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The Burmese government is to alter its valuation of the Burmese kyat to the US dollar, resulting in a doubling of tax on imported goods along the China-Burma border, a businessman there said.
Imported goods are subject to a tax based on a percentage of their value. As foreign goods are valued in US dollars the Burmese government translates this into kyat.
Customs and excise had been valuing the dollar at 450 kyat but it now they are reportedly adjusting this rate upwards to 1,000 kyat, the businessman told DVB.
“It’s a way of doubling the tax take without doubling the tax rate; they [the junta] have done this sort of trick before,” said Sean Turnell, Burma economics expert at Macquarie University, Australia. He added that the official government exchange rate is set at six kyat to the dollar.
“It’s a particularly bad one to impose because tariffs have a cost. Burma desperately needs the modern goods they can get from elsewhere but it’s likely to be quite ineffective.” Turnell said.
The move will signal further price hikes on imported goods coming overland from China. Burma is part of a newly enacted Southeast Asia free trade agreement (FTA) which is now the largest in the world terms of population, covering 1.9 billion people.
The four weaker economies in what is known as the Associaiton of Southeast Asian Nations (ASEAN) bloc, Cambodia, Vietnam, Laos and Burma, are exempted from the requirement to slash 90 percent of tariffs until 2015.
“The areas it will affect are the formal economy; the informal and illegal economy probably won’t be affected at all but probably just try that little bit harder to evade [taxes],” said Turnell.
“The areas that it affects are the areas that the country really needs. The big barrier for Burma is that they are still stuck in that informal subsistence economy.”
Already Burma is viewed as having a relatively inefficient or poor purchasing power parity for many consumer goods that originate in the country that with their far more prosperous neighbours.
Items such as mobile phones and motor bikes are all more expensive in Burma than in Thailand, for instance, and the situation is the same for gas, despite the abundance of offshore fields that Burma owns. This is a result of a lack of a manufacturing base, infrastructure and a sound financial system.
“Burma’s government shouldn’t be facing any cash shortfall at all because of the gas reserves and the revenues from that, but those revenues don’t properly enter Burma,” Turnell said.
They are deliberately hidden offshore, but general government activity is heavily underfunded and on a whole range of issues we are seeing precisely this at the moment, I am getting reports all the time about arbitrary taxation increases,” he concluded.
Additional repoting by Ahunt Phone Myat