Windows Opportunity of the Budget Reform of Myanmar Budget Deficit and Lack of Transparency

 Thet Mar Aye, Win Thiri Myaing, Myo Min Thein, Thet Naing Zaw, 2016, IUJ

Abstract

This paper studies the reforming regarding budget and their importance budgetary policies and financial management tools in Myanmar. In the current economic climate, government are starting to pay more attention to efficient management regarding not only resources and allocation but also revenues and expenditures, for this purpose, we examine budgetary policies and financial management tool especially Medium Term Fiscal Framework (MTFF), reforming of State Own Enterprises (SEEs) and taxation at government level and try to examine expected new window of opportunity for succeeding budget deficit and lack of transparency during the new government of Myanmar. Thus, the budgetary reforming is the most important for current Myanmar situation.

Keywords: budget reform, lack of budget transparency, budget deficit, State Own Enterprises (SEEs)

1.      Introduction

Myanmar has undertaken economic and political reforms with major implications for public financial management (PFM) in recent years. Decentralization represents a huge change from the existing system and the governments of the Myanmar tried to prioritize and balance spending with their own limited revenues. Such a significant shift requires not only technical capacity but also a change in financial management tools of those involved in budgeting and planning. In the 2008 Myanmar Constitution, it presented that a degree of fiscal decentralization of budgeting and planning functions from the Union government to every state. Thus, the State governments are now preparing their own budgets and have some authorities to collect tax for revenues locally. Accordingly, The total budgets of states have risen from less than 4 % of public expenditure in the FY 2013-14 to nearly 12 % in FY 2014-15 (Kubo, 2012).While state governments have the full constitutional authority to determine budgeting priorities, expenditure discretion is limited in practice by the Financial Commission at Union-level, which eventually decides how much budget support each state and how much will receive from the Union fund through a process that is neither transparent nor based on objective criteria (Win, 2014). The Myanmar government still highlights key capacity needs in PFM at the Union and state level including Medium Term Fiscal Framework (MTFF), effective Taxation system and State Own Enterprise (SEEs) incomes, and also these outlines are relevant recommendations for expected new opportunity for budget reform.

Moreover, the overall process of policy setting, taxing, and collecting of revenues is not yet well developed and leaves considerable room for improvement (Nixon and Jolene, 2014). However, whatever States governments may also request supplementary budget allocations, the benefit of participatory mechanisms on the planning and budgeting process remains limited (Hellerm, 2016). Financial regulations are also under reformation. The finance department in each spending body appears to play a key role in their organization and they are still differing from not only ministry to ministry but also between state governments. Moreover, due to the World Bank study, it’s found that when the government tries to implement budget reform to efficient, the impact of fiscal decentralization system vulnerable to increased corruption based on lack of transparency, limited budget comprehensiveness. Furthermore, according to the Myanmar government’s PFM reform agenda, all of the development partners such as International Monetary Fund (IMF), Asian Development Bank (ADB), Asia Foundation and the World Bank are supported  in Myanmar budgeting not only technical  but also improve capacity building to get benefits and efficient budgeting process.

In this paper, we use Kingdon’s multiple streams models to examine the budget reform process especially budget deficit and lack of transparency of Myanmar budgeting during 2011 to 2015.The present study has two intentions, there are how the budget deficit and lack of transparency are the support to reform process of the budgeting and how can succeed the budget deficit and lack of transparency for improved budget reform in Myanmar. Theoretically, this study tests the ability of the multiple streams model to explain how much budget defected and how Myanmar government has been tried to manage government revenue and expenditure. Practically, this study contributes to the broader discussion of how Myanmar government’s especially executive bureaus can play a role in addressing budget formulating and related public allocation. Likewise, this analysis gives specific attention to whether Medium-term Fiscal framework, state-own enterprises (SEEs) reform and taxation that are truly able to struggle for government revenues and budgeting concerns. In that case, we will first provide a brief historical overview of three budgetary policies and financial management tools in the Myanmar and we provide a justification for the methods and methodology selected for this analysis. This will include an explanation for why qualitative case studies approach using the multiple streams model for answering the research question. Finally, we will discuss details of Myanmar budget reformed case and analyze what lessons can be learned from Myanmar budget reform and expected of the new window of opportunity for budgetary reform as the new Myanmar government is democratized?

2.      Overview of Myanmar budgeting

Before 2011, under the centralized system, Myanmar has only Union Budget. The centralized system caused the unbiased development of the country. Moreover, due to the parallel exchange rate system, there was a gap became between foreign exchange budget and the cash budget. Furthermore, state-owned enterprises (SEEs) couldn’t implement their tasks to reach their goals and faced the budget deficit. On the other hands, the Central bank of Myanmar (CBM) has been tried to solve the budget deficit by printing money. Therefore, to overcome the all fiscal problems, the government reformed the budgetary process by several budgetary policies and also financial management tools.

