Fiscal federalism for natural resources revenue sharing
Fiscal federalism refers to a public finance system of how federal, state, and local governments share funding and administrative responsibilities for taxation, tax revenue sharing and arrangements for financial transfer. In Myanmar the term “federal” had been restricted and avoided for ages so the terms fiscal federalism and natural resources federalism were replaced with fiscal decentralization and natural resources decentralization with regard to division of competencies over natural resources and revenue transfer between the Union and State/Region governments. It was generally considered that the Union government exercised more control over revenues and natural resources sector with a gradual decentralization to sub-national units from time to time.
In accord with the 2008 Constitution, township general administration departments collect land revenue, royalty and embankment tax via village/ward administrators and transfer to the Union government. The Union ministries collect taxes and duties from respective sectors and also transfer to the Union government. Taxes for Regions or States are collected by the municipal departments in accord with the Schedule 5 of the Constitution. These revenues and funds transferred by the Union government go to the State/Region governments’ budgets. As seen in the Schedule 1, the Union Legislative List of the 2008 Constitution, there can be seen a very long list of taxes and revenues collected only by the Union government. Some reports said that the Myanmar military has spent 20% of the total union budgets every year since U Thein Sein’s regime and increased to 24% in 2019-2020 under the NLD-led government. After the coup of 2021, the military monopolized the resources and its three key pillars namely Ministry of Defense, Ministry of Home Affairs and Ministry of Border Affairs spent 26% of the total Union budgets.
According to the statistics on taxes collected by the Myanmar government ministries, tax revenues collected by the Ministry of Natural Resources and Environmental Conservation (MONREC) were worth MMK 3630.638 million in the 2011-2012 fiscal year, and in the 2014-2015 fiscal year after the Union Taxation Law was enacted, taxes collected by the MONREC increased to MMK 32661.003 million. In 2015-2016, MMK 1.8 trillion was allocated to the State/Region governments. Since U Thein Sein’s regime starting from 2013-2014, the civilian governments have allocated MMK 100 million to each township as the Constituency Development Fund. However, the allocation looked unequal in terms of size and demography of townships.
Revenues from natural resources can be shared either directly or indirectly. Indirect sharing means funding for infrastructure development in States/Regions. Starting from 2015-2016 in Myanmar general fund distribution has been standardized. The standardization criteria have included demography, land area, urban population, median personal income tax, poverty index and average personal GDP. A number of methods for collecting natural resources tax revenues can be applied. There can be division of authority on tax collection between the Union and State governments or the Union government has ultimate power for collecting taxes by a flat rate. In accord with the 2008 Constitution, the Union has power to collect almost all taxes and after the NLD took the office, the Union government continued to collect taxes, but applied a flat taxation. Direct sharing means funding directly from the Union to State/Region governments, or among State/Region governments themselves, or from a State/Region government to the Union government.
Sharing revenues from natural resources means sharing not based on the income from the sales of natural resources, but based on the profit after subtracting the general extraction costs. In federal countries, there are two natural resource revenue sharing patterns: an equal share of all the revenues collected by the States to all the States and more share to the States where natural resources reserves lie. For instance, in Indonesia 70% of the total revenues from oil and gas goes to Aceh. In Myanmar, sharing the revenues from natural resources goes from the Union to State/Regions, and it’s not specifically as the revenues from resources alone, but mixed with other funds.
In federal countries, there are different methods for sharing revenues from natural resources. 70% of the revenues goes to the state where natural resources lie and the remaining 30% goes to the central government. Another method of sharing is first between the national government and the private company, and then the former shares certain percentage to the state, and finally the state shares again from its quota to the area where resources lie. For example, in Myanmar, large scale mining industries are carried out by joint-venture or production-sharing contracts between the respective ministry and private mining companies, and according to such contracts, in coal mining the government gains 30% of the profits and 70% is taken by the private company. Another example of sharing can be seen in jade extraction in Hpa-kant which was joint-ventured by the government and a private company, and Kachin state would receive a share from the percentage gained by the government as revenues, and Kachin state would share some percentage again to Hpa-kant area where jade reserves lie. However, in Myanmar such sharing method has not been in practice. The natural resources policy of the National Unity Government (NUG) said 70% of the revenues from natural resources to the state and 30% to the central government.
There’s also an indicator whether the central government exercises too much power or not in federal countries by looking at which level of government has authority on expenditures of which sectors. And it’s important for federal countries which are rich in natural resources to know whether the federal or the state government has power over natural resources extraction costs. For example, in India, mineral extraction cost is responsible by the central government, but in Canada, special power on extraction costs including legislation and governance is totally devolved to the states.
If the problem concerning benefits from natural resources cannot be solved systematically, it’s hard to overcome and pushes the country into a deeper crisis. Although it can’t be said that armed conflicts in Myanmar were attributed to natural resources, no one can deny these have been a major supporting factor to the fighting. During the length of prolonged conflicts, the military has extracted resources to fulfil their military strategies, and placed the entire economic structure and all revenue sources under their control. Moreover, due to illegal extraction of natural resources during the conflicts, there will be a serious impact of resource depletion.
Since the loss of self-determination until the present day, the ethnic nationalities could enjoy no rights of inclusion to natural resources extraction, and the ultimate control by the central level could create unstoppable negative political and social consequences. Natural resources rich countries, even though some are unitary, devolve the power to local governments on decision-making, management and giving opinions with a consideration of possible mismanagement of natural resources and socio-economy of local communities. A new government coming out in a new political setting should clearly state in the interim documents such as charter or constitution that the local communities from the areas of resources extraction are the original owners regarding natural resources sharing between the central government and its federal units. In federal countries, natural resources revenue sharing of 30% to the central and 70% to the states is a workable agreement. Moreover, power of resources taxation and financial management should also be devolved to the states, and consent and inclusion of local ethnic people should be taken into more serious consideration.
- “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