2017 was a difficult year for Myanmar. The rocky peace process and crisis in Rakhine have complicated the government’s effort to put together a reform agenda following five decades of authoritarian rule. In such a challenging context, it is easy for bureaucratic inertia to set in and for people within government to become more risk averse.
Yet there are pockets of reform that the democratic transition, however nascent, has unleashed. Despite Myanmar’s highly centralized governance system, its municipalities, known as Development Affairs Organizations (DAOs), are free to raise their own revenues and experiment in the way they provide urban services. Once part of the Ministry of Border Affairs, DAOs were decentralized and came under the management of the state/region governments as specified under the 2008 Constitution. This fact about the DAOs is not well known to the public, but having more control over their finances and operations has enabled committed and determined municipal officials in some areas to begin pushing the boundaries of what can be done to improve how their municipalities work.
There are innovations emerging. Municipal staff in Ayeyarwaddy Region, Shan State, and Kayin State, for example, are using mobile app technology to review and input tax and licensing data in real time, producing more transparent tax bills that residents can trust. The data generated is also being used to guide reform of municipal taxes. Some municipalities have introduced water meters to reduce waste and raise revenues. Others are using technology such as Facebook and Viber to improve communication with their residents and to better understand residents’ needs.
However, the unusual freedom DAOs enjoy presents its own set of challenges. Without a Union-level line ministry, DAOs receive little guidance and few opportunities to learn from each other. In January a three-day workshop, organized by The Asia Foundation and the Renaissance Institute, brought together major municipalities from the country’s 14 states and regions, many for the first time. Reforming municipalities presented on the specific problems they faced, such as those related to improving waste management, the solutions they have tried, and the lessons they had for others.
The Asia Foundation and Renaissance Institute (RI), presented new data and analysis to help frame the workshop discussions. This included findings from the Foundation’s 2017 City Life Survey, with its novel insights into what Myanmar urban residents think about tax, and RI’s review of the property tax system in Myanmar.
The property tax system review highlighted the extremely low levels of property tax revenue being collected in Myanmar cities. For example, in Taunggyi, the capital city of Shan State, the typical household pays just Kyat 1,200 each year in property tax – that’s less than the price of four cups of tea. In Yangon the amount is even lower. This is a source of municipal revenue that has not fulfilled its potential contribution to urban development. Municipalities are waking up to this fact and have begun to reform the way property tax is calculated and collected.
The government reform that generated the most discussion at the workshop was Shan State’s pioneering work to reform the country’s regressive business licensing system, which makes widespread use of auctions to grant a limited number of licenses to business. This outdated system is problematic for many reasons. As only a fixed number of licenses are awarded it restricts competition. When a business is the only one in its area, it can get away with charging higher prices or providing lower quality goods and services.
Myanmar’s municipalities have deliberately created a position where businesses are able to make more money from consumers than they otherwise would, so that the government can collect some of this as revenue. This is in part a legacy of the government’s perceived inability to collect taxes directly from citizens. So, while residents pay next to nothing in property tax, they pay for their urban services through this hidden and regressive auction licensing system.
One of the most lucrative auction licenses overseen by DAOs are slaughterhouse licenses, which account for a significant portion of municipal revenues (up to 50 percent in some cities). In a bold move in 2013, city officials in Shan State began abolishing the practice of auctioning a set number of licenses so as to increase competition.
In the new system, almost any business can apply for a license, so long as they meet certain standards related to food safety. License fees are tied to the sale of livestock, so as sales increase, the amount paid to the DAO increases. This switch resulted in falling revenues, at first. While they once made up 44 percent of the Taunggyi’s municipal revenue, that figure is now only 17.7 percent. But they increased overtime as more businesses were allowed to enter the market. According to the Foundation’s report on local economic governance in Myanmar, such competition has encouraged greater investment into livestock and slaughterhouses. The public also benefit from lower meat prices, creating a unique win-win outcome.
Many municipal officials and state/region ministers at the workshop were surprised and questioned whether such an outcome was possible. While the reforms are relatively new, the early signs are promising. As such, several state and region governments have since contacted the Shan State government, wishing to learn more from their experiences.
Stories like this show that reform and experimentation is possible in Myanmar as novel approaches are tested to upgrade municipal revenues and improve urban service delivery. As the Minister for Development Affairs in Chin State argued, municipalities are fortunate to have the authority to make quicker decisions, find their own solutions to problems and be more responsive to local needs.
DAOs have already shown that they can act like ideas laboratories, spread throughout the country, working out how to solve urban problems. Some reforms will work, others will not. To make the most out of this opportunity, three challenges must be addressed. The union and state and region governments must ensure that the space for local level experimentation is protected, that the experimentation is guided towards worthwhile aims and that lessons are shared so that failed reforms in one city are not repeated while successful initiatives can multiply.
James Owen is the economist and Alison Chan is the gender advisor for The Asia Foundation’s governance program in Myanmar. The views and opinions expressed here are those of the authors and not those of The Asia Foundation or its funders. This is an edited version of a piece first published on The Asia Foundation’s blog, InAsia