According to the constitution (2008), the Myanmar government decentralized the budget system and implemented the Union Budget and 14 states budgets starting from FY 2011-12. In 2012, the government of Myanmar implemented the Framework for Economic and Social Reform (FESR). Due to the FESR, the government implements the upgrading of Public Finance Management Reform (PFM) by implementing medium-term fiscal framework (MTFF), state-owned enterprises (SEEs) reform and tax administration (Nixon and Jolene, 2014). However, Myanmar’s government faced a number of problems and issues in budgetary process and the government tried to resolve those numerous problems and defined several issues. Unluckily, the budgeting process still has to challenge related with several exogenous factors relating to budget deficits and lack of transparency.

In the case of Myanmar budget cycle, it has been focused almost exclusively on financial control, but the government implemented key planning tools such as the Strategic Plan, Medium Term Fiscal Framework (MTFF), and Multi-Annual Budget (MAB). For implementing budgetary policy goals and expecting outputs/outcomes, the Myanmar government has been measured how many levels achieved and the previously formulated policy goals succeeded or not. But, this process still not success in Myanmar budgeting. Some of the key planning tools of Myanmar budget reform process which are mentioned above are omitted from the current budget cycle of Myanmar. The result is that the budget cycle of Myanmar which focuses almost exclusively on financial control and lack of consideration to efficient delivery of services and policy-based budgeting.

Therefore, in this paper, we will try to emphasize the previous budget reform process of Myanmar from 2011 to 2015 and we will try to point out the main challenges and problems especially budget deficits and lack of transparency which are supported to reform process of budgeting in Myanmar. After that, we will analysis with the theory of multiple streams model and to conclude what are expected new window opportunities to support budget reform process of Myanmar when the new administration is democratized.

3.      Literature Reviews

The author Blumentritt (2006) argued that the process of allocating a government financial resources to its units, activities, and investments. In several empirical studies, they contended that the budgets are one of the most used planning and control tool for government bureaucrats (Abdel-Kader and Luther, 2006).

In the mid-1980s, Kingdon’s multiple streams frameworks is a nonlinear model that can be used to explain why a particular policy issue or problem is able to  become the best policy (Kingdon, 2010) . In order to simplify the policy process in ambiguous circumstances, the model is constructed around three separate but harmonizing streams problem, policy, and politics. According to Kingdon (2010), there is consist of predictable and unpredictable policy windows. Unpredictable policy windows happen from non-routine policies and are essentially change. Predictable windows are created by routine agenda items, such as the budget cycle or policy restitution.

In the past decade, research on the multiple streams model addresses some of these criticisms and strengthens the framework’s use by expanding and modifying the model. Kingdon’s original model has been pushed to address different policy arenas (e.g., Breton and De Leeuw 2011; Exworthy, Blane, and Marmot 2003; and Joanne and Lussier-Duynstee, 2006).  Moreover, the authors Meleckidzedeck and Amedkudzi (2011) discussed that the model’s use to include both of the policy adoption and implementation stages.

Furthermore, a number of scholarly used the multiple streams model to explain revenue and expenditure policy choices. In developing multiple rationality models of budgeting, Franklin, and Wallis (2004) considered that the macro-level decision making by using the multiple streams model. The authors Guldbrandsson and Fossum (2009) also referenced that Kingdon’s multiple streams model in investigating how time influences legislation in budgeting. Therefore, by using this model for the lens of policy analysis for budget reforming, it to be used for Union and State revenue and expenditure policy examinations, SEEs and taxation policy examinations in Myanmar budget reform process by qualitatively.

4.      Research Question

According to the objective of the study, we will try to clarify what are the budget deficit and lack of transparency in the budget reform of Myanmar. Then, we will clearly examine how can succeed the budget deficit and lack of transparency for improving budget reform in Myanmar?

5.      Significance of the study

In the case of Myanmar budget reform, there are a lot of actors are already influenced in the budgeting process and the process is also still complicated. Typically, the Myanmar government has been trying to best for getting maximum utility for public service and also has been trying to get efficient budgeting process. However, due to their priority allocation and expenditure management, they still have a lot of challenges from multiple dimension. Thus, according to the Myanmar budget reform process, we need to investigate what are the key challenges in the budget reform process and how to manage and increase efficiency for the budget reform process. Moreover, due to the obviously reforming of Myanmar budgeting,  after "already-opened" windows of opportunities for three budgetary policies and financial management tools (MTEF, SEEs, and Taxation) in the previous government period, we will clarify how to succeed the budget deficit and lack of transparency for improving Myanmar budget reforming.

6.      Hypothesis

For improving budget reform process of the Myanmar budgeting, we have to use the following hypothesis;

Hypothesis: Budget reform can improve the budget transparency and government revenue.

