if Myanmar’s number were to double, it would still be low in a cross-country comparison. There is indeed non-tax revenue from state-owned enterprises but much is also expended on them, so that their net outcome remains unclear. The government’s challenge, therefore, is to secure tax revenue. It has a schedular income tax system that charges different rates for different sources of income; hence it is possible to move towards an amalgamated broad-based structure that would be revenue-productive and impart progressivity into the structure at the same time. Myanmar also operates a large taxpayer unit, apparently somewhat better than India has been able to perform on this front.
Myanmar’s domestic indirect tax system resembles India’s early excise structure – indeed, by and large, the tax laws derive from the same pre-independence Codes – with limited input tax credit (ITC). And exports are not effectively given ITC, rendering them not so internationally competitive. And there are expectedly other anomalies that will be improved and corrected for sure. In the absence of a goods and services tax (GST), India’s ITC mechanism also suffers from limited scope. As a result, its Centre-state indirect tax structure cascades at several points. The embedded taxes in the production-distribution chain result in a high indirect tax burden on manufacturing, posing serious challenges to the international competitiveness of Indian manufacturing. Myanmar also needs to reform its indirect tax structure in a likewise manner. Interestingly, Myanmar’s customs administration and structure are also reminiscent of India’s some years back.
Against the challenge of revenue productivity, the Myanmar authorities need investment, in particular, foreign investment. And they are drafting a new Special Economic Zone (SEZ) law, reflecting China and India’s more recent tax incentives policies for buttressing economic growth. Of course caution is called for in arriving at an optimal balance between the competing goals of revenue and investment. And the known pitfalls in administering a successful SEZ policy should be avoided. If SEZs are designed primarily to attract foreign investment, a concomitant challenge would be to provide a level playing field for domestic entrepreneurs. Members of the primary chamber of commerce and industry expressed strongly why differential treatment should be minimised as Myanmar moves from protection to an open economy.
The authorities are ready for change and eager to learn from the rest of the world, including India. India is conveniently poised to provide technical assistance (TA) in the economics field, be it trade policy formulation or the public finances. There is another area, that of information and communication technology (ICT), in which India has a particular comparative advantage. It may not be well known that the Indian government provided TA in ICT imperceptibly to post-crisis Vietnam at little cost. Today Vietnam has not only entered the field internationally but is competing with India. One matter that was clearly observable in Myanmar was the dearth of ICT accessibility in any form. India could fill the vacuum by providing TA to Myanmar. And, reflecting its eagerness, Myanmar could soon become India’s second competitor in its own image.
The author is Director and Chief Executive, Icrier. All opinions are exclusively those of the author. *Organised by the International Tax and Investment Centre (ITIC), Washington, DC
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