Enactment of Specific Goods Tax regulations: more compliance requirements for producers?March 31, 2019
Although the Specific Goods Tax Law (“SGT Law”) which imposes Specific Goods Tax (“SGT”) on certain goods in Myanmar was enacted back in January 2016, the Specific Goods Tax regulations (“SGT regulations”) which provide detailed compliance requirements were only recently enacted in January 2019.
SGT is similar to excise tax in other countries and is imposed on specific goods, such as cigarettes, alcohol, wine, natural resources, and luxury goods. The types of goods subject to SGT and the SGT rates are enacted on a yearly basis under the Union Tax Law (“UTL”). Based on the UTL 2018-2019, there are 17 specific goods subjects to SGT.
The SGT Law requires the importers, producers, and exporters to register for SGT purposes. According to current SGT regulations, the importers, producers, and exporters are now required to be registered with the relevant Internal Revenue Department (“IRD”) three months before commencing the activities subject to SGT or three months before the commencement of a new income year.
SGT regulations also stipulate detailed information of the business to be included in the registration to the IRD, which includes the followings:
- the quantity and value of each type of specific goods to be produced at each production plant;
- the number of workers to be employed at the production plant;
- the size of the area, land, and building;
- interior design of the premises of the business and
- specific areas such as storage places for raw materials and waste products as well as production facilities of the specific goods.
Therefore, the producers should prepare a detailed business plan in advance for SGT registration purposes. Please note that failure to register will result in a penalty of MMK5 million under the SGT Law.
What is the SGT base?
For the importation of specific goods, SGT will be based on the landed value, which is calculated in accordance with the Customs procedures. For local production of specific goods, SGT will be based on either the factory sale price inclusive of SGT or the sale price determined by the IRD; whichever is highest. For exportation, SGT will be calculated on the free on-board value.
How to determine the price range?
Although there are 17 specific goods under UTL 2018-2019, the specific goods can be categorized into two main categories; specific goods taxable as per predetermined price range of the IRD and specific goods that do not have a predetermined price range.
In order for the IRD to determine the price range, the SGT regulations impose the obligation on the producers to provide the price list to the IRD by 31 December (three months before the commencement of a new income year); the price list includes the factory sale price, retail price, and market price of the entire calendar year. It should be noted that the SGT Law imposes a penalty of MMK5 million on producers failing to provide such price list to the IRD within the prescribed timeline.
In reference to the price list submitted by the producers, the Director General of the IRD will determine the price range for the specific goods mentioned under the relevant UTL based on the retail price of the last day of the calendar year as well as the retail prices of similar specific goods during the calendar year. Once the price range has been determined for calculation of SGT, the IRD will inform the price range to the relevant producers, importers, or exporters before the start of the income year; this price range will be applicable for the upcoming income year.
Therefore, even if there are any changes in market prices or retail prices due to promotions during the income year, the producers, importers, and exporters are still required to comply with the price range determined by the IRD in advance.
What is a tax stamp?
The SGT regulations highlight the importance of affixing tax stamps to specific goods as required. Certain specific goods, such as cigarettes, alcohol, and wine, require tax stamps.
According to SGT regulations, the tax stamps have to be affixed before moving the specific goods from the premises of the business; before collecting, obtaining, or moving from the Customs warehouses for imported specific goods; before the specific goods are sold by the producers; and before exporting the specific goods.
SGT regulations also stipulate that specific goods cannot be moved from the premises or exported without the proper tax stamps or approval from the IRD. Therefore, the importers, producers, and exporters are required to obtain the tax stamps in advance from the IRD.
Affixing the tax stamps to the specific goods serves as proof that the sale value is inclusive of SGT. If the tax stamps are not affixed or wrongly affixed, the SGT regulations will deem the situation as failure to comply with the regulations and 50% of the specific goods value will be imposed as a penalty, according to SGT Law.
Can we offset any SGT?
Producers and exporters can offset the SGT paid on the purchase (“input SGT”) against SGT charged on the sale (“output SGT”). However, input SGT paid on capital assets, fixed assets, or damaged goods cannot be offset against output SGT.
Please note that input SGT paid on unsold specific goods can be carried forward to offset against payable output SGT in the future. However, such input SGT amount should be recorded in SGT Form 22 and approval is required from the IRD. Alternatively, unutilized input SGT can be deducted as a business expense when calculating Corporate Income Tax.
SGT regulations emphasize that input SGT will not be allowed if tax stamps are not affixed to the specific goods or if the producers did not pay the applicable SGT. As an example, if the exporter is purchasing the specific goods from a local producer who did not pay the applicable SGT on the specific goods sold to the exporter, the exporter cannot offset the input SGT even though the exporter has paid the price inclusive of SGT to the producer.
Therefore, the producer and exporter should request SGT payment receipts (chalans) from their suppliers in addition to the SGT Forms required under the SGT Law and regulations if they wish to utilize the input SGT.
Payment of SGT and lodging SGT returns
For importers, SGT payment is due before collection of specific goods from the Customs Department. For producers and exporters, SGT payment is due within 10 days from the end of month during which specific goods are sold or exported.
SGT Law requires the producers and exporters to lodge SGT returns with the IRD on a quarterly basis within 10 days after the end of the relevant quarter. Similar to SGT registration, SGT regulations list the detailed information to be included when lodging SGT returns.
The SGT return must include the amount of payable SGT for the relevant quarter, SGT payment receipt (chalan) number and date, reconciliation of the quantity and value of tax stamps at the start of the quarter and at the end of the quarter, any SGT offset information, any unutilized input SGT, and any overpayment of SGT to be carried forward to the next quarter.
Since SGT returns are required to be submitted on a quarterly basis, SGT returns will be assessed by the IRD on a quarterly basis as well. Therefore, the Confirmation of Self-Assessment or Demand Note (“Final Assessment Letter”) will be issued on a quarterly basis as well.
The SGT regulations indeed impose higher compliance requirements, especially for producers. However, some provisions under the SGT regulations may be difficult to implement in practice, such as the detailed business plan for registration, affixing tax stamps, and not allowing input SGT if your supplier did not pay the applicable SGT. We are seeking further clarification from the IRD and will provide further information in our next update.