7.      Methodology

7.1.   Problem Stream

Why government of Myanmar implements the public financial management reform (PFM)? During 2011 to 2015, the government have faced a lot of problems relating with the budgeting reform process, especially budget deficit and lack of transparency and these problems are described in following sectors.

7.1.1.      Medium Term Fiscal Framework

Myanmar government has used the open market system by changing socialist economy to market economy since 1989. Myanmar Annual budget starts on 1^st April and ends on 31^st March. Before 2011, government’s military expenditures are higher than health expenditures and education expenditures and also government expenditures are higher than the government revenue and government controlled this deficit problem by printing money from Central Bank. By printing money, government faced inflation year by year. In addition, government imposed strict control on foreign exchange with fixed foreign exchange rate and Myanmar tax regime is very complicated and faced low level transparency. Before 2011, Government allocated the expenditures based on the last year budget for next year budget. Government Budgeting is only based on the bottom-up budgeting. Line Ministries and spending agencies draw their plan and submit their estimated budget step by step. If they submit more expenses than the previous budget, their budget will be justified and if they do not spend their expenses like previous one, the estimated budget will be reduced. Some of the expenditures are overlapped in some programs and government cannot control the budget deficit. This is lead to higher expenditures in budgeting and government cannot measure the success and failure of their programs. Therefore, authorized person (President, executive budget examiners and so on) need to perform budget allocation and revenue collection with specific policy.

Myanmar budget process faced low accountability and low transparency. Before 2011, there is no parliamentary scrutiny in budget process. According to the Open Budget Survey of multilateral organizations (International Monetary Fund (IMF), the Organization for Economic Co-operation and Development (OECD), and the International Organization of Supreme Audit Institutions (INTOSAI)), Myanmar Budget transparency score is lower than the global average score of 25 (Open budget index, 2012). Government cannot published the citizen budget, audit report, pre- budget statement, executive’s budget proposal, enacted budget, mid-year and end-year reports and country’s open budget index (OBI) score is zero in 2012 (Open budget index, 2012). Myanmar experienced centralized political and economic system for 50 years until 2011. Therefore, budgeting and planning are highly centralized for many years. After 2011, government changed the budgetary process according to the 2008 constitution. In FY 2011-12, budget department implemented the Union budget, fourteen states budget and also introduced old state fund account system into union fund for central government and regional fund for states government. Government transferred the twenty-eight agencies to all states. Even centralization released during the renovation period, the federal budget system was stilled limited in terms of decentralizing resources and government cannot introduce specific method for sharing of grant to state and regions. The proportion of the budget devolved to the state or region are very small.

7.1.2.      State Economic Enterprises Reform

Before 2011, Myanmar economy ran with many state economic enterprises (SEEs) and the reason was that the government wants to create and maintain the large scale monopolistic operations. According to the state owned enterprise law (1989), “the government has the sole right to carry out the state economic enterprises for extraction of teak, exploration and extraction of petroleum, natural gas, metal, pearl, jade and precious stone, post and telecommunication service, air and railway transportation services, electricity generation and supply and manufacturing of products relating to security and defense”. Large scale monopolistic operations are railways, extraction of oil and gas, extraction of mineral resources, and post and telecommunication projects. For these operations, government did not allow to establish private sector and implemented only by SEEs. Extraction of oil and gas and extraction of mineral resources are the main sources for government’s revenue which are implemented by SEEs. But most of the state owned industrial enterprises which produce personal goods, household goods, machinery and equipment, foods and beverages can’t create the profit and most of these state owned enterprises face loss. In March 2011, new government launched economic reform processes and they tried to improve the efficiency of SEEs in order to reduce their losses. According to the state-owned economic enterprise law (1989), Myanmar government enterprise are allowed to carry out joint-venture between the government and any other persons or any economic organizations.

Before 2012, SEEs run by state budget and it means that SEEs received government budget allocation in their current account at Myanmar Economic Bank from the state fund account and also they needed to deposit their revenues to the state fund account. At the end of every fiscal years, the balance of current accounts of SEEs must surrender to the state fund account. If SEEs can create profit, they must put 30% of profit as income tax and remaining 70% of profit as the contribution into the state fund account. When SEEs faced losses, these losses charged by the state fund account and it created the fiscal deficit. When budget deficit occurred, government produces treasury bills and treasury bonds to cover the expenditures of government organizations. Figure 1 demonstrates that the flow of the state budget system for government enterprises and monetization of fiscal deficit.

Figure 1. State Budget System and monetization of fiscal deficit

Source: Kubo (2012), Restructuring the state budget system

Most of the SEEs are inefficient in managerial skill and they can’t produce the qualification products and face losses. If SEEs face losses, the losing amount is incurred by the government through the state fund account. It reduces the accountability of SEEs because they don’t incur their losses by themselves and they are not responsible for both profit and loss. Table (1) shows the receipts of SEEs of Ministry of Industry (MOI) from state fund account and their payments to state fund account from 2004 to 2010.

