- By Tin Shein
Before we go any further, we have to know what tax is all about and what the state budget means. Tax is the money people have to pay to the Government to enable it to carry out its functions for the development of the country. It encompasses many areas, such as economy, education, health, infrastructure, agriculture, energy, mining, etc., and they are the key areas, development of which can contribute to and ensure a high standard of living for the people. So it is clear that tax plays a crucial role in the running of a Government in any country. It is the duty of all people to pay the taxes due on their taxable incomes to the Internal Revenue Department (IRD). Of course, it is not just the people who have to pay taxes but also corporate bodies have to pay a variety of taxes assessed on their incomes, sales of goods, sales of assets as well as incomes from other sources.
Now let us see what the state budget means. To put it briefly, it is a well-planned projection of revenues expected to be received and of the expenditures expected to be incurred in carrying out its functions by the Government during a fiscal year. As an initial step, all the departments of the Ministries at different levels have to prepare budget estimates based on the funding they need to carry out the activities next fiscal year and submit them to their respective Ministries well before the end of the current fiscal year. The Ministries have to incorporate these budget estimates into their overall budgets at the state level. Then they were submitted to the Ministry of Planning and Finance where the State Budget is prepared amending the estimates to bring them within the limits of estimated total revenues available before the final State Budget is presented to the Pyidaungsu Hluttaw for approval.
It is the tax revenues that are the main source of funds making up the state budget. Once it has been approved by the Pyidaungsu Hluttaw, allocations of money are made among different ministries and their various departments to meet the expenditures needed to carry out the activities planned for the next fiscal year. If the Government spends more money on its various activities of national development than it has collected from the business enterprises, both private and public, and people in taxes, then the Government will face budget overruns or deficits for the fiscal year concerned. In order to bring the budget into balance, the Government will have to raise moneys to cover those deficits, for which two options are open to it: one is to buy treasury bills issued by the Central Bank of Myanmar and the other is to make borrowings either from international financial institutions, such as IMF, World Bank, ADB, etc. or other foreign Governments.
So it is now crystal clear that the Government will be handicapped by lack of funds in its efforts to carry out its operations for the economic growth of the country, if our people and business enterprises fail to pay or evade the taxes due from them. We must take it into our heads that taxes are unavoidable if our annual incomes or earnings reach the taxable level set down under the Income-tax Law and that it is the duty of all citizens to pay taxes and they are under obligation to declare the incomes they have earned annually whenever they reach the taxable levels.
Of course, there are many accounting gimmicks that are employed by both individuals and business enterprises to evade and /or avoid income taxes.
They include but not limited to understating profits and value of inventories, overstating expenditures using fictitious invoices, and ‘under-providing’ for bad or doubtful debts, etc. In such an environment it is heard that Small and Median Enterprises (SMEs) shall be given audit-exemption under the new Myanmar Companies Act now being amended with ADB financial aid. Now under the new Myanmar Companies Act start-up Small and Medium Enterprises “SMEs” are proposed to be given tax exemption each to the tune of K 10 million or more on the net profits. Tax-exemption and audit-exemption will together work to the benefit of SMEs. Why? Because if their management are dishonest, they can draw up their financial statements in such a way as to show their net profit below the taxable threshold allowed, thus avoiding or evading the tax payable by them. To make matters worse, because they are exempted from audit, they are going to have a field day manipulating their financial statements without fear of any auditor poking their nose into the true position of their financial affairs. And what is more, there is no need to file their financial statements with the Directorate of Investment and Company Administration.
Of course, it will enable them to make shady deals with the SME tax officers on the amounts of tax to be paid. Thus, the way will be opened for them to cheat the Internal Revenues Department (IRD) out of millions of Kyats in taxes they may have evaded by manipulation of their financial statements. It is crystal clear that audit-exemption, if granted to all SMEs that account for nearly 90% of the total business enterprises in Myanmar, will surely cause a huge loss of tax revenues to the Government annually. As a result, our State Budget will be thrown into a deficit every year and the Government will be compelled to seek outside sources of funds to cover these deficits in some way or other.
In conclusion, it may be submitted that the authorities will carefully weigh the pros and cons of audit-exemption before granting it by taking into account the risks of budget deficits the Government may have to face through loss of tax revenues, as mentioned above.