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Cablegate: Gob Tries to Squeeze Taxpayers

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

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