Table 1. SEEs of MOI receipts from SFA and payments to SFA (million kyats)

	2004-05	2005-06	2006-07	2007-08	2008-09	2009-10
Receipt from SFA	137,426	177,380	284,601	333,483	388,286	359,070
Payment to SFA	139,468	168,550	274,229	334,289	380,722	368,754
Receipt- Payment	(2,042)	8,829	10,372	(805)	7,565	(9,685)

                                 Source: JICA, data collection survey on state-owned enterprise in Myanmar

                The difference between SEEs deposit to state fund account and SEEs receipt allocations from the state fund accounts define as the gross profit of SEEs.  The loss of SEEs creates the state financial deficit. To manage this situation, government should separate the SEEs from the state budget step by step and SEEs should stand on their owned budget.

7.1.3.      Tax system

During the military government, the tax system in Myanmar was not transparent to the public and has dawdled behind compare to the other ASEAN countries. Although the tax system was reformed when the first civilian government came to power in 2011, the tax system was not improved much. For the FY 2012, the government projected the budgeted tax yield to be increased from 3.1% of GDP, but the actual tax yield was increased to 6.4% of GDP in FY 2012 and 6.6% of GDP in FY 2013. There was improvement in tax yield but the level was still at the lowest level of tax yield in the world. The reasons for lowest level of tax yield are the complexities in the tax system and compliance is very low due to administrative weakness and public are not familiar with the tax system.

            In Myanmar tax system, there are range of tax instruments and among them, the Commercial Tax, which is general consumption tax levied at a rate of 5% on every transaction, and the Personal Income and Profit Tax are the most important to get revenue. In FY2012, 95% of total tax revenues were made from these two instruments and it was equivalent to the 2.9% of GDP. While the government tried to increase its revenue, the new opportunities came out from the political change. When the government allowed two foreign private firms for telecom services which utilized pre-existing state-owned infrastructure, the taxes from these firms was equal to the quarter of total expected revenues.

Although the government tax revenue is increased due to the economic growth, foreign direct investment, on the other hand, the expenditure of government is increasing due to the development projects of country. Since the antipoverty policies and Myanmar’s reform agenda requirements are enormously increasing the government expenditures in GDP, the government has to make major increase in public revenues. Therefore, the government targeted 10% tax-to-GDP ratio by 2018. The government’s target seems to be possible but the tax system is needed to be major reformed by reducing the complexity in the system, facilitating administrative restrictions, compatibility and incentives for compliance and strengthening the tax instruments to extend the tax coverage. The government needs to avoid applying non-revenue purposes tax system, because it may increase the capital accumulation but it can create undesirable results in investment and complexities in the tax system, expensive administrative costs and disadvantage to compliance.

Basically, capital revenues was more unstable than other revenues and related to weakening of public capital and natural resources. According to the global experience, the problem of nature of revenues and public expenditure were the main cause for several macroeconomic and debt crises, which can hinder the economic growth patterns. Therefore, the government should consider the application of indirect taxes than widespread using of a flat and simpler consumption tax. The application of indirect taxation can press the sales taxes as instrument to get public revenues and also influence on the some incomes which are escaping from the direct taxation. The consumption tax can improve the stability in the country’s revenue system and for the private sector, sales taxes would not provide improvement in accounting and direct taxation needs effective auditing system.

7.2.   Policy stream

7.2.1.      Medium Term Fiscal Framework

Government attempted to practice Public Expenditure and Financial Accountability Assessment (PEFA) in cooperation with World Bank’s PEFA mission in 2012. Government also conducted the framework for economic and social reform and identified the four areas of policy priorities which are (1) to sustain agricultural development by making agricultural reform to attain rural development and poverty alleviation (2) to make equitable sharing of resources among states and regions for regional development (3) to implement effective people-centered development by enhancing education, health and living standard and (4) to gather reliable and accurate statistical data and information for measurement (FESR, 2013). Government implemented the framework for Economic and Social Reforms (FESR) and planned to increase health expenditure, education expenditure and to reduce military expenditure. According to the FESR, government implemented the public financial management reform (PFM) and also performed tax policy and tax administration reform to increase tax income.

According to the PFM reform, government followed the Medium Term Fiscal Framework (MTFF) in 2014 and it was improved from incrementalism budgeting to policy based budgeting. The main objectives of the MTFF is to control budget deficit, to achieve higher budget credibility and to foster macro-fiscal discipline. According to the MTFF, budget department changed the budget format by combining top-down budgeting and bottom up planning. Government also issues the expenditure ceiling to spending agencies. According to the medium term fiscal framework (MTFF), budgeting is implemented based on the previous 3 years and estimated for next 3 years by using macroeconomic indicators. Government formed the Township Planning and Implementation Committee to express bottom-up planning system. According to the MTFF, government targeted deficit to GDP about 5 percent. Government solved the 60% of deficit with foreign financing and 40% are solved with domestic financing by selling Treasury Bonds to the Public and borrowing Central Bank (Kubo.K.2012). In 2012, Central Bank of Myanmar introduced the exchange rate unification and formulated exchange rate from 1USD= 6MMK to 1 USD equal to 800 MMK (Kubo.K.2012).

