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Viewing cable 06RANGOON1713, GOB TRIES TO SQUEEZE TAXPAYERS

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Reference ID Created Released Classification Origin
06RANGOON1713 2006-11-20 06:18 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Rangoon
VZCZCXRO3480
RR RUEHCHI RUEHDT RUEHHM
DE RUEHGO #1713/01 3240618
ZNR UUUUU ZZH
R 200618Z NOV 06
FM AMEMBASSY RANGOON
TO RUEHC/SECSTATE WASHDC 5438
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHBJ/AMEMBASSY BEIJING 1252
RUEHBY/AMEMBASSY CANBERRA 0035
RUEHKA/AMEMBASSY DHAKA 4398
RUEHLO/AMEMBASSY LONDON 1877
RUEHNE/AMEMBASSY NEW DELHI 3627
RUEHUL/AMEMBASSY SEOUL 7133
RUEHKO/AMEMBASSY TOKYO 4737
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS SECTION 01 OF 02 RANGOON 001713 
 
SIPDIS 
 
STATE FOR EAP/MLS; EB/TPP 
TREASURY FOR OASIA: AJEWELL 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV BM
SUBJECT: GOB TRIES TO SQUEEZE TAXPAYERS 
 
REFS: A) RANGOON 1017, B) RANGOON 0456 
 
1. (SBU) Summary: Eager to squeeze out more revenues, 
Burma's military regime has pushed tax officials to clamp 
down on tax evaders.  Government efforts to increase tax 
collection have increased revenues somewhat, but many still 
bribe their way out of payments.  End Summary. 
 
Salaries Rise, Taxes Rise 
-------------------------- 
2. (SBU) In April, the GOB increased civil service salaries 
from 400% to over 1,100% (ref B).  The Governor of the 
Central Bank of Myanmar, Kyaw Kyaw Maung, stressed at the 
time that the government had enough taxes to finance the 
raise and minimize the inflationary impact of the raises. 
However, prices of most commodities soared after the salary 
announcement.  A recent IMF mission to Burma noted that the 
GOB continues to run a significant budget deficit and 
finance it by printing money.  To reduce the deficit, which 
the IMF estimates could reach 30-40% in the coming year, 
officials have been ordered to improve the rate of tax 
collection. 
 
Locals Safe, Foreigners Targeted 
-------------------------------- 
3. (SBU) Early rumors that the income tax rate for all 
workers paid in foreign exchange (including many at 
embassies, international businesses, and NGOs) would be 
raised from 10% to 25%, and that civil servants' net income 
would be cut 10%-15% through automatic withholding of new 
taxes, caused a flurry of public concern in April and May, 
but never materialized.  The GOB responded to the rumors by 
issuing an official notification in July 2006 that exempted 
civil servants from income tax.  Sources tell us that 
regime leaders instructed the Finance Ministry to delay its 
planned imposition of income tax on civil servants until 
after the 2006-07 fiscal year.  According to the existing 
income tax law, workers who earn K. 2,500 (about US$2) or 
more per month are required to pay income tax.  Tax 
officers admitted to us that this meager income threshold 
level is unrealistic and does not take into account years 
of inflation. 
 
4. (SBU) The Ministry of Finance and Revenue issued its 
annual notifications about commercial and income tax rates 
in June, two months later than normal, but did not make any 
changes to the previous year's rates.  The GOB did, 
however, add a new tax on the sale, exchange, or transfer 
of shares, assets, ownership, or benefit of oil and gas 
companies, retroactive to June 15, 2000.  The new tax 
ranges from 40% to 50% of the assets' value and is to be 
levied in foreign currency.  An oil industry contact told 
us that this new tax created a significant deterrent for 
any companies that wished to divest their Burmese oil and 
gas assets.  However, since none of the major foreign firms 
are contemplating doing so, it will have minimal impact on 
government revenues. 
 
The Tax Man Cometh (with Hand Out) 
---------------------------------- 
5. (U) The GOB's push to improve tax collection reaped some 
early benefits.  According to government figures, total tax 
receipts in FY05-06 (April-March) were K.441 billion, an 
increase of over 66% from FY04-05.  In the FY06-07 budget, 
the GOB aims to collect about K.425 billion in taxes, over 
50% from commercial taxes on trade transactions, and 40% 
from income and profit taxes.  The GOB's goal for tax 
receipts is almost double last year's target (ref A). 
 
6. (U) Despite the improvement in collections, tax evasion 
remains a serious problem.  Officials from the Internal 
Revenue Department recently sent messages to private 
companies and individuals through local media warning that 
they would soon introduce new measures to snare tax 
evaders.  Articles describe some new efforts, including 
review of business licenses renewals and approval of 
overseas travel only for people who can show evidence that 
their annual taxes have been paid.  A prominent local 
manufacturer told us that tax officials now scrutinize 
import licenses to compare the amount of raw materials 
 
RANGOON 00001713  002 OF 002 
 
 
imported with records of products sold to catch companies 
that traditionally underreported sales to minimize taxes. 
 
7. (SBU) Despite these threats, tax officers still 
negotiate to reduce the amount of taxes those with cash or 
connections pay.  Our business contacts at major trading 
and manufacturing companies said they have not experienced 
any new taxation problems, and confirmed that many 
taxpayers still evade taxes by bribing township tax 
officers.   The director of a trading firm told us that a 
garment manufacturing company owner recently evaded about 
K.100 million in income tax by giving K.30 million to the 
township tax officer.  Another business contact who 
operates successful bakery shops in Rangoon said that the 
existing sales tax rate of 10% was too high, since most 
small and medium sized companies do not even earn 10% 
profit.  Therefore, he said, almost every restaurant, cafe, 
shopping mall, and private business continues to bribe tax 
officers to reduce their tax payments as they have in the 
past. 
 
8. (SBU) Comment: More efficient tax collection is a valid 
means to finance government services and reduce budget 
deficits in most countries.  In Burma, however, the 
regime's economic mismanagement allows all but the 
clumsiest to escape the tax noose, and lets officials at 
every level pocket a percentage of tax payments.  Since the 
public never sees any of the results of their tax payments 
in terms of government investment in education, health or 
social welfare, they have little incentive to pay anyway. 
End comment. 
VILLAROSA