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Investment, discretion and Burma’s future economic development

Nov 26, 2012

Burma’s newly approved new Foreign Investment Law (FIL), will play a pivotal role in the development of the country, writes Jared Bissinger.

On 2 November, Thein Sein approved Burma’s new Foreign Investment Law (FIL), which was passed a day earlier by Parliament after nearly a year of debate and revision. The law is seen as one of the most important pieces of economic legislation passed since Parliament’s founding last year. Many leaders and the law’s drafters themselves hope the FIL will play a central role in development and employment creation by bringing a wave of foreign investment to Burma.

In order to do this, the new FIL contains a wide range of incentives, especially in the area of tax relief. The law extends the blanket tax holiday, a signature concession, from three years to five. It gives a range of other tax concessions including income tax relief on profits reinvested within one year, accelerated depreciation rights for capital and income and commercial tax reliefs for exported goods.

The FIL also provides a number of enhanced rights for foreign investors. It provides longer land leases – 50 years, with two possible extensions of ten years each. It allows foreign investors to control up to 100 percent of investments for activities approved by the Myanmar Investment Commission (MIC). And it gives them more freedom in areas like determining ownership shares and specifying a mechanism for dispute resolution. The latter can be settled “according to the terms of the contract,” opening the door for international arbitration, which should be appealing for foreign investors.

The FIL also had some drawbacks, however these rarely take the form of outright restrictions on, or arbitrary barriers to economic activity – a stark contrast with earlier versions of the law. The most restrictive draft, from the August session of Parliament, included a US$5 million minimum on foreign capital and a 49 percent limit on ownership in restricted sectors.

These requirements were met with fierce criticism from some domestic and most international stakeholders, and were removed from later versions.

However, the FIL’s greatest drawback is not the restrictions, but the lack of clarity on many important issues, which are either left to the discretion of the MIC or the rules and regulations of the ministries. One of the key discretionary responsibilities of the MIC relates to restricted sectors.

The FIL contains a poorly defined list of restricted economic activities, which includes manufacturing and service sector activities which are allowed for Burmese citizens, as well as agricultural, livestock and fishing activities which can be done by citizens. The MIC is charged with deciding which foreign investors can invest in restricted sectors, and setting allowable ownership shares in these restricted sectors. Yet no clarity is given about exactly what types of manufacturing, services, agricultural, livestock and fishing activities the restriction applies to, nor what criteria the MIC will use to evaluate investment applications in these areas.

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Source: DVB

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