Figure 2 Income, Expenditure and Deficit of Myanmar

Source: Budget Department, Ministry of Finance, Myanmar.

Regarding some commencement findings of regional budget, there are some revenue and non-revenue resources which can be authorized to be managed by region and state governments. To develop bottom-up planning, government organized the three committees in township level. Township development affairs committee aim to manage planning and implementation at township level and to engage development issues. Township management committee is responsible for decision making and township development support committee plays an advisory role between the township management committee and the public.

Government allocated the rural development and poverty alleviation fund based on the population, per capita income, living standard and problem area. The taxes that are allowed to collect in state and regions are described in schedule 5 of the Myanmar constitution 2008. If the region or state budgets face deficit, they will be financed by taking grant from union fund. Government transferred the grants to state or region followed by MTFF. According to the MTFF, budget department calculated the grant transfer based on six indicators which are total population, poverty index, area, urban population as percent to total state population, per capita tax collection, and per capita GDP of state and region (ADB Economics Working Paper Series, 2015).

Table 2. Revenue and Expenditure Ratio of Union and State & Region

Year	Union Revenue	State and Region Revenue	Union Expenditure	State and Region Expenditure
2011-2012	96.77	3.23	96.03	3.97
2012-2013	93.08	6.92	93.94	6.06
2013-2014	92.59	7.41	92.32	7.68
2014-2015	86.31	13.69	88.03	11.97

Source: Budget Department, Ministry of Finance, Myanmar

According to the National Health Plan (2011-2016), government is responsible to perform the effective health human resource planning, development and management. After 2011, government strived to increase the expenditure for social sectors. Among them, education and health expenditures are significantly increased from 2011 to 2015 but it is less than 2 percent of GDP. Figure 3 shows the improvement of education and health expenditures from 2011 to 2015.

Figure 3. Education and Health Expenditure of Myanmar

                               Source: Budget Department, Ministry of Finance, Myanmar

7.2.2.      State Economic Enterprises reform

From fiscal year 2012-13, government revised the state fund account system for SEEs in order to reduce the budget deficits due to the losses of  state owned enterprise .According to this new state fund account system, SEEs need to stand their owned budget and do not rely on government budget for operating their businesses. However, immediate standing on their owned budget is difficult for SEEs. Therefore, government decided that they need to change state fund account system gradually from one step to the next. As the starting point, SEEs used working capital by their owned fund such as purchasing raw material for their productions. If they have not enough working capital for operating their businesses, they can borrow money from the state owned banks in accordance with the financial laws and regulations. Other expenses except working capital are incurred from the state fund account. Moreover, the percentage contribution of SEEs to the state fund account is changed after changing the state fund account system. As mentioned above, SEEs must put 30% of profit as income tax and remaining 70% of profit as the contribution into the state fund account before 2012. After 2012, SEEs need to put 25% of profit as income tax and 20 % of profit as the contribution into the state fund account. The remaining amount of profit (55%) can be used as their own fund.

       In FY 2013-14 and FY 2014-2015, the budget allocation for SEEs will be different according to their capacity. The profitable enterprises incurred 100 percent of costs, and put 25% of profit as income tax and 20 % of profit as the contribution to the state owned fund. Loss facing enterprises incurred 80 percent of cost for raw materials by their owned fund and the remaining 20 percent will be incurred by the state fund account.

In 2015-2016, all of the SEEs couldn’t receive budget allocation from the state owned fund anymore and they have to stand on their owned fund. And also, from their profit, they need to contribute 20 percent to the state owned fund, pay 25 percent for income tax and remaining 55 percent can be used as their owned fund for the next fiscal year. If SEEs face losses continuously year by year, they will be privatized. Privatization can improve the efficiency and probability of the state owned enterprises and it will create the sound environment for the private sector. But liquidation and privatization of SEEs can cause increasing unemployment rate and reducing social benefits. Moreover, public finances mainly depend on the revenues of SEEs which are operating the extraction of natural resources such as oil, gas, mineral resources. That’s why, the government tried to improve the efficiency of SEEs to increase the public finance. Figure 4 shows that the government estimated revenue for fiscal year 2015-2016 and 50 percent of total public finance comes from the revenue of SEEs. According to Patrick Hellerm (2016), the revenue of only three oil and gas state economic enterprises - Myanmar Oil and Gas Enterprise (MOGE), Myanmar Petrochemical Enterprise (MPE) and Myanmar Petroleum Products Enterprise (MPPE) – had received 19 percent of total public revenue in the fiscal year 2015-16.

