Half-year figures show that new tax rates for real estate transactions – introduced earlier this year to boost overall government revenues – have not had the desired effect.
Property tax revenues fell by nearly two-thirds in the first six months of the year compared with the year before, from K36 billion to K14 billion, said U Htin Aung Lin, assistant director of Yangon’s Internal Revenue Department (IRD).
The tax year runs from April 1 to March 31. Lower revenues as of end-September is a likely indication of tax collection rates for the rest of the year, U Htin Aung Lin told The Myanmar Times. The main cause of the problem, he said, is lower tax rates.
When the 2015 Union Tax Law was approved by the Pyidaungsu Hluttaw on April 1, analysts said they expected it to give new life to the market, particularly in the K100 million to K1.5 billion range, where sales taxes were drastically slashed.
For example, under the old law the sale of a K500 million property would have been taxed at 30 percent, but is taxed at 5pc under the new law. The government hoped this would incentivise more people to pay taxes.
In the meantime, the real estate market has cooled, with agents reporting falling sales, as speculators take a step back amid sky-high property prices, and switch to gold or US dollars ahead of the November 8 election.
However, the sales slowdown is not the cause of the revenue slump, as speculators rarely pay taxes anyway, said U Htin Aung Lin. While the number of taxpayers has not risen, it has not fallen either. “Even if there were more transactions, speculators would not pay taxes because they do not take official ownership,” he said.
Instead the seller takes the money and gives the buyer general power or special power over the property – the usual way to avoid tax payments, he said, adding that only genuine buyers pay real estate taxes and take full ownership of the house or land.
Such buyers tend to represent the lower end of the market, he said, limiting most tax payments to smaller deals – while Myanmar’s richer citizens make up the speculator camp.
“They buy properties to sell them again. If they paid for every transaction, government revenues would be much higher,” said U Htin Aung Lin.
U Naing from Sai Khon Naung real estate agency agreed. “Speculation has driven the price of property higher, and nobody wants to reduce their profits by paying taxes,” he said.
This practice is prevented in other countries by strict laws, he said, but in Myanmar the government is unable to control it. “The result is low taxes.”
As of April the lowest tax rate of 3pc applies to buyers of properties worth up to K100 million, rising to 5pc on deals up to K500 million and 10pc on trades up to K1 billion.
Transactions worth up to K1.5 billion are charged 20pc, with a ceiling of 30pc for properties valued at more than K1.5 billion. Buyers must also pay a stamp duty of 5pc in Yangon and 3pc elsewhere in the country. Sellers are supposed to pay a flat 10pc rate.
Before the new law was enacted, buyers had to pay a 30pc tax on any transaction if they could not prove the source of income.
Last year, however, the government introduced a one-time tax relief for transactions below K300 million, which set the tax at 3pc for purchases up to K50 million, 5pc on transactions worth up to K100 million, 10pc for deals worth up to K150 million and 20pc for up to K300 million.
Quoted from mmtimes.
