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Local companies could be set to receive similar tax breaks and incentives as foreign firms under the Burmese government’s new foreign investment law, as the government seeks ways to even up the playing field, said the leading industry body on Wednesday.
“The locals who are currently doing wholesale/retail do not have the privilege of having these tax holidays,” said Dr Maung Maung Lay, vice president of the Union of Myanmar Federated Chambers of Commerce and Industry, an organisation representing Burma’s private sector.
“But the government have said they are thinking about granting them such tax holidays in order that the playing field will be equal,” he said.
One of the private sector’s central concerns include allowing international firms to open shop with 100 percent foreign ownership, and other tax incentives such as five year tax holidays, said Maung Maung Lay.
Previously, local businesses have spoken out against these sections of the government’s proposed foreign direct investment law, said UMFCCI’s vice president, explaining these terms would put local enterprises, which lack the capital and technology to compete effectively, at a competitive disadvantage against foreign firms.
“The private sector feels that currently the playing field is not level and the government is too generous to the foreigners,” said Maung Maung Lay.
“In that sense, our mom and pop shops will all suffer and become overwhelmed by these potential investors.”
The proposal to extend the current three-year holiday to a five-year tax holiday for foreign businesses was a sticking point for domestic companies, said Jared Bissinger, a PhD candidate at Macquarie University studying Burma’s economy.
“This part of the new FDI law is certainly creating the biggest bones of contention so far and domestic business doesn’t like it,” said Bissinger.“You want to create a level playing field for all business so there’s no need to prejudice one over the other.”
According to Myat Thu Winn, managing director of Shwe Minn Tha Enterprises Co Ltd, Burma’s 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.
“There are many challenges for the local businessman,” he said. “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.”
Local firms wanted to access the same benefits as foreign companies, without having to sacrifice their firm’s independence, explained Maung Maung Lay, saying he’d encountered mutual reluctance from the private sector and foreign investors on the topic of joint ventures.
“Local businesses are concerned they will have to sell their companies, or joint venture, or be overwhelmed,” said Maung Maung Lay.
One local battery manufacturing company said it needed additional capital to expand and compete more effectively against an influx of cheap Asian brands, but due to current banking sector constraints, the only way it could access fresh capital was through a joint venture partnership.
“We are ready to play on the fair ground with foreign investors … but we need better access to finance,” said Ohn Lwin, the managing director of Toyo Battery.
“So if we can get an industrial long-term loan with a low interest rate from the government then we’d be very happy. Then we wouldn’t need to look for a joint venture to provide capital.”
Better access to credit and receiving tax incentives on par with what foreigners are entitled to would help boost local firms, says Ohn Lwin.
“If they give the incentives to the foreigners, say a five year tax break, then we should also be granted five years, that would be fair,” said Ohn Lwin.
The government has not officially announced new tax incentive plans to even up the playing field for local firms, but according to UMFCCI’s vice president the issue has been discussed at government meetings and within his organisation, which acts as a bridge between the private sector and the state.
-Kate Kelly is a pseudonym for a journalist working inside Burma.