Figure 4. Estimated revenue for fiscal year 2015-2016

Source: Aung Myat Kyaw, Myanmar’s budget system reform

Even though SEEs stand on their owned budget after 2015-16, they have to pay state contributions and income taxes to the state owned fund. For example, in fiscal year 2013-2014, the important and large SEEs which are under the Ministry of Transportation such as Myanmar National Airway (MAI), Myanmar Port Authority, Myanmar Shipyards and Inland Water Transportation stand on their owned fund but they still have to pay state contribution and income tax in 20 percent and 25 percent to the state owned fund.

7.2.3.      Tax system

In April 2014, the new Union Taxation Law was enacted and in which the commercial tax has changed to 5% imposed on all sales goods that couldn’t provide drawback to producers and distributors for inputs. This law will provide Myanmar to change to a VAT type system which allows drawback in long run and increase in revenue collection without affecting existing structures. But there are some weakness in the law, which is exemption for some domestic products and the most domestic firms have to pay 2% commercial tax on that domestic products. This will reduce in revenues and also cause the complexities in the tax system directly and indirectly. For the excisable goods such as gas, tobacco products, gems, petroleum products, are taxed with different rate from 8% to 100% as commercial tax. The objective of the law is that the excisable goods are supposed to tax with these higher rate once in the supply chain, but there is no clarification to impose these rate at which point and tax evasion can be happened. But the revenue on these goods could be intensely improved since they are treating separately as excisable goods and if there is exact point for tax collection which can be either at the importation point or production point, and standard commercial tax rate should use for remained stages in the supply chain.

The Union Taxation Law (2014) consists some vital steps for reducing complexity in direct taxation. The law has changed for personal income tax, in which the 12 brackets system is replaced with five brackets and it improved threshold, and the difference rates on the different income taxes have been reduced. The changes provides reduction in tax avoiding and misreporting, and the tax base can be grew as the country develops. The reduction of brackets system for personal income tax would improve the direct taxation system. On the other hand, the strategy are needed to be used to handle the administrative restrictions and difficulties that are hindering in tax collection and compliance. To improve the capacity of Myanmar’s tax collection, Large Taxpayer Unit is established and taxpayer registration system is also reformed. Acknowledging clear guidelines and training to tax collectors, who have responsibility for assessment of tax liabilities, are still required in the policy.

Figure 5: government revenue as % of GDP in Myanmar: 2007-08 to 2012 -13

Source: IMF 20111 article IV constitution (2012)

7.3.   Politic Stream   

7.3.1.      Medium Term Fiscal Framework

Budget department of the Ministry of Finance is responsible for analyzing, scrutinizing, preparing and delegating of recurrent budget and foreign exchange budget and ministry of National Planning and Economic Development is responsible for collating the capital budget. Line ministries are needed to discharge through Myanmar Economic Bank (MEB) by using the check of transfer. All of the line ministries are needed to make monthly report and quarterly report for budgeting. Auditor General Office undertakes the auditing per 6 months for every Ministries. According to the public financial management reform, Public Account Committee (PAC) is responsible for reviewing of budget bill and audit report and also Planning and Finance Committee has a responsibility to review the national development plan and legislative matters. On behalf of the Ministry of Finance, Budget Department implemented the Public Financial Management Reform (PFM reform) conducted collaboratively with multi-development partners including the World Bank, International Monetary Fund (IMF), Asian Development Bank (ADB), Department for International Development (DFID), Japan International Cooperation Agency (JICA) and so on.  This project will be financed by US$ 30 million from World Bank and US$ 25 million from UK aid and Australian aid (PFM performance report, 2013). According to the PFM reform, MOF implements the MTFF cooperation with World Bank and modernization of public finance management is implemented by eight agencies which are budget department, internal revenue department, Myanmar economic bank, treasury department, planning department, project appraisal and progress reporting department, office of the auditor general and parliament public account committee.

7.3.2.      State Economic Enterprise reform

In the implementation of new state fund account system for SEEs, budget department of Ministry of Finance is the main implementer and every state owned enterprises have to follow the regulations of new state fund account system and they have to fulfill the requirements of new state fund account system. And also the related ministries of SEEs need to monitor and supervise their owned enterprises to improve their efficiency and probability. To monitor and evaluate the performance of SEEs, SEEs need to submit their monthly financial reports to Ministry of Finance through their concerned parent ministries. In order to increase the budget transparency of SEEs, Ministry of Finance mentions the revenue and expenditure of SEEs in the citizen budget and publishes. By this way, public awareness is increasing in the government budget allocation and SEEs try to create profit by the pressure of political and social pressures. And also, SEEs have to submit their internal audit reports to the Office of Auditor General biannually. The Office of Auditor General conducts financial audit annually in order to review whether SEEs financial statements are consistent with general accounting principle or not. And also, the Office of Auditor General conducts performance and operational audit in order to evaluate whether SEEs use their resources effectively and efficiently.

