The Myanmar Investment Commission’s (MIC) announcement on 20 January 2021 seeks to regulate the use of customs and import duty exemptions by companies operating in Myanmar more tightly.
To incentivise the growth of export businesses, the Myanmar Investment Law allows export orientated businesses to apply for an exemption from customs and import duties for raw materials and partially manufactured goods to be processed domestically.
This has been a key incentive driving the growth of the garment industry, among others, which is one of the largest segments in the manufacturing sector and a vital foreign exchange earner, with garments being one of Myanmar’s main export categories.
One of the challenges faced by the regulators is how to reduce leakage, which is where manufacturers which have been granted customs and import duty exemptions for raw materials and partially manufactured goods either sell these into the domestic market or sell finished goods locally.
MIC’s recent announcement attempts to tackle the issue by introducing a stricter oversight regime requiring businesses to demonstrate on an annual basis that the imported raw materials and partially manufactured goods are being used by the business as inputs for products that are actually exported.
To enjoy this incentive under section 77(b) under the Myanmar Investment Law, a business must now submit:
an application for a customs and import duty exemptions filed on an annual basis, three months prior to the year in which it wants to enjoy these incentives;
the application must include the required amount of raw materials or partially manufactured goods, details on what amount of raw materials or partially manufactured goods are necessary to manufacture one unit of output, the expected rejection rate (the number of units of output which are defects) and the expected export revenues generated;
export declarations for finished goods which have been exported.
In examining the application for the tax incentive, MIC will work together with relevant government departments to determine whether the amount of raw materials and partially manufactured goods which are to be covered by this incentive are reasonable considering the amount which is to be exported.
Export businesses operating in Myanmar should take note of this change and prepare for the introduction of these additional requirements. One uncertainty which remains is what the process will be where due to the growth of a business its import requirements in a given year exceed the amount which has been approved.