To pay or not to pay? INGOs wrangle over income tax

With a new government in office and the start of a new financial year, international non-government organisations (INGOs) are holding intense discussions over whether their well-paid expat staff should pay income tax in Myanmar.

Some have been paying tax for years; others claim to have deals that exempt their foreign staff; and others would not say if their staff paid any tax at all.

Excluding the generous benefits packages that most INGO staff receive – covering repatriation flights, housing allowance and health insurance – many INGO international staff are paid between US$1500 and $6000 a month, dwarfing the salaries of their local co-workers who pay income tax.

Myanmar has what one 2015 Asian Development Bank working paper called “one of the lowest levels of tax yield in the world”, as well as a ballooning budget deficit. Although the income tax contribution from INGO staffers would be admittedly a smidgen in overall terms, the practical and moral debates taking place within the upmarket residences of Yangon’s plush Golden Valley district reflect wider discussions among the international community in Myanmar.

A spokesperson for the Inland Revenue Department (IRD) told The Myanmar Times, “According to Section 19(a) of the 2016 Union Tax Law, employees earning above K48 lakhs [$4000] a year have to pay up to 25pc at a progressive rate in 2016-17. This applies to anyone resident in the country for more than 183 days, and to any income derived inside and outside Myanmar, including benefits.”

Jean Loi, managing partner of the law firm VDB Loi, said, “The law is very simple. If you derive a salary in Myanmar – and are not exempted by an  MoU with the government – then you are eligible to pay tax.”

Each INGO has a bilateral MoU with the Relief and Resettlement Department (RRD), but not all have clauses exempting their expat staff. But the agreements are kept confidential, and they are poorly understood.

The IRD said, “There is no individual exemption allowed by the Income Tax Law,” adding, “If INGO staff want to be exempt from paying income tax on salaries, they must apply to hluttaw [parliament]” every year.

“It’s a complicated situation,” said Paul Joicey, director of Oxfam, suggesting that the confusion could be partly down to the fact that an MoU must be in both English and Myanmar.

“We have been led to believe that this [current arrangement] is acceptable,” he said.

The Myanmar Times contacted several INGOs enquiring about their tax compliance, with responses varying significantly.

Action Aid says all its staff have paid income tax in Myanmar for the past three years. Oxfam and Trocaire both say their MoU permits their expat staff to pay income tax in their home country.

Welthungerhifle – voted Germany’s joint-most transparent organisation in 2014 – said they had no clause in their MoU exempting their staff from paying income tax.

Solidarités International said they respected the law, and Plan said they were compliant. Neither elaborated further.

Christian Aid and the Finnish Refugee Council have not operated long enough in the country for their staff to be subject to income tax. Both said their lawyers and accountants were reviewing the situation, but declined to reveal if they intended to pay income tax.

The issue of whether or not INGO expat staff should pay income tax in Myanmar has been deliberated unsuccessfully for years in the INGO Forum – an arena to help clarify different policies among INGOs. Martha Kaszubska, the forum’s coordinator, told The Myanmar Times, “Each organisation is following its own procedures and guidelines to comply with the law of Myanmar.”

However, the current situation is causing disquiet among INGO staff members.

One source, who asked to remain anonymous, told The Myanmar Times, “There’s a joint NGO meeting every few months, with all the NGOs based in Yangon. At the most recent one, they asked for a show of hands to see which NGOs pay taxes – not a single hand went up.”

Action Aid’s country director, Shihab Uddin Ahmad, refused to comment on other INGOs’ positions, but did say, “We don’t have moral grounds to talk about the taxes of multinational companies unless we comply. We believe that when we demand rights from the government we also acknowledge the right of the government [to collect tax]. We take it for granted that every INGO staff member is conscious about their contribution to the society.”

Oxfam says it is keen to uphold the right of the state to collect tax, but maintains that its staff do not pay income tax because their salaries are not paid here. “International staff are paid at headquarters, so their salary never comes into Myanmar,” said Ghi Da Oo, Oxfam’s HR manager. “They pay tax in their home countries.”

Mr Joicey also pointed to the difficulty in managing the affairs of a multinational staff, with each employee subject to different regulations in their home country.

Yet the country director of Welthungerhifle, Peter Hinn, revealed that his organisation does not share this difficulty, despite having their wages and taxes handled by HR at headquarters level in Germany.

The reluctance of some INGOs to disclose tax arrangements is surprising, given that many are either signatories of an INGO Accountability Charter or purport to be transparent. The Charter’s executive director, Karenina Schröder, said, “Tax payments are not explicitly covered by the INGO Accountability Charter, but sound and responsible financial management is.”

The rationale is that payment of income tax can be problematic in cases like Sudan and Somalia when it is not clear who is the legitimate government. However, as Mr Ahmad said, “Here there is no issue about the legitimacy or identity of the government.”

Neither Oxfam nor Trócaire could explain their reasons for including these clauses in the first place, or for not wanting to pay income tax in Myanmar.

A variety of reasons were suggested by ActionAid’s director, ranging from disapproval at the use of tax revenue – such as funding ongoing battles between the Tatmadaw and various ethnic groups, or allegedly lining the pockets of cronies – to rejecting a system that effectively treats a taxpaying foreigner like a tourist who can be charged more than a citizen for local services.

However he is clear about his position. “I would prefer us to comply with the law and at the same time argue how we can make that law better,” he said.

Oxfam’s Mr Joicey said, “It would be helpful for the new government to clarify the rules.”

Yet some aid workers are accusing INGOs of hiding behind the ongoing discussion within the INGO Forum and using that as an excuse for not paying. They say the arguments against paying income tax in Myanmar are weak and have grown weaker now that a democratically elected government is in power.

Even the process of filing your own tax returns is not so hard, they add.

Mr Ahmad said, “It’s one of the simplest tax payment procedures in Myanmar.”

Source: The Myanmar Times

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