Change of the Income Year in Myanmar: What Do Companies Need to be Aware of?

On 28 May 2019, the Internal Revenue Department (“IRD”) of the Ministry of Planning and Finance (“MOPF”) announced a change to the income year (formerly from 1 April to 31 March) of private and cooperative sectors (“taxpayers”) to 1 October to 30 September, effective from 1 October 2019. As a result, the taxpayers will have a six-month period from 1 April 2019 to 30 September 2019 (“FY2019” or “Transition Period”) as one income year. This change is to be in line with the change of the financial year for government ministries, organizations, and state-owned enterprises, which was implemented back in 2018 with the enactment of the 2018 Union Tax Law.

How do companies calculate their taxes in this Transition Period?

The IRD has not issued detailed instructions as yet. However, useful inferences can be drawn by referring to Notification 72/2018, which laid out procedures related to the filing of tax returns for six-month period for state-owned enterprises when their income year was changed in 2018.

Notification 72/2018 allows tax deprecation calculated in accordance with the depreciation rates as per Notification 19/2016 to claim only for a six-month period instead of a full year’s amount in the Corporate Income Tax (“CIT”) calculation. However, whether the same procedures will be adopted for this Transition Period is still to be confirmed by the IRD. 
Similarly, whether tax losses will be allowed to be claimed for half of the amount or for the full amount in this Transition Period still needs to be clarified. We note that Notification 72/2018 allowed the full amount to be claimed for tax losses.

In addition, how Personal Income Tax (“PIT”) should be calculated remains a significant issue that requires clarification from IRD. If the IRD allows a six-month salary as the annual salary with regard to the application of income layers and PIT rates, taxpayers will have much less of a tax burden for this Transition Period. 

What are the implications?

Companies should watch out for the cut-off dates of the new income year so that advance tax payments can be claimed according to the relevant income year, particularly Commercial Tax (“CT”). Unutilized input CT cannot be carried forward to the next income year, except for unutilized input CT paid on raw materials and unsold goods; however, unutilized input CT can be deducted as a business expense when calculating CIT.

It is worthy to note that companies with an investment license from the Myanmar Investment Commission (“MIC”) that are claiming income tax exemption on their reinvested profits should follow the timeline of the new income year to be entitled for income tax exemption on their reinvested profits. Please note that profits realized during the income year are required to be reinvested in the assessment year (“reinvestment relief period”) based on the provisions under the Myanmar Investment Law and Regulations. However, even though the change of income year impacts on the reinvestment relief period, it will not affect the income tax holiday.  We note that the income tax holiday does not follow the income year and is effective from the Commercial Operation Date confirmed by the MIC.

In addition, all companies should audit their financial statements (“Financial Audit”) and obtain a final tax assessment letter, a Demand Note for companies under the Official Assessment System, and a Confirmation of Self-Assessment for companies under the Self-Assessment System, from the relevant offices of the IRD (“Tax Audit”) for the Transition Period.

When to file the annual tax returns?

As the provisions under tax laws and regulations require the annual tax returns for the relevant income year to be submitted within three months after the income year-end, the annual tax returns for the year ended 30 September 2019 for taxpayers will be due on 31 December 2019.

We understand that the relevant annual tax returns filing deadlines for taxpayers should be according to what is summarized in the table below.

Conclusion

The change of income year does indeed increase the administrative burden for taxpayers. However, this change is set to eliminate confusion among taxpayers regarding the difference between the financial year-end of taxpayers and that of the government sector in Myanmar. Additional clarification pertaining to this issue will be provided in our next update once the IRD has issued the procedures.