- By Professor
Dr. Aung Tun Thet
Frequently, the author of the article is to embrace the questions from different people on –the-ground reality of Myanmar economy, mostly with their tone of concern. On the other hand, all the statistics show the fine outlook of the economy.
Looking into the figures of the World Bank and the Asian Development Bank, the indicators over the GDP of Myanmar is of a high growth. However, the business people lamented and poured out their difficulties.
Statements issued from ministries and the departments depicted all the brighter side of Myanmar economy.
Whom should I believe in this world?
Perhaps, the writer might have chosen a wrong profession as economist.
Assessment and evaluation over the whole economy of a nation is not yet adequate merely based on the narrow angle of businesses, which, in fact, need to be approached through the purview of political economy.
Good and bad entwined
Economic reform evolved when government assumed the term after 2010 General Elections, with many concessions and relaxations in the rules and regulations. Amazingly, the communication sector witnessed the cost of a cell phone SIM card tumbled down from K 2.5 million to just K 1,500 only.
Taking the exorbitant price, the author purchased the SIM card from a friend at a transaction of K 2.5 million, immediately after his arrival back home from foreign assignment. Thanks to the friend, whom the author considers as a benefactor for helping.
In some corners, plenty of SIM cards were giving out free of charge among mutually benefited persons. Import authorizations of most expensive cars with cheapest possible price were being approved, resulting with buying spree over the vehicles.
Taxis rolled out on the roads in high number. It did not matter; whether the left hand drive or the right hand drive, plenty of re-conditioned cars were being permitted to import. Yangon roads are jammed packed with vehicles all the time.
Most of the people owned cell phones, and that the Mobile Social Networking has expanded to the political domain, exaggerating with hate speeches and negative views in the social networking.
Either young or old, people mostly engaged on social networking all the time, and the wrong notion started to develop that one is not updated and sophisticated staying away from the social networking sphere each day.
Golden opportunities opened up for those who wanted to be celebrities, and all these developments are knotting the ties with the good and the bad.
High expectation of the people
Following the 2015 General Elections, the expectations of the people went up high to the sky, and the people were happy to have chosen the first elected democratic government.
At the same time, the sweet dreams for better economy of the country were the talk of the people.
Hoping that the economic sanctions of the western countries would be gradually relaxed and lifted and the foreign investment would roll in huge amounts. This scenario was also embedded in the writer’s mind.
Beginning 1 April 2016, with the new government in administration, the situation of the country was in good and pleasant environment. Unfortunately, at a time when the economic endeavors are taking tempo and speed, the Rakhine situation erupted unexpectedly, first in October and November in 2016, and again in August 2017.
Subsequent to the events, the international pressures enveloped the country, and the negative impact is still in the country. Political pressure is compounded with the economic force, resulting with lesser investment and hitting hard to the tourism industry.
Coping with the situation, the government responded with many designs and mechanism, including the enactment of new investment law and the commissioning of a new Ministry of Investment and Foreign Economic Relations.
Countering the pressure from the western countries, the government adopted the “Look East” policy, and welcomed the investments from China, Japan, Republic of Korea and ASEAN countries. At the same time, communications and contacts with the Republic of India enhanced.
With the grace of nature, Myanmar has the favorable condition of geographical location, having two big neighbors with one billion populations each and complementing with 600 million people of ASEAN markets. Taking advantage of these backdrops, Myanmar could embark upon economic development.
Income depends on tax
Advisable on two factors, the author of this article suggested over the economy such as that of the tax rate and the interest rate. Considering the matter on tax, the basic concept must be reviewed first and foremost.
The impression of the two sides such as that of the person who pays the tax and the person who collects the tax are rather different and runs counter to each other.
Why the tax is being collected?
Generally, the tax is the source of income for a government, and that the government needs money to render services to the people. Therefore, the governments in most of the countries on this planet received money from tax.
Therefore, the term “tax and spend” is used in a political policy of increasing taxes in order to fund an increase in government spending.
Discussions are being heard in many countries in the western world on the pros and cons of this concept of political economy, with approaches from the leftists and the rightists.
The concept on “Tax and Spend” is generally accepted by the left leaning political parties, and that the right leaning political parties normally dissatisfied by reasoning that the governments grabbed the money from the hard earned money of the people as tax and spend for the people.
The distribution of wealth is a comparison of the wealth of various members or groups in a society. The distribution of wealth differs from the income distribution in that it looks at the economic distribution of ownership of the assets in a society, rather than the current income of members of that society.
More taxes are levied on the rich and fewer taxes are collected from the low-income population.
Rate of tax and volume of tax
On one hand, the tax could be seen as incentive and inducement for the tax payer because the lesser tax rate could support the tax payer for expansion of business. When more tax is being levied out of the income, then the business people have no incentive, prompting to cry not to collect tax.
No basic concept and idea of tax is visible in Myanmar economic landscape over the rate of tax and the volume of tax, and that these two factors need to be differentiated and defined.
What is the desired gold of the government?
If the desired goal is to increase the volume of tax, then it may not be possible by raising the tax rate and getting the large amount of tax.
Not long ago, when the tax rate on the real estate industry has been raised to 35 percent, more people shun away and become tax evaders.
Assessment has been seen that the income tax rate is generally set at 65 percent in Western European countries, resulting in the decline in business.
The government needs to differentiate the collection of tax and the volume of tax being received. If the government wanted to have higher amount of tax, then ways and means must be designed in inspiring the tax payers by creating the simplest way of tax payment system. Stepping into the age of technology, tax payment paradigm should be looped into the digital payment system.
High interest rate makes scratchy to business people
Tax itself is vital whereas the tax rate is critical as well. The interest rate is fixed at 8 percent for the saving deposits, and fixed 13 percent for lending out loans. The feeling and sentiment are different among the depositors, the loan takers, the banks, and the central bank.
Those who wanted to take out loans would like to pay least parentage of interest, and that they are not satisfied with the high interest rate. The money being deposited and saved at the banks by the people are expecting more percentage of interest.
In the developed countries, the bank interest rates are very small and slim. Business people are telling that the interest rates in the neighboring countries of Myanmar are not much higher than our country.
It is quite certain that the people in the SMEs would not be able to operate the business to gain profit out of it with 13 percent bank interest. Therefore, the loan for the SMEs establishments is being assisted with the foreign bank aids with two-step loan system through the private banks.
The Tax and the Interest Rate
The tax and the interest are the instruments of the basic economic proponents of a nation, and that the bank rate stands out as the “monetary policy” under the ambit of the Central Bank.
In the United States, the President has been blaming and rattling the Central Bank on high interest rate. He believed that the nation’s economy could only stimulate and spur when the bank rate is pulled down. The bank rate is only about one percent or a bit more in that country.
It is indeed the fiscal policy of the country, and that responsibility lies with the Ministry of Planning and Finance. These two instrumental factors in the economy are to be handled with care, balanced and proportionate manner.
The writer is of the view that the time is ripe to review over the tax rate and the interest rate to spur the economy of the country. No better change is visible if the current trend goes on in the same manner.
Myanmar’s economy needs to be shaken and stirred at the moment in order to have the economic stimulus for development, and the tax rate and interest rate should be the main focus for review.
Translated by UMT (Ahlon)