Thursday, July 27, 2017

Property buyers sacrifice ownership papers to avoid tax

The five-fold increase in property sales tax for this fiscal year, imposed by the previous government, has resulted in a huge rise in tax-dodging, real estate professionals say, perhaps contributing to the market’s current stagnation.

A construction worker on site in Yangon.( Zarni Phyo / The Myanmar Times)A construction worker on site in Yangon.( Zarni Phyo / The Myanmar Times)

This year’s rates were approved by parliament in January as part of the 2016 Union Tax Law and have been effective since April 1, the start of the financial year. Transactions are now taxed at a base rate of 15 percent, up from 3pc last year.

Sales worth up to K30 million are taxed at 15pc, those worth K30 million to K100 million are taxed at 20pc and sales worth over K100 million are now taxed at 30pc.

U Than Oo, vice chair of Myanmar Real Estate Services Association, told The Myanmar Times that many buyers are even willing to dispense with legal proof of ownership in order to avoid paying hefty transaction taxes.

“Since the tax increased fivefold, most people are drawing up contracts through general or special powers of attorney that can help them to avoid formal registration procedures. They don’t need to pay tax or get involved with government departments,” he said.

“But there is no guarantee of ownership. Anyone would think the old government and parliament wanted to create problems for the people,” he said.

Construction and real estate sources say the new tax structure, which represents a return to rates in financial year 2013-14, hinders low-income people from buying property as well as encouraging tax avoidance.

“If you want to buy a house worth K100 million, you must have at least K130 million in hand to pay the tax,” said U Than Oo, adding, “This is a disincentive.”

After paying the tax, the buyer registers the sale with the Settlement and Land Records Department of the Ministry of Agriculture, Livestock and Irrigation, and then has to apply to a local authority, such as Yangon City Development Committee, to be registered as the owner.

“Tax increases have also impacted the construction sector,” U Kyaw Kyaw Soe, associate secretary of Myanmar Construction Entrepreneurs’ Association, told The Myanmar Times.

“We’ve heard quite a lot about tax evasion in recent years. Everyone knows the construction industry has been on a downward trend.”

In fiscal year 2014-15 the government slashed real estate tax rates in the hope it would stimulate the torpid property market, but the market did not bounce back and tax revenues fell.

– Translation by Zar Zar Soe