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As the Burmese government irons out the finishing touches to the much-anticipated Foreign Direct Investment (FDI) law, members of the country’s credit-starved small business sector say a five-year tax exemption for foreign firms is unfair.
Myat Thu Winn, Managing Director of Shwe Minn Tha Enterprises Co, a family owned group of real estate, media and printing companies, says a five-year tax break for foreign investors will disadvantage local business.
Myat Thu Winn says many Burmese small to medium enterprises (SMEs) still struggle to access sufficient credit from the country’s weak banking sector to grow their business and will suffer if forced to compete against sophisticated and well-financed foreign companies.
“I understand the (FDI) law will help encourage foreign investors, however local companies also need a great deal of assistance to improve their business techniques,” says Myat Thu Winn.
“We need fair and equal opportunities. If everything is equal, then we can all compete — foreign investors and local Burmese — but first we need to have an equal chance.”
Burma’s parliament has drafted new legislation that will allow a five-year tax holiday for foreign firms, which is extended from the current three-year holiday.
The parliament has yet to pass the law but it is viewed as a first step before the country takes on more reforms aimed at boosting foreign direct investment.
However Myat Thu Winn says the government’s proposed five-year tax exemption will give foreign firms a competitive advantage over their Burmese counterparts.
He says SMEs need to compete on a level playing field with foreign investors and says the new law should give equal opportunities to all businesses.
“There are many challenges for the local businessman,” he says. “Our country is very poor and we need foreign investment, not only to provide capital, but to provide new infrastructure and techniques.”
“So as a normal Burmese citizen, I welcome foreign investment, but as a businessman I think all companies need to have an equal chance at profitability.”
Jared Bissinger, a PhD candidate at Macquarie University studying Burma’s economy and a consultant with Vriens and Partners says he doesn’t recommend a tax exemption for foreign businesses.
“This part of the new FDI law is certainly creating the biggest bones of contention so far and domestic business doesn’t like it,” says Bissinger.
“You want to create a level playing field for all business so there’s no need to prejudice one over the other.”
Myat Thu Winn says foreign investment in the construction and tourism sectors could give a much-needed shot in the arm to the country’s economy as well as provide jobs for thousands of Burmese.
“I understand if you are a businessman, you are trying to make money, but I encourage foreign investors to think of how they can also contribute to the community,” says Myat Thu Winn.
Bissinger says foreign investors can help Burma’s development by creating employment and training opportunities however he warns of the potential for bigger, better-financed and business-savvy investors to put local firms out of business.
“What you don’t want is a bunch of foreign companies coming in and displacing local companies,” says Bissinger. “And there’s a big risk of that happening.”
“Instead, you want foreign companies to come in and do things better through introducing more efficient production methods, more capital or new management techniques.
“These can bring production costs down and quality up, so new foreign firms don’t just take a slice of the pie but expand the size of the pie.”
A recent report by the Economist Intelligence Unit (EIU) says access to credit is the biggest challenge faced by Burma’s SMEs.
“A major impediment to rapid growth remains that of weakness in the banking sector, with small- and medium-sized enterprises (SMEs) still struggling to obtain sufficient credit,” the report states.
The report says credit-starved SMEs could benefit if economic and financial reforms allow foreign investors to enter Burma’s banking sector.
-Kate Kelly is a pseudonym for a journalist working in Burma.