Have You Calculated the Personal Income Tax Reliefs and Allowances Correctly for the 2021-2022 Six-month Interim Budget Year?March 31, 2022
As required by Notification 510/2021 issued by the Ministry of Planning, Finance and Industry, when calculating Personal Income Tax (“PIT”) for the six-month interim budget year (1 October 2021 to 31 March 2022), employees’ monthly fixed income items, such as their monthly salary and monthly fixed allowances must be annualized (i.e. multiplied by two) to obtain the taxpayer’s annual income amount. Variable allowances, such as a one-time bonus payout, incentives, or overtime, are not required to be annualized.
Once total annual income is determined, the next step in the PIT calculation is to deduct the allowable tax exemptions and reliefs to arrive at the total annual taxable income that will be subject to PIT at the progressive rates.
Tax reliefs and allowances for Myanmar residents
Resident taxpayers of Myanmar are entitled to deduct the tax reliefs and allowances listed below in the PIT calculation per Section 6 of the Income Tax Law. Note that non-resident taxpayers are not entitled to these deductions.
- Basic allowance of 20% of total annual income, up to a maximum of MMK10 million per year (approximately US$5,882*)
- MMK1 million (approximately US$588*) per annum for one non-working spouse who is not earning assessable income during a financial year and is living with the taxpayer
- MMK500,000 (approximately US$294*) per annum for each child living with the taxpayer who fulfills ALL of the following criteria: (i) is unmarried; (ii) is not earning assessable income; and (iii) is either under 18, or if 18 or over, is in full-time education
- MMK1 million (approximately US$588*) per parent for dependent parents living with the taxpayer (the term “parent” includes a father- or mother-in-law)
- Premium paid for the life insurance of the taxpayer and the taxpayer’s spouse
- Contribution towards the savings fund as prescribed by the Income Tax Rules
- Social Security contributions (“SSC”) made by employees to the Social Security Board (2% of annual salary, capped at MMK72,000 per annum) (approximately US$42*)
*Using an exchange rate of US$1 = MMK1,700
How do resident taxpayers of Myanmar claim allowable tax reliefs and allowances in the PIT calculation for the interim budget year?
According to the clarification statement from the Internal Revenue Department on the monthly PIT deduction published on 10 March 2022, the above-mentioned allowable tax reliefs and allowances are to be annualized and to be claimed as if for a 12-month period.
In other words:
- Items 1 through 4 above do not have to be divided by two for the PIT calculation, even though the interim budget year is only for six months since the allowances are specified on an annual basis.
- Item 5 (life insurance premium payment) and item 7 (employee’s SSC) are to be treated as if they were for 12 months, thus they have to be multiplied by two. This is because the amounts actually paid are only for six months during the interim budget year, but the progressive PIT ranges are on an annual basis.
- We note that there is no clear interpretation or instruction regarding claiming item 6 (contribution towards the savings fund). Based on our interpretation, item 6 is more likely to be treated as a variable item since the nature of the savings is not a compulsory monthly contribution at a fixed amount, so the actual amount contributed for the six-month interim budget year is the amount that should be claimed.
Year-end PIT reconciliation
The interim budget year is about to end and thus it is important to check whether the allowable tax exemptions and reliefs have been correctly claimed in the PIT calculation. If any adjustments need to be made, reconciliation must be done and adjustments made by 15 April 2022 – the deadline for the monthly PIT submission for the month of March 2022.