7.3.3.      Tax System

The Tax system applied during military regime was centralized system and tax collecting authority is not distributed to the states and regions authorities. When the new civilian government came to power in 2011, the tax authority is distributed to the state and region government according to the 2008 constitution. Therefore, the law related with tax system has to be changed in accordance with the constitution and the reform policies of new government. In 2012 and 2014, the government enacted new Income Tax Law (ITL), the Stamp Duty Act and the Court Fee Stamp Act and the Commercial Tax Law (CTL), Special Economic Zone Law (SEZL). These laws are included in the tax reform agenda which was set by the parliamentary government in 2011. In 2014, the Union Taxation Law (UTL) was introduced and applied for 2014/2015 fiscal year in order to accelerate the reform process. The Union Taxation Law (2014) has some controversial weakness that found out during applying within 2014/2015 fiscal year, then the Parliament tried to upgrade the law in 2015. In 2^nd April 2015, the Parliament passed the Union Taxation Law (2015), which would effective for 2015/2016 fiscal year, including several substantial changes. The process of Tax system reform was conducted under supervision of Ministry of Finance and cooperating with Union government, States and Regions governments and International organizations.

8.      Window Opportunity

After 2011, Myanmar government performed the published airing of budget debates on radio and television to increase budget transparency and public budget discussion. To increase the parliamentary activity, public account committee (PAC) and national planning and finance committee were formed and started to provide budgetary oversight. According to the Open Budget Survey of multilateral organizations (2015), The score of budget oversight by supreme audit institution is 25 out of 100 index, the score of open budget index on 2015 is 2 out of 100 index, public participation is 6 out of 100 index, budget oversight by legislature is 27 out of 100 index (Open budget index, 2015). According to the open budget survey of multilateral organizations, they measured the budget transparency by using 109 indicators of 140 questions and Myanmar open index in 2015 is 2 and it is slightly increased than 2012. On November 2015, Ministry of Finance released 2015-2016 citizen budgets to the public and general auditor office published the auditing report. However, Government of Myanmar is trying to publish the pre-budget statements, executive’s budget proposal, enacted budgets, in-year reports, mid-year review and end-year report. According to the MTFF, government can control the deficit at 5% level of deficit to GDP. Figure 6 shows the ratio of revenue to GDP, expenditure to GDP, Tax to GDP and deficit to GDP of Myanmar, which are the outcomes of budget reform process, from 2011 to 2015.

Figure 6. Revenue, Expenditure, Tax and Deficit to GDP ratio

Source: Budget Department, Ministry of Finance, Myanmar

The new state fund account system for SEEs can reduce the budget burden and fiscal deficit of state owned account which is occurred by losses of the state economic enterprise within last five years. In the near future, it is expected to improve the efficiency of SEEs because they have to stand totally on their owned budget.

In 2011, the new government conducted political and economic reforms in order to develop the countries. The government updated the tax legislation to meet the needs of modernized economy and increase the tax revenue to cover the government’s budget deficit problem. Concurrently, they tried to educate the people about tax system and concerned for public participation in the tax system. Since the political situation of country was changed, enormous foreign investments came into the country and the economic was growth. The Income Tax Law, the Commercial Tax Law and Foreign Investment Law enacted in 2012 reinforced the tax system and the tax revenue was increased within 2 years. In 2014, the Union Tax Law was enacted and the commercial tax shifted from positive list system to negative list system, which means all the products or services have to pay commercial tax if they are not exempted by the law. In order to avoid the impact on daily essential goods and services, the Union Tax Law exempted several food products and public services in the law, which led to complexity in the tax system. The government has noticed these issues and tried to rectify them during a year. Since the foreign investment flows have increased during the previous first civilian government administration, the government tried to enact new law for Special Economic Zone in order to strengthen economic growth and the Special Economic Zone law was successfully enacted in 2014. Although the tax revenue was increased year by year, but the expenditures of the government became larger and larger due to the development issues of country. Since there was complexity in implementation of Union Tax Law (2014), the tax revenue would likely to be decreased due to the exemption and amnesty of some products in the law.

In 2015, the new Union Tax Law (2015) was updated to solve controversial issues in pervious law and to provide new opportunities for the future economic. In 2016, the new government leads by President U Htin Kyaw came to power and the new government will perform major changes in the tax system and enact new Special Goods Tax Law (2016) based on the previous experiences. In FY 2014, the actual tax yield was increased to 6.1% of GDP and In FY 2015 the tax yield was increased up to 9.0% of GDP. The data related to the revenue, expenditure and deficit during 2011-2016 was illustrated in following figure.

