Decentralization on natural resources
Countries rich in natural resources usually control only 50% of extractive industries such as petroleum and diamond by the central government as state-owned enterprises, and the remaining will go into a public-private partnership. Under the State Peace and Development Council (SPDC) in 1993, some of the nationalized businesses were started to release back to the cronies close to military elites, but the natural resources sector remained under the State control. Around 2000s, extraction and export of natural resources reached its peak, and both the military and EROs exported at a cheap price to equip themselves militarily. In accord with the Article 37 and the Schedule 1 of the Union Legislative List of the 2008 Constitution, the Union remains the ultimate control over natural resources. The report of the Extractive Industries Transparency Initiative (EITI) in 2016 stated that 428 out of 1258 gemstone extraction permits issued by the government went to the Myanmar Imperial Jade company, a branch of the Myanmar Economic Holdings Co; Ltd which was a financial source of the Myanmar military.
In federal countries, the governments have power to manage natural resources, but all the people have constitutional rights to the benefits. However, experts pointed out Myanmar received only one-tenth of the actual total income from the sector as national revenues due to mismanagement of natural resources and only about half of the revenues would flow to the government while the other half went into the state-owned enterprises. For instance, Myanmar’s total legal extraction in 2015 was worth US$ 3.3 billion compared to US$ 9.4 billion in Thailand. It was much less than Myanmar should have actually earned. After the NLD-led government stopped issuing jade extraction permits to limit its extraction, jade extractive companies and businessmen directly dealt with local authorities and KIO/KIA officials resulting in increase of corruption.
Rights to natural resources ownership, governance and revenue earning
In young federal countries, there are controversies over the ownership of natural resources, and the governance and revenue sharing from the resources are taken into major consideration. In federal countries, although laws and policies on taxation including royalty are made at the union level, state governments get an equal or unequal share of a certain amount of revenues. Local ethnic people also have the rights to collect at least 1% of royalty for extraction on their land or territory. Since local/ethnic people usually suffer from direct impact of extractive industries, they are normally granted the rights to signing contracts with precision and details on benefits and accountability on social and environmental impacts, and moreover, the rights to objection to stop the extraction if it’s hazardous. In Indonesia, local governments are devolved the oversight power on social and environmental standards and labor issues regarding the extractive sector. In Myanmar, the Foreign Investment Law was developed in 2016 and the Myanmar Investment Commission was formed with 11 members. All the commission members were cabinet ministers of the central government with no single representative from the States/Regions. The commission restricted investments that would affect traditions and cultures of the ethnic nationalities in the respective areas, but their decisions did not reflect the voices or opinions of the local communities.
The significance of the revenue from natural resources may vary from one federal nation to another. In some federal countries the revenue plays a significant role, but some don’t have to rely on it. Developing countries that are rich in natural resources are entirely dependent on it. The control, governance and revenue sharing of natural resources has become a major challenge in young federal countries, there are conflicts and tension between the central and states and also among the states. In countries dependent on natural resources, extraction of resources such as oil, natural gas, coal, and diamond are key sectors for the revenues of the governments. Which layer of the government should be responsible for the revenues from the extractive sector? How should the revenue sharing go for the states? How much proportion should it be? And What kind of power and authority should be devolved to the subnational governments and the people to whom natural resources belong? These are the key issues that should be taken into a serious consideration in a federal system. For instance, in the unitary states such as China, Qatar and the Philippines, the central governments have the ultimate power over natural resources whilst in federal countries such as Canada, Australia and India, the power is devolved to the states. However, some important resources such as oil and energy are usually put under the central governments’ control, for example, in the United States of America, oil reserves in some states are named as the federal territories and controlled by the federal government. Existence of natural resources varies from state to state and it sometimes crosses state boundaries. Depending on it, revenue and wealth differs from one state to another. There may also be competition and risk of possible disputes among the states over the resources lying cross-boundaries. According to the Myanmar mines law 1994, foreign investment was granted only for large scale production, but in the law amending the Myanmar mines law 2015, medium scale production was inserted, and the power to issue permit for small scale and subsistence production was devolved to the State/Region governments. In federal countries which are rich in resources, permit fees, land tax and royalty are going into the respective local governments’ coffers. According to the amendment of the law in 2012, the right to royalty was delegated to the State/Region governments, but as the respective authorities could not collect royalty systematically or properly, there was a great loss of tax revenues. For instance, in Kachin state from 2014 to 2018, collection of gemstone tax and royalty was worth more than MMK 55547 million, but the Kachin state Hluttaw raised that the amount collected was much less than the actual tax revenues to be collected. Previously gemstone tax was collected in accord with the Special Commodities Tax Law and in 2020 a law was developed to collect gemstone tax separately. Every year gemstone tax was nearly MMK 200 billion, but there was no gem emporium due to COVID-19 pandemic in 2019-2020 so Myanmar lost gemstone tax of nearly MMK 200 billion. During the 2019-2020 fiscal year, the country earned MMK 6300 billion from personal income tax, commercial tax, special commodities tax, gemstone tax, stamp duty and Union lottery (six different taxation systems). A report of Global Witness said the Myanmar Gemstone Law was enacted in 2019, but the involvement of the Myanmar Gem Enterprise, a supervisory body which was composed of retired military elites in large scale productions as a business partner created a conflict of interests.
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References
- “Decentralization, Federalism and Democracy in Myanmar”- Hanns-Seidel Foundation
- Public Finance for a Genuine Federal Democratic Union: Stefan Collignon
- Fiscal Federalism: The Ethnic Nationalities Affairs Center (ENAC)
- Natural Resources of Myanmar (Burma): Ownership, Management, Revenue Sharing and Impacts: The Ethnic Nationalities Affairs Center (ENAC)
- “Natural Resources and Subnational Governments in Myanmar: Key Considerations for Wealth Sharing”- Thet Aung Lynn and Mari Oye
- Natural Resource Governance Reform and the Peace Process in Myanmar: Kelvin M. Woods
- NGRI 2016: “Natural Resource Revenue Sharing”
- “The Economic Interest of the Myanmar Military and Illegal Jade Mining during the Coup”- CAfT
- “Jade and Conflict: Myanmar’s Vicious Circle”- Global Witness
- World Economic Forum, “Natural Riches? Perspective on Responsible Natural Resource Management in Conflict-affected Countries”
- “Fiscal Federalism and Natural Resources” – The Asia Foundation
- Statistics on Myanmar Government Budget Published by the Ministry of Planning and Finance
- David Dapice 2013: “Creating a Future: Using Natural Resources for New Federalism or Unity”
- David A. Super: “Rethinking Fiscal Federalism”
- Fiscal Arrangements in Selected Federal Countries: Forum of Federations, Myanmar
- Fiscal Federalism: A Comparative Introduction: Forum of Federations, Myanmar