Figure 7. Revenue, Expenditure and Deficit during 2011 to 2016

Source: Budget Department, Ministry of Finance, Myanmar

The tax system of Myanmar is currently modifying yearly to meet the requirements of modernized economy and its own target- 10% tax-to-GDP ratio by 2018, since 2011. As the government applied major political and economic reforms, the requirements are also large to meet the goals of the government, and the tax system is one of the requirements to modify accordance with the current situation. The window opportunities for tax system were happened several times during the previous administration and there will be more opportunities in current new administration.

9.      Discussion and implication

During the very first period of budget reform process, the implementation of fiscal decentralization and the fiscal relationships between intergovernmental levels seemed to be low according to the government officials interviewed assessment results. The knowledge of existing allocation mechanism, which is decided by the Union Financial Commission, and the amounts of budget to be distributed to states and regions are not clearly acknowledged to the bureaucrats. Based on the opened opportunities, the government of Myanmar could implement vertical decentralization and horizontal decentralization in budgeting process for more transparent. Moreover, in order to improve on the subject of fiscal decentralization for reducing budget deficits, the current government could manage their allocation and collection revenue between Union and State level by harmonically. Moreover In term of reducing budget deficit, the new government could manage the effective expenditure for all citizen and could implement fair taxation.

In the tax system of Myanmar, the local policy and administration are not fully developed, and also states and regions level have some constraints to improve the local revenue base. In 2008 constitution, the power of revenue-raising authority has been legally assigned to states and regions governments, but the legal framework is not clearly defined and also not provide the scope of resources allowance for state and region level. The complexity and unclearness of constitution cause the immaturity of local tax policy and administration, and ineffectiveness for compliance. Moreover, the states and regions can get budget deficit funding and supplementary budget which to save the over expenditure and deficits in revenue collection, the authorities of state and regions are not likely to promote the local revenue base. Therefore, the legally effective decentralization is needed to be performed for the states and regions level. If the effective local tax system can be implemented in the regions and states level, the tax revenue will be increased in the future.

The Myanmar government is going through an extraordinary and historical evolution, and also the Government has clearly identified their ambitious reform agenda for budgeting. Never in its history has the country had such an opportunity to set the solid foundations of a society and it now contributed to reformed sector including budget process. Budget preparation in Myanmar is currently not being done within a framework of available resources. This makes effective prioritization of expenditure choices, and hence, alignment between the budget and policies difficult. Moreover, the budget format was combined top-down budgeting and bottom up planning and it will support the efficient budget formulation and also improve budget transparency.  In addition, capital and recurrent budgeting functions are divided between separate planning and finance ministries, creating the potential for not adequately provisioning for maintaining assets. Due to the expected new window opportunities, the Myanmar government can get several advantages of increasing budget transparency including building mutual trust both government and citizens, helping the fight against corruption, strengthening democracy. In a fully transparent budget process, the following documents should available such as Pre-budget Statement, In-year Reports, Executive’s Budget Proposal and Enacted Budget in the budgeting process.

10.  Conclusion

By using the multiple streams model, the expected window opportunity result is significantly related to both Myanmar fiscal policy and Myanmar budgetary policy for the socio-economic development and efficient budget process. Myanmar still manages the annual state budget for allocating fund resources, improving tax system and other revenues to meet the national strategy.  The reforming of tax system effort also should be one of progressive taxation that promotes equity and inclusive development.   In order to improve reform strategy that would build on the strengths and address the weaknesses in a prioritized such as to maintain aggregate fiscal discipline, to allocate public resources to policy priorities of the government effectively and to promote value for money in public spending.  On the other hand, according to the objective of the study, we clearly identified what are the budget deficit and lack of transparency relating to MTFFs, SEEs, and taxation in the budget reform and examined how to succeed the budget deficit and lack of transparency for improving budget reform in Myanmar. Due to the result of our qualitative study, the hypothesis is correct as the budget reform has been improved the budget transparency and government revenue but need to get a significant result.

In the process of Myanmar budget circle, we need to openly share and debate with stakeholders across ministries and government consultants, civil society and technically supported partners to foster a shared understanding of the current budgeting system, the issues have to handle and examine for the improvement. Moreover, the government authorities and other analytical assessment input to check for reform strategy for Myanmar budgeting. Given the long list of issues to be addressed, a key focus of our expected new window opportunities is ensuring that budget reforms will appropriately prioritize, sequences and coordinate with multiple level actors and also all the international financial association surely to support Myanmar budgeting as the current new government’s action. In the near future, Myanmar budgeting can survive current challenging transitions especially budget deficit and lack of transparency, and also strengthening controls over the use of public resources, and managing  budget allocation. Furthermore, institutions of budgeting and planning have been well established and undergoing significant change as the country’s economic and social reform program in the near future.

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